WASHINGTON — As banks face a growing list of requirements aimed at stamping out money laundering, they may benefit from a legislative proposal that would shift some of that burden to the 50 states.
Legislation championed by Democratic Sen. Carl Levin would require the states to collect information showing which individuals ultimately own corporations that are formed within their state lines. Such data, known as beneficial ownership information, can be critical to money-laundering and tax evasion investigations.
The proposal has met resistance from the 50 secretaries of state, particularly those in states that derive a lot of revenue from registering corporations, as well as from the U.S. Chamber of Commerce and from lawyers whose business clients often want to protect their anonymity.
But the bill has the support of law-enforcement officials, who say it would provide an easier way to track down criminals, and the Obama administration.
So far, the banking industry has not taken a public stand on the legislation, though bankers acknowledge its potential benefits. In the coming months, industry officials will face a choice between endorsing the legislation and remaining on the sidelines.
Heather Lowe, director of government affairs for Global Financial Integrity, an advocacy group that works to curtail illicit financial flows, said that the legislation's supporters hope that financial institutions will join their side.
"Honestly I have not heard of any opposition to this that comes from the financial institutions," she said. "We really think that they would be fantastic allies."
The Senate bill would require the 50 states, either directly or through state-licensed registration agents, to obtain information on the beneficial ownership of corporations. The states would have to turn over the information to law-enforcement officials who provide a subpoena or a summons.
The bill would also establish penalties for corporations that submit false information, and provide $30 million to the states to fund their efforts to comply with the law.
The Senate legislation is co-sponsored by Levin and Sen. Charles Grassley, an Iowa Republican, while a separate House version is sponsored by Democratic Reps. Barney Frank, Carolyn Maloney and Stephen Lynch.
Among the legislation's most outspoken opponents is the Delaware Division of Corporations. In Delaware, incorporations account for roughly one-quarter of total state revenue.
Rick Geisenberger, Delaware's chief deputy secretary of state, denied that his office's position on the bill is motivated by concerns that it would cut into state revenue.
"I categorically disagree with it," he said. "The idea that we're saying that we think businesses get created for the purpose of secrecy, you know, I think businesses get created for the purpose of doing business."
Geisenberger argued that responsibility for combating money laundering properly rests with banks, rather than state governments.
He noted that the act of forming a business entity does not constitute money laundering. Once the business entity is used to make an illegal transaction, the banking system is involved.
"And that's the point at which there should be an obligation to know who has the dollars, and that's the obligation banks have today," Geisenberger said.
He also argued that the Internal Revenue Service already collects information on the beneficial owners of corporations. He acknowledged the existence of tight restrictions on the release of tax information, but said that if law-enforcement officials need easier access to that information, the law should be changed to allow them to get it from the IRS.
But the legislation's supporters say that idea is unworkable, given the strong support in Congress for tax privacy.
The legislation's potential benefit to banks involves the obligations that financial institutions have under federal anti-money laundering rules. Today, banks must take steps to obtain beneficial ownership information for private banking accounts and for correspondent accounts with certain foreign financial institutions.
For other types of accounts, banks currently have less explicit obligations. But just last week, the Financial Crimes Enforcement Network, or Fincen, gave banks notice that it intends to write clearer rules.
Banks have until May 4 to file comments on the notice. The comment period also gives the banking industry another opportunity to weigh in on the legislative proposal.
The legislation could make it significantly easier for banks to meet their obligations under Fincen's new rules.
For example, if a bank were able to ask a business customer to provide a copy of the beneficial ownership information it provided to the state where the business was incorporated, that would simplify the compliance process for banks.
Robert Rowe, vice president and senior counsel at the American Bankers Association, acknowledged the legislation's potential upside for banks.
"I think most banks, if there was an easy way to verify the information, they'd welcome it," he said. "But without government registries, there is no easy way to verify the information."
But questions remain about the legislation's full impact, Rowe said, and banks are hesitant to wade into a dispute between the federal government and the states.
"You hit that federal-state constitutional issue," he said.
