Law Office of Charles W. Cope, PLLC | U.S. Announces National Action Plan on Preventing the Misuse of Companies and Legal Arrangements
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  • U.S. Announces National Action Plan on Preventing the Misuse of Companies and Legal Arrangements
    June 2013
    On June 18, 2013 the Obama administration published the “U.S. National Action Plan on Preventing the Misuse of Companies and Legal Arrangements.”[1] The purpose of the U.S. action plan is to combat the criminal misuse of business entities by enabling law enforcement and tax authorities enhanced access to beneficial ownership information of business entities.
    The action plan was published in connection with the G-8 summit meeting held in Lough Erne, Northern Ireland on June 17th and 18th, which President Obama attended.  In June, the G-8 also published an action plan on preventing the misuse of companies,[2] and the OECD published a report entitled "A Step Change in Tax Transparency,” which advocates a common framework for exchange of information along the lines of the Model 1 IGA[3]
    The U.S. action plan states that the Treasury Department along with other federal agencies “will continue to advocate for comprehensive legislation on beneficial ownership.” The action plan states that such legislation should include, inter alia,: (i) requirements for covered legal entities to disclose beneficial ownership to states or regulated corporate formation agents at the time of company formation, (ii) requirements for verification of the identity of the beneficial owner, (iii) requirements for law enforcement authorities to have access to beneficial ownership information, (iv) a mandate that entities provide updated beneficial ownership information when a change in beneficial ownership occurs, and (v) civil and criminal penalties for knowingly providing false information.
    At this time the Obama administration has not proposed legislation that would implement the U.S. action plan. Under current federal income tax law, the federal government does require self-reporting of beneficial ownership in the case of some foreign owned corporate entities.[4]  The action plan is, however, more ambitious in terms of its scope and would not rely on self-reporting.
    Business entities (e.g., corporations and partnerships) typically are formed under state law. Any such legislation, therefore, would present challenges, including addressing the variation in corporate and partnership law among the 50 U.S. states. Although the action plan probably is not a hollow gesture on the part of the Obama administration, the process of building the consensus necessary to enact the legislation is likely to take at least several years.
    [1] http://www.whitehouse.gov/the-press-office/2013/06/18/fact-sheet-us-national-action-plan-preventing-misuse-companies-and-legal
    [2] https://www.gov.uk/government/publications/2013-lough-erne-g8-leaders-communique
    [3] http://www.oecd.org/ctp/exchange-of-tax-information/taxtransparency_G8report.pdf.  We discussed the Model 1 IGA in our January 2013 column on recent FATCA developments.
    [4] See Form 5472 (Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business), Part II..