PROPOSED NEW RULE FOR LLC DISCLOSURE

The LLC Transparency Act, which was passed by the State Legislature in late June, requires LLCs to disclose the identity of their beneficial owners when they register the company with the New York Department of State. That information would become publicly available in a searchable database. 

BILL NUMBER: S8439B

SPONSOR: HOYLMAN
 
TITLE OF BILL:

An act to amend the limited liability company law, in relation to the
disclosure of beneficial owners of limited liability companies

 
PURPOSE OR GENERAL IDEA OF BILL:

This bill aims to modernize disclosure laws for limited liability compa-
nies by defining beneficial ownership and requiring the disclosure of
beneficial owners.

 
SUMMARY OF SPECIFIC PROVISIONS:

Section one is the short title.

Section two amends the LLC law to define beneficial ownership, exclude
certain individuals from qualifying as beneficial owners, and capture
indirect forms of beneficial ownership, including through trusts and
intermediaries.
              

Section three amends the LLC law to require that a document identifying
the beneficial owners of an LLC be included with the documents necessary
to organize an LLC in New York State.

Section four amends the LLC law to require an amendment to the documents
necessary to organize an LLC in New York State if there is a change to
the beneficial owners of the LLC.

Section five amends the LLC law to create a new section requiring the
disclosure of beneficial ownership and permits the LLC to file a copy of
the same form they file with the federal government.

Section six amends the LLC law to require that a document identifying
the beneficial owners of an LLC be included with the documents necessary
to organize a foreign LLC in New York State.

Section seven amends the LLC law, pertaining to foreign LLCS, to require
an amendment to the documents necessary to organize a foreign LLC in New
York State if there is a change to the beneficial owners of the foreign
LLC.

Section eight amends the LLC law, pertaining to foreign LLCS, to create
a new section requiring the disclosure of beneficial ownership and
permits the foreign LLC to file a copy of the same form they file with
the federal government.

Section nine is the effective date.

 
JUSTIFICATION:

Anonymous shell companies have been exploited as vehicles for money
laundering, tax evasion, organized crime, terrorist financing, and other
forms of corruption for decades. In the United States, the most common
form of a shell corporation is the limited liability company ("LLC"). To
form an LLC, a person needs less personal information than is required
to obtain a library card. The true owners of LLCs can be concealed even
further through trusts and nesting layers of corporate intermediaries,
facilitating money laundering, crime, and tax avoidance as assets become
washed through anonymous legal entities. Billions of dollars from the
illicit gains of international kleptocrats have been washed through LLCs
in the United States, becoming nearly impossible to trace without
tremendous effort. These phenomena have been thoroughly documented by
leaks and investigations such as the Panama Papers in 2016 and Pandora
Papers in 2021.

Anonymous LLCs have also been vehicles for narcotics and human traffick-
ers to launder their illicit profits and escape accountability. The
sociologist Adam Travis has documented an "LLC effect" in housing
markets, which is a statistically significant correlation between code
violations and the prevalence of LLC landlords caused by the combination
of anonymity and limited liability protections. This effect was demon-
strated by a 2019 Senate investigation into housing code violations in
the Hudson Valley.  Anonymous LLCs have also continued to facilitate
campaign finance violations despite recent legislation prohibiting this
practice.

Beneficial ownership transparency, which includes disclosure and public
reporting, is the internationally-recognized gold standard for combating
these forms of crime and corruption. This bill would make New York a
national leader in terms of addressing the public policy problems
created by anonymous shell corporations. This legislation would be a
significant deterrent to corruption, fraud, and organized crime. It
would ease the investigative burden on law enforcement authorities pros-
ecuting financial crimes and the regulatory burden imposed on businesses
required to report the beneficial owners of their customers pursuant to
federal law, such as title agencies and financial institutions. Tenants
would be able to know who their landlord is, researchers and policy-mak-
ers would be better able to understand business and investment patterns
otherwise made opaque by LLCs, and the government would be able to veri-
fy the beneficial owners of LLCs involved in procurement processes.

 
PRIOR LEGISLATIVE HISTORY:

This is a new bill.

 
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:

To be determined.

 
EFFECTIVE DATE:
This bill is effective 365 days after becoming law, provided however
that the repeal, amendment, or enactment of any rule or regulation
necessary to effectuate the meaning or purpose of this law on its effec-
tive date is authorized to be made or completed before its effective
date.