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A03484 Memo:

submitted in accordance with Assembly Rule III, Sec 1(f)
SPONSOR: Gallagher
  TITLE OF BILL: An act to amend the limited liability company law and the executive law, in relation to the disclosure of beneficial owners of limited liability companies   PURPOSE OR GENERAL IDEA OF BILL: This bill aims to end the practice of anonymous ownership of limited liability companies in New York by defining beneficial ownership, requiring the disclosure of the identities of beneficial owners upon company formation or registration, and publishing beneficial owners of limited liability companies in New York's publicly searchable business entity database.   SUMMARY OF SPECIFIC PROVISIONS: Section one is the short title. Section two amends section 102 of the limited liability company (LLC) law to define beneficial owner, initial report, reporting company and exempt. company. Section three amends section 203 of the LLC law to require that LLCs include an initial report, including a list of beneficial owners, with the documents submitted to the Department of State when organizing an LLC in New York State. Exempt companies must indicate which exemption(s) they are claiming against their obligation to file such initial report. The exemptions that may be claimed are identical to those promulgated by the federal Treasury Department through regulation. Section four amends section 211 of the LLC law to require that updates and corrections to information required in an initial report are filed with the Department of State. Section five amends the LLC law to create a new section, 215, that enumerates the information that must be disclosed by an LLC when identi- fying one of its beneficial owners. The list of items is identical to the information that must be disclosed to the Treasury Department pursu- ant to federal law. Section 215 also permits an LLC to file an identical copy of the report it filed with the Treasury Department with the New York Department of State in order to satisfy state reporting require- ments. Sections six, seven, and eight make the same changes as sections three, four, and five above, but as applied to foreign limited liability compa- nies, by amending sections 802 and 804 of the LLC law and adding a new section, 810. Section nine requires that the secretary of state maintain a publicly available database on its website for each business entity organized in New York. The data base must include, among other things, the name of the business entity, the current business street address and county associated with each business street addreSs, and the full name(s) of each beneficial owner. The Secretary of 'State is required to establish rules and regulations to allow beneficial owners to apply for confiden- tiality waivers. Section ten is the effective date.   JUSTIFICATION: Limited liability is a legal privilege conferred upon an individual by the state, and the receipt of such privilege should be conditioned on the identification of the individual benefiting from it. Permitting anonymous limited liability companies to do business in New York was a public policy mistake that deserves correction. Anonymous corporate ownership has proliferated since the 1990s and has contributed to numer- ous problems. Anonymous shell companies are used to bypass sanctions, avoid taxes, fund terrorist organizations and organized crime, and laun- der money. Anonymous LLCs leasing real property are correlated with more numerous code violations, higher rents, and more evictions compared to non-corporate owners. Drug and human traffickers use anonymous shell companies like LLCs to launder the proceeds of their criminal activities and evade detection. Deed theft, campaign finance violations, and bid rigging can be facilitated by anonymous LLCs. Anonymous LLCs hamper routine code enforcement, burdening local governments. Meanwhile, the anonymous ownership of a significant portion of real estate in New York hampers policy-making and upends centuries of precedent by obscuring the answer to the question: who owns what? In response to exposes such as the Panama Papers and the Pandora Papers, which highlighted the massive, global nature of illicit activity fostered by anonymous shell companies like LLCs, the UK, European Union, Australia, New Zealand, Canada, and over 100 countries worldwide are creating registries of the beneficial owners of corporate and legal entities, many of them public. In 2021, the federal government passed the Corporate Transparency Act, which requires the Treasury Department to collect beneficial ownership information from corporations in a private, government database. Unfortunately, the inaccessible nature of the new federal database means that this information will serve no use for civil society or local government in New York, denying New Yorkers the many benefits that beneficial ownership transparency offers. This bill builds on previous efforts to require the disclosure of LLC members and managers involved in real estate transactions in New York. The bill adopts the same standards promulgated by the Treasury Depart- ment pursuant to the Corporate Transparency Act and requires that the same information also be filed with New York's Department of State. Companies subject to the federal government's reporting requirements may submit a copy of their federal registration to New York's Department of State in order to minimize the burden of such reporting. To protect genuine privacy interests that some individuals may have, a waiver proc- ess is created, with specific protections for whistleblowers using LLCs to file false claims act lawsuits and individuals participating in an address confidentiality program.   PRIOR LEGISLATIVE HISTORY: A9415 / S8439 (2022) - died on third reading.   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.
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