Limited liability companies (LLCs) play a crucial role in New York’s business landscape, but it’s time to address the secrecy they provide.
This should not be a contentious issue; it should be something that both political parties can agree on.
Interestingly, on the Republican side, representatives like Rep. Elise Stefanik of Schuylerville have raised concerns about the “over 20 LLCs used by the Biden family,” suggesting potential wrongdoing that has yet to be proven. On the Democratic side, New York Attorney General Letitia James has uncovered fraudulent activities by Donald Trump in relation to the approximately 500 LLCs under his Trump Organization, which could result in the former president and his family being banned from conducting business in New York.
It’s important to note that LLCs are not inherently bad. They offer a cost-effective and legally simple way for individuals in various industries to protect themselves from business debts and risks. Additionally, they may allow for lower tax payments compared to establishing a full-fledged corporation.
The issue lies in the fact that LLCs, which are governed by state laws, can be used for money laundering and evading detection, including from tax and law enforcement authorities. LLCs are commonly utilized in the real estate sector, particularly in expensive areas like Manhattan. In fact, according to the government reform group Reinvent Albany, 37 percent of the city’s properties have hidden ownership through LLCs.
Efforts have been made to address this lack of transparency. At the federal level, the Corporate Transparency Act was passed in 2020 as part of a broader Anti-Money Laundering Act. It requires companies to disclose information about their “beneficial owners,” or individuals who own or control the company. These reporting requirements will come into effect on January 1.
However, the federal act does not mandate full public disclosure. Instead, companies will submit reports to the Financial Crimes Enforcement Network, a bureau of the U.S. Treasury. These reports will primarily be accessible to tax authorities and law enforcement.
In contrast, the LLC Transparency Act, passed by the New York state Legislature this year, takes a crucial step forward. It requires that information about LLCs be maintained in a public database accessible to journalists, watchdog groups, and anyone interested in uncovering the owners of a specific company. This provision could help reveal the true interests, whether domestic or foreign, behind suspicious shell companies and provide recourse for individuals harmed by unethical business practices.
The act, passed in June, is currently awaiting Governor Kathy Hochul’s signature. The Legislature should expedite this process without delay. While it will understandably take time to establish the reporting system and public database, this means that New Yorkers will have to wait a considerable amount of time for LLC transparency. It’s time to sign the bill and set the clock in motion.
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