Overshadowed by the towering buildings that make up “Billionaires’ Row,” a united force of lawmakers, union members, housing groups and other advocates held a rally in Manhattan on September 27, urging Gov. Kathy Hochul to sign the LLC Transparency Act.
Led by Senator Brad Hoylman-Sigal, D-Manhattan, who is the main sponsor of the Senate bill, and Assemblywoman Emily Gallagher, D-Brooklyn, the sponsor of the Assembly bill, the rally served to bring the LLC Transparency Act to the public eye and call for Gov. Hochul’s approval.
The bill’s main goal is to shine light on predatory companies, which can stay anonymous by taking advantage of New York’s limited liability laws. When filing and operating as an LLC, business owners and organizations can own properties under shell companies, effectively creating a layer of financial and legal protection. Simply, they can reap all the benefits, like lenient taxes and avoiding direct liabilities, all while staying anonymous.
At the rally in Midtown Manhattan, Hoylman-Sigal told the crowd “We’re here to call for the enactment of the LLC Transparency Act…that’s going to require the shady LLCs to disclose their beneficial owners to New York state and create what we all deserve: a public database with appropriate privacy protections, that is going to help law enforcement, tenants, who are cheated out of their homes, workers, who are cheated out of wages and our public media, to finally uncover who is responsible for the secretive businesses.”
By hiding behind their shell companies, businesses are able to perform illicit activities, such as money laundering through real estate transactions, dealings in narcotics and wage theft. Hoylman, Gallagher and supporters of the legislation say that abusers of the state’s LLC laws use tactics like filing LLCs under layers of more LLCs and trusts.
This not only keeps them hidden, but nearly impossible to track down for the average person, who is more often than not the victims of secretive LLCs. Often, tenants find that they do not know their landlords and cannot track them down.
“Secret LLCs have only been around [New York] a few decades, but in a short period of time, they have become the tool of choice for tax cheats, wage thieves, slumlords, drug traffickers and money launderers,” Gallagher said at the rally.
The site of the rally, 111 W. 57th Street, serves as a prime example of predatory LLC practices. Home to Steinway Tower, the location was a former job site for Parkside Construction LLC, which “cheated more than 500 construction workers out of $1.7 million in wages and evaded nearly $8 million in workers’ compensation premiums,” Hoylman-Sigal reported. Parkside was indicted and eventually pleaded guilty. As such, groups like the NYC District Council of Carpenters were in attendance, advocating for the bill’s passage, on behalf of their workers.
Parkside Construction is not a statistical anomaly, either. Secretive LLCs have been becoming increasingly more common, especially in Manhattan.
According to Reinvent Albany, a nonprofit government watchdog organization, compiled data and discovered that 37 percent of Manhattan businesses operate as LLCs, which is three times the state average. Combined with the fact Manhattan is home to many of the world’s largest corporations, many anti-corruption agencies like Reinvent Albany have raised eyebrows at the hidden one-third.
Hoylman-Sigal’s and Gallagher’s bills, which were passed by the New York State Legislature in June, require the disclosure of “beneficial owners,” a position in which an entity benefits from ownership privileges of a property, despite the property being owned under a different name. The reporting companies must file the identities of beneficial owners with the Department of State.
Under the LLC Transparency Act, beneficial owner is newly defined as, “a natural person who, directly or indirectly, holds a membership interest in a limited liability company; exercises substantial control over the the decisions of a membership interest in a limited liability company; or has been assigned a membership interest in a limited liability company.
By identifying and filing direct and indirect owners to the public record, the act serves to shine light on all significant beneficiaries and decision makers in LLCs. Additionally, the bill excludes certain persons from being named as beneficiary owners, such as as a minor child; “a person acting solely as an employee of a limited liability company” whose economic benefit or control relies solely on their employment status; or a creditor of a limited liability company, unless the creditor meets prior requirements. A strictly defined beneficial owner allows for a clearer picture of ownership and prevents underhanded tactics that hide significant ownership.
With the bill’s passage in the New York State Legislature, advocates are pressing for Gov. Hochul’s signature. She has until midnight on Dec. 31. They argue secretive LLCs are unable to be held accountable and have the ability to partake in criminal activity and need to be stopped.
The amendments to the LLC laws part of the Transparency act serve only to unmask illegal activities. “If you’re using an LLC for legitimate purposes, you have nothing to fear from this law,” said Assemblyman Alex Bores, D-Manhattan.