The Senate this week will debate an amendment to require private companies to annually report the personal information of their owners to the Financial Crimes Enforcement Network (FinCEN) at the Department of Treasury, or face large fines and multi-year jail sentences.

The amendment — sponsored by Senate Banking Committee leaders Mike Crapo (R-ID) and Sherrod Brown (D-OH) – mirrors the Corporate Transparency Act of 2019 that passed the House last fall.  If it passes the Senate as part of this year’s Defense Authorization Act, it is very likely to become law.

The stated goal of the amendment is to crack down on criminals who use shell companies to launder money, but nobody believes terrorists and other criminals will volunteer accurate, detailed information of their criminal enterprises to the Department of Treasury.  Can you imagine Tony Soprano sitting in his kitchen filling out forms identifying the senior members of his crime family and which enterprises they benefit from?

No, real criminals will take a pass, so the burden will fall on legitimate businesses with law-abiding owners instead.  They are the ones who will have to comply with the new annual reporting requirements or face stiff penalties and jail terms.  As the Due Process Institute argued last year:

Creating criminal penalties for paperwork errors will not prevent money laundering or terrorism, which are already crimes. To support the criminalization of this reporting requirement, you would have to accept the premise that those engaging in such crimes—and who have the intention of engaging in such crimes while “hiding behind” a legal entity to go unnoticed—would comply with any legal requirement to disclose themselves. Meanwhile, those attempting to comply in good faith would be providing personal identifiable information to government entities that may then share them with other government entities with little meaningful assurance that their privacy will be properly protected. The draft would impose criminal penalties, including jail time, on small businesses that fail to meet compliance requirements with no real indication that such requirements would curtail international money laundering cartels.

The scale of the reporting alone defies effective law enforcement.  The National Federation of Independent Business estimates these new rules will apply to over five million businesses, while the Congressional Budget Office estimated last year’s House-passed bill would have resulted in 25-30 million new filings to Treasury every year.  There is simply no means for FinCEN or any other government agency to effectively manage and monitor a database that large.

A good measure of the amendment’s lack of seriousness is the long list of industries and entities that are exempt from the reporting requirements, including banks, credit unions, accounting firms, money transfer firms, registered brokers and dealers, investment companies, investment advisors, insurance companies, dealers in commodities, swaps, foreign exchanges and futures, public utilities, pooled investment vehicles, non-profits, political organizations, trusts, and larger corporations, LLCs, and partnerships.  Sarcasm Alert:  Oh no, those types of businesses are never involved in money laundering.

What’s left are all newly formed corporations and LLCs and those existing corporations and LLCs with $5 million or less in revenues, 20 or fewer employees, and a physical presence in the United States.  As noted above, the NFIB estimates that encompasses more than 5 million businesses for starters, but you should expect that number to grow over time.  There’s simply no rationale for exempting partnerships and trusts, for example, and no reason the amendment’s proponents won’t immediately begin advocating for their inclusion once this amendment has passed.

Opposition to beneficial ownership efforts is broad and diverse.  Last fall, nearly fifty national trade groups wrote to Senators Crapo and Brown in opposition to the beneficial ownership provisions included in their Illicit Cash Act (S. 2563).  Signatories included the Farm Bureau, the Restaurant Association, and the National Retail Association.  Other groups opposing the effort include the American Bar Association and the ACLU.

Concerns with the rules include the failure of proponents to demonstrate they will be effective, their redundancy to existing “know your customer” and other reporting requirements, their lack of privacy protections for legitimate business owners, their use of vague key legal terms, and their complexity of compliance for multi-tiered businesses.

If your business or organization would like to join that opposition, please let us know or, better yet, reach out to your Senators immediately.  A vote on this amendment could happen as early as this week.