Just in time for Thanksgiving, Sunday’s Wall Street Journal’s editorial page highlighted our Main Street letter calling for a one-year delay of the Corporate Transparency Act’s reporting requirements. Appropriately titled The Coming Deluge for Small Business, the article reads:
The CTA assigns the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) with identifying shell companies used for illegal transactions and creating a registry of businesses with less than $5 million in annual sales and fewer than 20 employees.
That describes most small businesses in the country. In a Nov. 16 letter to Congressional leaders, 69 groups representing millions of small business owners say neither they nor FinCEN are ready for the law to go live in January 2024.
…The small business owners have asked that the statute be delayed for a year so they and their regulator can get their acts together. As it currently stands, the government isn’t ready to handle what they are requesting, and small business owners don’t know what they are supposed to provide. Short of cancelling the whole thing, a time-out is the least the feds can do to avoid a national bureaucratic meltdown.
As a reminder, federal regulators have yet to finalize two-thirds of the regs needed to implement the new statute – including the “Access Rule,” which specifies who can access the database and any updates to the “Customer Due Diligence Rule” which applies to financial institutions – yet they are plowing forward with plans to begin collecting data en masse starting January 1, 2024.
And while FinCEN regulators claim they are “working hard” to engage with affected small businesses, those efforts are showing little results. A recent NFIB survey found 90 percent of respondents are unaware the new reporting requirements even exist. Given the CTA’s steep civil and criminal penalties, that’s a big problem.
Meanwhile, the authors of this mess sit back and do nothing. Despite bipartisan, bicameral support for a pause, Congress has yet to take action. We expect that will change next year when millions of small business owners realize they face jail time for failing to notify the Feds that their driver’s license has expired, but by then it will be too late. The database will be up and running and its proponents will be on to step two – making the database public.
That means the best chance of stopping this reporting regime may be a lawsuit taking place in an Alabama federal court. The suit was filed by the National Small Business Association a year ago and alleges that the CTA violates fundamental constitutional principles, including protections against unreasonable search and seizure. Oral arguments in the case were held yesterday in what should be the final step before the judge issues a ruling. Again, the goal is to get a favorable ruling before the reporting begins next year. Now that would be something to be thankful for.