Earlier this week we covered the latest effort in Congress to make things right when it comes to the Corporate Transparency Act. That starts with deleting the beneficial owner database that’s not just unnecessary but actively puts millions of Americans’ sensitive information at risk.
Thanks in large part to Congressman Warren Davidson, who chairs the Financial Services Committee’s Subcommittee on National Security, Illicit Finance, and International Financial Institutions, we now have a bit more clarity on where things stand. At a hearing convened Tuesday, FinCEN Director Andrea Gacki offered the following response to a question from the panel:
Along with the resolution of this rule, we also intend to resolve questions around the data that we have collected, and dispose of data that is no longer legally required.
That statement comes on the heels of a letter sent by several dozen federal lawmakers calling for a data purge, and is the first time FinCEN has confirmed they’ll comply with the request.
In terms of the rule referenced by Director Gacki, readers will recall that FinCEN in March issued interim regulations that narrow the scope of the CTA’s reporting requirements to apply only to foreign entities and non-US citizens. Here’s Chair Davidson describing that action:
I want to highlight Beneficial Ownership disclosure. It seems that you’ve made a decision to collect information on US citizens differently than you do about non-citizens. And I think that’s important because our constitution limits the ability to presume that someone is guilty of a crime – you’re supposed to have probable cause and a warrant to get information from them. The beneficial ownership [rules] as drafted under the previous administration basically assumed every business was engaged in illicit finance.
That interim rule provided much needed relief and guidance to more than 30 million entities covered under this onerous statute, but still needs to be finalized. When can we expect that process to wrap up? Here’s Director Gacki again:
We intend to finalize this rule in the upcoming year – that’s our public commitment. We’re making sure we have administration guidance, and are working through a number of comments that we received to the interim final rule.
But what if there was a better approach to all of this that doesn’t rely on tweaking the flawed CTA statute? Congressman French Hill, who chairs the full committee, offered his thoughts:
Isn’t there a better way than creating a new database that can be breached or hacked…for 32 million small businesses? Every heating and cooling repairman out there with a truck and three employees is going to be captured by this. I think there’s a better way, which is simply using the existing Form 1065, which every pass-through entity has to file, and the resulting K-1s that are issued. And let me say in front of the whole committee: why was that not treated as a real possibility?
Number one, Ways & Means and Treasury said, we don’t want any more exceptions to sharing IRS data. Well, there are 35 or so now. And if this is so essential to national security, why wouldn’t this be a worthy, additional exception? Under the CTA, companies are required to file four key pieces of information – full legal name, date of birth, current address, and a unique identifier. And that’s all available, except for the birthdate, which I think we can figure out. I think this is a better approach.
We couldn’t agree more. The whole point of the CTA was to give law enforcement access to ownership information about illicit activity, not to create a sprawling new database sweeping in every family-owned business and local employer in the country.
So good news on multiple fronts when it comes to Treasury regulations and the database purge. It’s also encouraging to see lawmakers starting to rethink the Corporate Transparency Act from the ground up – not just trimming around the edges of a flawed statute, but exploring what a truly workable approach would look like. That means designing a system that protects Main Street businesses while focusing government resources on bad actors.