The wild-eyed response to FinCEN’s recent rollback of the Corporate Transparency Act (CTA) is just the latest example of how some in the media promote an activist agenda at the expense of Main Street.
For those not paying attention, the CTA was a big swing and a miss in the campaign to crack down on the use of shell companies that engage in illicit finance. The idea was to collect better information to reveal the real beneficiaries of money laundering.
The adopted law, however, defined shell companies as every small business in the country. No exaggeration — every small business in America, and many big businesses, homeowners’ associations, and non-commercial operations too. Lost in the process was any effort to distinguish between criminal activities and law-abiding business operations.
Treasury’s announced rule moves in a positive direction. It protects small business owners by limiting the CTA’s reporting requirements to foreign entities and foreign beneficial owners only. Domestic businesses and their owners are off the hook. Moreover, it purges the data of businesses that already sent in their “owners” personal information to FinCEN.
Cue the media meltdown. By way of example, here’s the Atlantic:
This move, which Treasury Secretary Scott Bessent called “a victory for common sense and American small businesses,” effectively undoes years of progress in curbing devious financial networks, both domestic and foreign. It also “delivers a new shelter for wealthy Americans who wish to dodge taxes and move money around undetected.”
Not even close. The reporting for foreign owners and entities remains intact, the CTA has nothing to do with tax enforcement, and “years of progress” translates into a couple months between when the reporting began and when Treasury pulled the plug. Treasury’s anti-money laundering efforts, meanwhile, proceed unabated. This from just today:
Today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) is designating 10 individuals that are part of a network responsible for transferring cash to Hizballah. The network utilizes couriers travelling on commercial airline flights between Lebanon, Turkiye, the UAE, and Iran to move up to hundreds of millions of dollars between jurisdictions, providing an avenue outside the formal financial system for Hizballah to obtain foreign currency and evade sanctions.
Why is Main Street applauding the CTA rollback? The purged data includes the names and addresses of 16 million law-abiding small businesses and other legal entities – yes, sixteen million! — plus the personal information of all their “beneficial owners.” That includes actual owners, sure, but also tens of millions of affiliated decision makers including managers, executives, legal counsel, etc. It’s a massive database that wholly excludes any indicators separating legitimate activities from illicit operations. It also relies on self-reporting, which means Hizballah and other criminals can simply lie on their forms.
That’s the dirty little secret of the CTA. It’s not about tracking illicit financial activities, it’s about consolidating information into an easily searchable database that can be used to target, dox, and otherwise harass the owners and employees of legitimate companies the media doesn’t like. Otherwise, how can proponents explain that the law excludes all the industries necessary to effectively launder money? Banks, accountants, and financial professionals are included in the 23 categories of businesses shielded from disclosure requirements.
In reading the law, it’s easy to get the impression its supporters have no idea what a real shell company looks like. A “shell” is a legal entity and a bank account — no employees, no assets, no insurance, no contracts, nor the regular cash flows that make up legitimate business operations. Nothing to see here until lots of money is deposited into the shell’s bank account and then transferred off in short order. That’s a shell company.
How does the CTA define a shell company? Any corporation or LLC that has 20 or fewer employees and $5 million or less in revenue. As noted, every small business in America. This approach is wholly unconstitutional and useless even if the crooks complied, which they won’t. It is also why the small business community, including contractors, wholesalers, retailers, and farmers, has been fighting this concept for more than two decades.
Another tell. Not one critic raises the most glaring alleged example of Americans using shell companies to hide sketchy cash:
From the thousands of financial records we’ve obtained, we know the Biden family set up over 20 shell companies, engaged in intentionally complicated financial transactions with foreign adversaries, and made a concerted effort to hide the payments and avoid scrutiny,” said Chairman James Comer.
One possible reason for the silence is the CTA database would have offered no useful insight into what was going on. We already know who they are and where they live. We also know, via the Suspicious Activity Reports (SARs) banks are required to file, about the questionable cash flows going in and out of their shell companies.
That’s the last dirty secret of the CTA. Treasury already has the tools necessary to track illicit finance. Unlike the grab bag approach of the CTA, these SARs follow the money and explicitly flag questionable transactions. If Congress wants to improve our anti-money laundering rules, it should build on that approach and follow the money. At the same time, it should repeal the unconstitutional CTA and leave Main Street alone.