Just when Main Street thought it was finally free of the Corporate Transparency Act, the law’s proponents are back for another bite at the apple.
Last week, a coalition of 21 states and the District of Columbia sued the Treasury Department, seeking to overturn the Trump administration’s decision to exempt domestic businesses from the CTA’s onerous beneficial ownership reporting requirements. If successful, the lawsuit could force more than 30 million Main Street businesses back into a reporting regime that threatened them with steep penalties for failing to file paperwork with the federal government.
The states claim Treasury exceeded its authority by exempting domestic businesses. Sound familiar? As we wrote last March, Senators Sheldon Whitehouse and Chuck Grassley raised the same objection at the time. The problem with that argument is Congress expressly granted Treasury the authority to exempt businesses from the CTA. Here’s what the statute says:
(xxiv) any entity or class of entities that the Secretary of the Treasury, with the written concurrence of the Attorney General and the Secretary of Homeland Security, has, by regulation, determined should be exempt from the requirements of subsection (b) because requiring beneficial ownership information from the entity or class of entities—
(I) would not serve the public interest; and
(II) would not be highly useful in national security, intelligence, and law enforcement agency efforts to detect, prevent, or prosecute money laundering, the financing of terrorism, proliferation finance, serious tax fraud, or other crimes.
Congress wrote this authority into statute, and supporters of the CTA voted for that law. They may not like how Treasury exercised its discretion, but disliking the outcome isn’t a sound legal argument.
Also troubling is the fact that the states are seeking to block Treasury from deleting the millions of beneficial ownership reports already sitting in FinCEN’s database. As we pointed out, roughly 16 million domestic entities submitted reports before Treasury corrected course. Those filings contain sensitive personal information on potentially millions more law-abiding Americans, including names, home addresses, birth dates, and identifying information from passports and driver’s licenses. Keeping that database intact unnecessarily exposes those individuals to the risk of a data breach or misuse, long after the government has determined they shouldn’t have been required to report in the first place.
The CTA was bad policy from the start, imposing enormous costs and privacy risks on legitimate businesses while doing little to deter actual criminals. Treasury was right to provide relief and right to move forward with the database purge. Congress should finish the job by repealing the CTA outright, rather than allowing its supporters to drag Main Street back into a regulatory nightmare.