Notable Developments

  • S-Corp leads push for CTA delay amendment in NDAA
  • Approps bill with delay language gets veto threat
  • FinCEN notice makes clear CTA is unnecessary
  • Utah business groups file suit
  • Bloomberg misses the point

Legislative Update

The Main Street business community came out in force last week calling on Congress to adopt a one-year delay of the Corporate Transparency Act as part of this year’s National Defense Authorization Act. The effort, led by the Main Street Employer’s coalition and backed by more than 135 of its trade association allies, is in support of a pair of NDAA amendments. As the letter explains:

Amendments sponsored by Senators Tim Scott (#2169) and James Lankford (#2831) would provide the business community and federal regulators additional time to educate millions of small business owners regarding the CTA’s new reporting requirements and the onerous penalties resulting if they fail to comply. They would also allow time for the on-going legal challenge to work its way through the courts while restoring Congress’s original intent to give covered entities a full two years to comply with the statute’s reporting requirements.

The CTA originally was enacted as part of the FY2021 NDAA, so it makes sense to initiate a delay via this year’s version. It’s also worth noting that while the CTA was snuck into the NDAA back in 2020 by Senator Sherrod Brown (D-OH) and others, S-Corp and its allies are being open and transparent about their efforts now.

Click here to read the full trade association letter

Legislative Update (Part 2)

The White House last week issued a “statement of administration policy” that makes clear President Biden would veto the Financial Services and General Government Appropriations Act (HR 8773) if it ultimately lands on his desk in its House-passed form. As we flagged in an earlier alert, that bill included language that would effectively pause implementation and enforcement of the CTA. Here’s the relevant part from the bill summary:

Prohibits funds to be used for the Financial Crimes Enforcement Network to promulgate the beneficial ownership reporting rules that have been found unconstitutional or do not reflect Congressional intent.

And from the legislative text itself:

SEC. 132. None of the funds made available by this Act may be used by the Financial Crimes Enforcement Network to implement or enforce beneficial ownership reporting rules pursuant to division F of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2020 (Public Law 116–283) that have been found by a Federal court to be unconstitutional or do not reflect Congressional intent, including reporting rules for small businesses and homeowners associations.

Finally, here’s the White House response:

Financial Crimes Enforcement Network (FinCEN). The Administration strongly opposes the reduction in funding provided by the bill for FinCEN from the FY 2025 Budget request level. The bill would undermine FinCEN’s implementation of the Corporate Transparency Act, undercutting a critical anti-money laundering initiative and reducing support for the approximately 32 million small businesses that are required to file Beneficial Ownership Information with FinCEN.

The Senate is working on appropriations bills now – in light of this veto threat, it’s highly unlikely we’ll see similar language adopted in their version of the FSGG spending package.

Regulatory Update

In a “notice to customers” issued by FinCEN last week, the agency inadvertently reinforces a point we’ve been making for years now: that the beneficial ownership information required by the CTA is already provided to FinCEN through the banks under existing Customer Due Diligence (CDD) rules.

See for yourself – the table included in the notice is supposed to demonstrate just how different the reporting regimes are, but instead, it merely confirms that they are almost entirely duplicative.

The CDD rules were put into effect just a few years ago and they offer the best means of identifying and stopping illicit financial transactions.   Under the CDD rules, beneficial ownership reporting targets the accounts and transactions where money laundering actually occurs.

The CTA, meanwhile, has no connection to any financial transactions.  Moreover, whereas the banks collecting beneficial ownership information of their account holders are in a position to ensure its accuracy, there is no third-party oversight of the CTA reporting. FinCEN is literally relying on the criminals to accurately report what they are doing.

They won’t, which means the burden of the CTA will fall entirely upon the shoulders of law-abiding small businesses owners and it will be wholly ineffective at targeting money laundering or other crimes.

Legal Update

As Law360 reported this week, “Several small-business associations in Utah became the latest group to challenge the Corporate Transparency Act’s disclosure requirements, telling a federal court Monday the statute violates several constitutional provisions, including the guarantee of due process.”

To recap our latest alert, six other suits have been filed prior to the one in Utah:

  • Massachusetts: BECMA et al v Yellen (5/29/2024)
  • Texas: NFIB et al v Yellen (5/28/2024)
  • Maine: William Boyle v. Yellen (3/15/2024)
  • Michigan: Small Business Association of Michigan et al v. Yellen (3/1/2024)
  • Ohio: Robert J. Gargasz Co., L.P.A. et al v. Yellen (12/29/2023)
  • Alabama (appealed): NSBA et al v. Yellen (11/15/2022)
    • First hearing scheduled for 9/27/2024 before 11th Circuit Court of Appeals

Media Coverage

Bloomberg ran a piece yesterday on the Scott-Lankford amendments and the battle ensuring over possible CTA delay. Entitled “Corporate Pushback Mires US Anti-Money Laundering Disclosures,” it features a litany of quotes from CTA proponents who argue the law is essential and downplay the statute’s pitfalls:

The hope, according to one Treasury official, is to quell businesses’ doubts and preempt concerns that could later motivate legal action…But once businesses see the form, they’ll realize: “It’s maybe even faster than filing out my kids’ summer camp forms,” the official said.

“A judge sitting in a courtroom hearing a complaint from somebody about unnecessary burdens of bureaucracy, who knows absolutely nothing about the way of the international criminal world, and doesn’t appreciate the extent to which our mortal enemies overseas support themselves through this dark economy, is going to miss the key part of the equation,” [Senator Sheldon] Whitehouse said.

…“If you have a speed limit, but then you don’t apply it to certain cars, then all those cars are going to turn instantly into speeders and it’ll be dangerous. Some rules just have to be the rules,” Whitehouse said. “It requires information that you can fill out, for most people, in 15 minutes.”

Notably absent is the perspective of small business owners. That last quote is especially disingenuous – the CTA has more than 23 exemptions covering numerous industries and millions of businesses. It literally exempts large businesses and targets small ones. And while initial compliance may be easy for some filers – for others it will require hiring people – what is not easy is remembering under the penalty of jail to keep everything updated within 30 days of any change. Nor is knowing whose information gets reported – FinCEN’s definition of beneficial owner is unconstitutionally broad.