Bill to Increase Small Biz Reporting

January 10, 2018

Several pieces of legislation pending in Congress would require millions of small businesses to comply with complex and ambiguous “beneficial ownership” reporting requirements. Recently, the House Financial Services Committee Subcommittee on Terrorism and Illicit Finance Chairman Steve Pearce (R-N.M.) introduced a working proposal entitled, the Counter Terrorism and Illicit Finance Act and held a hearing on the discussion draft.

Of particular concern to NSBA is section 9 of this bill, titled “Transparent Incorporation Practices,” which is directed squarely at the smallest businesses – specifically, those firms with 20 or fewer employees would be subject to the rules. Section 9 imposes a new beneficial ownership reporting requirement, meaning that every business in America would either have to file these reports with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) or file a report indicating which exemption applies. In turn, it requires FinCEN to disclose that information to federal and foreign government agencies and financial institutions on request. Any ownership changes would have to be reported within 60 days, and failure to comply could result in fines of up to $10,000 and prison sentences of up to three years.

This new federal regulatory regime created by section 9 of the draft bill, combined with the broad and confusing definition of beneficial owner, would be costly and would impose unreasonable regulations on certain small businesses; permit the government to disclose small-business owners’ personal information to banks and government agencies; and impose harsh penalties for failure to update it.

The bill exempts several groups from this reporting requirement including: publically traded companies, banks, credit unions, broker-dealers, insurance companies, accounting firms, utilities, governments, and tax-exempt organizations. Businesses with more than 20 employees would also be exempt, thus, the bill is solely targeted towards smaller-business owners.

These reports must include their current residential or business street address, and a unique identifying number of the firms’ shareholders or limited liability company members. The unique identifying number must come from a non-expired passport issued by the U.S. government or a non-expired driver’s license issued by a state. Partnerships, limited liability partnerships, business trusts, and associations would be exempt because the reporting requirements only apply to corporations and limited liability companies.

Those opposed have argued that any true money launderer could easily and lawfully avoid this requirement by forming a partnership or business trust, using a larger firm or taking advantage of one of the exempt categories. Essentially, all this bill would do is impose a massive paperwork burden on America’s smallest companies. The bill will do nothing to prevent terrorism or money laundering. Similar legislation has been introduced in the Senate but so far has received little support.

Please click here to view the Discussion Draft language.

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