House Moves on Beneficial OwnershipOctober 16, 2019
Lawmakers are closer to voting on legislation which would require nearly every small-business owner to file new reports and register significant personal identifying information with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) detailing all “beneficial owners” of the company. The Corporate Transparency Act (H.R. 2513) is expected to be considered on the House floor during the next work period, most likely the week of October 21-25.
While this and other related bills are aimed at stemming money laundering and improving transparency of ownership of all U.S. companies, they would create significant unintended consequences with new burdens and complexity for America’s small businesses. NSBA opposes both the Corporate Transparency Act and the Senate’s version of the bill, the True Incorporation Transparency for Law Enforcement (TITLE) Act ( S. 1889), and has created an Action Alert for members to also weigh-in with their lawmakers. Click here for that alert.
Furthermore, the COUNTER Act of 2019 (H.R. 2514), which was approved in a May markup, is expected to be merged with the Corporate Transparency Act, and would update the framework used by federal investigators to combat money laundering. After the two bills are merged into one, it will largely match the NSBA-opposed ILLICIT CASH Act (S. 2563) introduced recently by a bipartisan group of eight Senate Banking Committee members.
Backers hope strong House support for the combined bill in coming weeks will pressure Senate Banking Chairman Michael D. Crapo (R-Idaho), to mark it up this year and Senate Majority Leader Mitch McConnell (R-Ky.), to schedule it on the floor soon after.
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The TITLE Act & Corporate Transparency Act
The TITLE Act and Corporate Transparency Act would amend the Bank Secrecy Act to require an applicant seeking to form a corporation or limited liability company (LLC) to disclose the “beneficial owners” of the entity. The applicant must also file an annual report with the Financial Crimes Enforcement Network (FinCEN) that lists any beneficial owners. The initial filing and the annual reports must include the full legal name of the beneficial owner, his or her date of birth, residential address or business address, and an identification number from either a passport, identification card or driver’s license.
Due to these requirements, NSBA is concerned about the potential for a massive breach of privacy. This new legislation, which grants broad access to personal information could be used by federal, state, local, or tribal law enforcement agencies for just about any reason — and without a subpoena.
The legislation imposes a “look-through” reporting requirement, necessitating small-business owners to look through every layer of corporate and LLC affiliates to identify if any individuals associated with such entities are qualifying beneficial owners. Ownership of an entity by one or more other corporations or LLCs is common. Corporate and LLC shareholders would already have their own independent reporting obligation under this bill to disclose any beneficial owners, making this provision excessively burdensome.
Under the bill, the term “beneficial owner” is vague. Though one determination is objective — one owning “25 percent or more of the equity” of the business — the other two definitions are open for interpretation. Specifically, the bill would include as a beneficial owner an individual who “directly or indirectly…exercises substantial control” over of a corporation or LLC, or “receives substantial economic benefits from the assets” of the entity. The definition of “substantial economic benefit” is defined, but insufficiently clear, and is open to later rulemaking by government officials. Further, rulemaking authority would be given to the Department of the Treasury that could potentially expand the requirements for businesses and, in turn, widen the scope of potential criminal liability.
For NSBA, what is most concerning and perplexing about these bills is that they target small businesses by explicitly excluding businesses that have over 20 employees and more than $5 million in gross receipts or sales. The bill would create paperwork burdens for these small businesses that will be required to comply with the mandates of the bill. Failure to comply with this legislation would be a federal crime with civil penalties of up to $1 million and criminal penalties of up to three years in prison.
For these reasons, NSBA urges you to contact your lawmakers and ask them to oppose the TITLE Act (S. 1889) Corporate Transparency Act, H.R. 2513.