Beneficial Ownership UpdateJuly 15, 2020
For the past several years, large banks have lobbied Congress to impose a beneficial ownership requirement on small businesses. Their efforts have been unsuccessful so far, but these banks are still trying to find ways to place this burden on small-business owners through legislative measures.
Recently, Senate Banking Committee leaders Mike Crapo (R-Wyo.) and Sherrod Brown (D-Ohio) introduced a beneficial ownership amendment to the 2021 National Defense Authorization Act (NDAA). The NDAA is all but guaranteed to pass Congress, so if the amendment is adopted, small businesses will be forced to comply with a burdensome new regulatory requirement. However, so far, NSBA and our coalition partners have been able to successfully prevent the amendment from being attached to the first Manager’s Amendment to the NDAA, and remain hopeful that despite the Senate considering the NDAA next week on the Senate floor, this amendment will not be included in the final passed bill.
As drafted, the amendment would require most small businesses with fewer than 20 employees and less than $5 million in annual sales — about 12 million firms — to file information about their owners with the federal government. The Senate amendment borrows heavily from two bills that have repeatedly stalled: the House’s Corporate Transparency Act and the Senate’s ILLICIT CASH Act. It includes familiar items, such as a $500 per day civil penalty and a possible jail term for failure to file the proper forms with the federal government.
In addition to the potential paperwork crimes that are proposed in the Crapo/Brown amendment, the database of beneficial owners is concerning. The database will be available to the Department of the Treasury, the Internal Revenue Service, the Attorney General, federal law enforcement, state attorneys general, state regulatory authorities, and foreign law enforcement. No warrant is needed to access information in the database.
While NSBA’s efforts to prevent the Crapo/Brown beneficial ownership amendment from advancing has been fairly positive, a new development has arisen. Rep. Carolyn Maloney (D-N.Y.) has filed her Corporate Transparency Act of 2019 as an amendment to House NDAA. The amendment can be found here. This bill passed the House last October largely along party lines and NSBA strongly opposed it.
Similar to its predecessors, this proposal contains ambiguities that make compliance difficult, and it keeps roughly the same set of exemptions for banks, credit unions, other financial firms, nonprofits, and any business with more than 20 employees and gross receipts over $20 million. This bill has exclusive Financial Services Committee jurisdiction and has zero overlap with Armed Services, and thus is not germane to NDAA in any way. The House is expected to take up NDAA on the floor next week but has yet to announce when Rules will meet on the bill.
A simple alternative to the beneficial ownership proposals would be to allow FinCEN to look at information currently provided to the IRS – something already permitted for certain law enforcement purposes. Essentially, all that would be necessary is for Congress to force two government agencies – both bureaus of the Treasury Department – to share information with each other. Congress can increase the information available to FinCEN in a less burdensome way by requiring the IRS to share beneficial ownership information it regularly collects. Nor would this set a precedent, since the tax code already mandates information-sharing for other government programs such as federal student loans. Creating yet another reporting obligation on hard-pressed small businesses amounts to an unjustifiable overreach. If FinCEN’s estimate of the compliance burden on banks from current reporting rules is anything to consider, this new obligation could cost the average small business anywhere between $125 and more than $1,000. And that’s without the $500-per-day fine for non-compliance, however unwitting.