The Coming Deluge for Small Business
Small businesses are often hit hardest by regulation, and the latest federal dragnet is no exception. Under a statute aimed at reducing money laundering, millions of small businesses may soon be snared by onerous reporting requirements and fines for noncompliance.
In 2021 Congress enacted the Corporate Transparency Act ( CTA) in a broad effort to tighten money- laundering laws. The CTA assigns the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) with identifying shell companies used for illegal transactions and creating a registry of businesses with less than $ 5 million in annual sales and fewer than 20 employees.
That describes most small businesses in the country. In a Nov. 16 letter to Congressional leaders, 69 groups representing millions of small business owners say neither they nor FinCEN are ready for the law to go live in January 2024.
The required data collection is “beyond anything the Federal government has ever attempted outside of the Tax Code,” the small businesses write. FinCEN is expecting to collect 32 million new reports in 2024, and millions each year thereafter. The legislation requires reporting for all “ beneficial owners,” a term that encompasses not only a business owner but anyone with a more than 25% stake in a company.
Most of these small operators are unaware of the reporting requirements that are coming their way in a couple of months, but their ignorance won’t get them off the hook. The CTA includes stiff fines of up to $10,000 and two years of jail time for failing to comply. In November 2022, the National Small Business Association filed suit in federal court in Alabama on grounds that the law violates state sovereignty and due process. The lawsuit says the statute improperly “compels self-identification of private individuals” who engage in “lawful, federally unregulated commercial and non-commercial activity.”
Creating safeguards against money laundering is worthwhile, but the CTA’s overbearing requirements are likely to create more burden on businesses than the transparency will be worth. The law is meant to root out the shell companies that conceal illicit transactions like money laundering for foreign businesses or terrorist financing. But why would criminals self-report this information?
The small business owners have asked that the statute be delayed for a year so they and their regulator can get their acts together. As it currently stands, the government isn’t ready to handle what they are requesting, and small business owners don’t know what they are supposed to provide. Short of cancelling the whole thing, a time-out is the least the feds can do to avoid a national bureaucratic meltdown.
The feds and business aren’t ready for new reporting rules on Jan. 1.
Small businesses are often hit hardest by regulation, and the latest federal dragnet is no exception. Under a statute aimed at reducing money laundering, millions of small businesses may soon be snared by onerous reporting requirements and fines for noncompliance.
In 2021 Congress enacted the Corporate Transparency Act ( CTA) in a broad effort to tighten money- laundering laws. The CTA assigns the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) with identifying shell companies used for illegal transactions and creating a registry of businesses with less than $ 5 million in annual sales and fewer than 20 employees.
That describes most small businesses in the country. In a Nov. 16 letter to Congressional leaders, 69 groups representing millions of small business owners say neither they nor FinCEN are ready for the law to go live in January 2024.
The required data collection is “beyond anything the Federal government has ever attempted outside of the Tax Code,” the small businesses write. FinCEN is expecting to collect 32 million new reports in 2024, and millions each year thereafter. The legislation requires reporting for all “ beneficial owners,” a term that encompasses not only a business owner but anyone with a more than 25% stake in a company.
Most of these small operators are unaware of the reporting requirements that are coming their way in a couple of months, but their ignorance won’t get them off the hook. The CTA includes stiff fines of up to $10,000 and two years of jail time for failing to comply. In November 2022, the National Small Business Association filed suit in federal court in Alabama on grounds that the law violates state sovereignty and due process. The lawsuit says the statute improperly “compels self-identification of private individuals” who engage in “lawful, federally unregulated commercial and non-commercial activity.”
Creating safeguards against money laundering is worthwhile, but the CTA’s overbearing requirements are likely to create more burden on businesses than the transparency will be worth. The law is meant to root out the shell companies that conceal illicit transactions like money laundering for foreign businesses or terrorist financing. But why would criminals self-report this information?
The small business owners have asked that the statute be delayed for a year so they and their regulator can get their acts together. As it currently stands, the government isn’t ready to handle what they are requesting, and small business owners don’t know what they are supposed to provide. Short of cancelling the whole thing, a time-out is the least the feds can do to avoid a national bureaucratic meltdown.
The feds and business aren’t ready for new reporting rules on Jan. 1.
