Both sides of the aisle agree unanimously that finance laws must keep up with global criminals who participate in money laundering, drug dealing, human trafficking, and other forms of moving money illegally. For more than a decade, legislators and regulators have been debating how best to combat illicit finance activities, but once again, in classic Washington-knows-best fashion, the stakeholders directly affected by new regulations are being left out of the conversation: small business owners.
This week, the House will vote on, the Corporate Transparency Act, which has a laudable goal but carries unintended consequences that could ultimately put innocent mom-and-pop business owners in jail. As a former Arkansas entrepreneur and community banker, I cannot support this legislation as currently proposed.
The main idea behind the Corporate Transparency Act is to strengthen the mechanism for collecting beneficial ownership information from business owners with fewer than 20 employees. A beneficial owner is an individual who enjoys the benefits of ownership of a property without going on the record as being the owner. The ability to set up legal entities hiding accurate beneficial ownership information has long represented a key vulnerability in the U.S. financial system. That said, U.S. banks are required to “know their customer” and that includes collecting beneficial ownership data for loan and deposit customers.
The sponsor of the Corporate Transparency Act, Rep. Carolyn MaloneyCarolyn MaloneyHouse passes bill to expand workplace protections for nursing mothers House Oversight Democrats ask NFL for information from investigation into Washington Football Team New York City helicopter complaints skyrocket MORE (D-N.Y.) and I agree that knowing where money is coming from, where it is going, and in whose hand it sits is vital to U.S. national security. The problem is that Maloney’s legislation creates a new regulatory regime within the Financial Crimes Enforcement Network (FinCEN), a law enforcement unit which most small businesses have never heard of. If most business owners don’t know what FinCEN is, how are they supposed to know how to comply with their burdensome regulations? According to the National Federation of Independent Businesses, the Corporate Transparency Act would force entrepreneurs to spend $5.7 billion and 131.7 million work hours over a ten-year period to comply with the new regulations. Even more alarming, businesses failing to comply with this bill could face a penalty of up to $10,000 and a prison sentence of up to three years.
I believe there is a smarter path forward, reflected in my legislation that creates a better working solution for all parties involved. My version, originally introduced as an amendment earlier this year, would direct the Treasury Department to create a new rule to tie beneficial ownership information collection to the regular, well-understood IRS tax filing regime. I have long supported aligning tax filings with collection of beneficial ownership information because small businesses are already familiar with filing taxes, disclosing their company owners, and making declarations about the business to the IRS.
We can all agree that closing off access to illicit financing is a laudable and necessary goal of U.S. law enforcement. I also believe we can agree that collection of accurate beneficial ownership information is a step in the right direction. However, Congress should not continue subjecting small businesses to new, complicated reporting with the threat of exceedingly severe penalties for failure to comply. I hope we might reach a sensible compromise that sees stronger collection without jeopardizing small business.
Congressman French HillJames (French) French HillArkansas legislature splits Little Rock in move that guarantees GOP seats Biden to speak at UN general assembly in person Lobbying world MORE represents the 2nd District of Arkansas and serves on the House Financial Services Committee as the ranking member of the Subcommittee on National Security, International Development, and Monetary Policy.