OPINION:
More than 32 million small businesses are facing potential ruin — not just of their livelihood but also of their personal freedom. By the end of this year, small-business owners and their senior employees must register their personal information with the Financial Crimes Enforcement Network. If they don’t, they’ll face the loss of their business, criminal penalties and even jail time.
Welcome to one of the most backward and burdensome regulations of our time. It’s part of the Corporate Transparency Act, created by Congress in 2021. The first thing to know: Despite the law’s name, this mandate doesn’t apply to any business with over 20 employees. That makes this one of the only mandates in modern history that targets the smallest businesses while exempting the biggest. That’s reason enough for Congress to repeal it: basic fairness.
Why did Congress think this was a good idea? It comes down to big business lobbying. In 2018, the Financial Crimes Enforcement Network required banks to gather the ownership information of their business clients. The goal was to help banks combat money laundering by giving them a better understanding of the true owners of the bank accounts they serve. That way criminals couldn’t use shell companies to hide the money with false names.
The agency required banks to do this because banks are best situated to help clean up dirty money. But after intense lobbying efforts from the largest banks in the world, led by the Bank Policy Institute, Congress decided that this rule was too burdensome. Then, they shifted the burden entirely to the smallest businesses.
This is the reality of the Corporate Transparency Act. The name itself is misleading since it slapped a mandate on Main Street mom-and-pop shops, not Wall Street corporate titans. Regardless, it slipped through Congress because it was crammed into the 2021 National Defense Authorization Act at the last minute. The Corporate Transparency Act was never considered on the Senate floor nor voted on in the Senate Banking Committee.
This mandate can be laid at the feet of just four members of Congress — the previous chairs and ranking members of the House and Senate Armed Services committees. They could have stopped banks from hijacking defense spending to shift a mandate to small businesses. Instead, they let it slide, further burdening Main Street in the economically devastating days of the COVID-19 pandemic and government shutdowns.
Now, Main Street is paying the price. FinCEN estimates the mandate will cost small businesses more than $73.1 billion over 10 years. By contrast, when the banks had to do this reporting, it cost only $1.5 billion. That means the rule is over 48 times as burdensome for small businesses. Main Street pays massively more because small businesses don’t have nearly the same scale or efficiency as Wall Street banks. That’s why the mandate originally applied to banks — because they’re best able to do this work.
This regulation will crush small businesses, either with costs or criminal penalties. The National Federation of Independent Business has found that 83% of small businesses don’t even know the rule exists. That puts them at risk of massive fines or even jail time. They shouldn’t have to fear that, nor should they have to comply with such a burdensome mandate in the first place.
The Corporate Transparency Act must be repealed. It was poorly conceived and poorly written, and it’s already being poorly executed. Congress should save Main Street by immediately passing the Repealing Big Brother Overreach Act, which Rep. Warren Davidson, Ohio Republican, and Sen. Tommy Tuberville, Alabama Republican, introduced this past spring. The last thing that 32 million small businesses need is another costly mandate backed up by the threat of criminal penalties.
• Jeff Brabant is vice president of federal government relations at the National Federation of Independent Business.
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