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Trade groups call for delay of ‘burdensome’ CTA reporting requirements

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Dozens of trade organizations from a spectrum of industries, including the Society of Collision Repair Specialists (SCRS), are calling for the delay of legislation they say would subject small businesses to an “overly burdensome and unpredictable compliance regime.”

On Tuesday, a joint trades letter was sent to House Financial Services Chair Patrick McHenry (R-NC), who recently introduced the Protecting Small Business Information Act that would delay the Corporate Transparency Act’s (CTA) Jan. 1, 2024 effective date.

A rule within the CTA would require businesses to disclose to the federal government the names of those who own and run the business. Another rule could lead to jail time for those who share the information without authorization.

“By delaying the Corporate Transparency Act’s (CTA) reporting requirements from taking effect until a robust regulatory framework is put into place, your legislation will help ensure affected businesses are not subjected to an overly burdensome and unpredictable compliance regime,” the letter said.

“The CTA was enacted in 2020 with the stated goal of combatting money laundering, terrorist financing, and other illicit activities. The statute requires the submission of regular reports to the federal government that include a litany of sensitive personal identifiers of the owners and senior employees and/or advisors of covered entities.”

The letter laid out some challenges the CTA will pose for small businesses if enacted prematurely, including that it only applies to businesses with less than $5 million in annual revenue and fewer than 20 employees.

The trade groups said focusing on small businesses would ensure “that the very companies who can least afford the costs associated with compliance are the ones being targeted.”

“The Treasury Department estimates the CTA will cover over 32 million existing entities and an additional 5 million newly-created entities every year,” the letter said. “These companies and other legal entities will be subjected to increased paperwork, privacy risks, and potentially devastating fines and prison terms.”

Another concern relates to how the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has yet to indicate how it will administer and implement the new rules, making it “ill-prepared” to do so, the letter said.

“The agency is also woefully behind in promulgating the key rules necessary to implement the CTA,” the letter said. “Despite a looming effective date… federal regulators have yet to finalize the ‘Access Rule,’ which specifies who can access the database and for what purposes, as well as an updated ‘Customer Due Diligence Rule’ which applies to financial institutions.

“Your legislation offers a commonsense solution to this pending regulatory trainwreck. By delaying the reporting requirements from taking effect until Treasury finalizes its rulemaking process, the Protecting Small Business Information Act would provide tens of millions of law-abiding Americans the certainty they need to comply with the new statute, as well as giving Congress more time to rethink this whole approach.”

The CTA encompasses three planned rulemakings: the due diligence rule, the beneficial ownership information (BOI) rule, and an access rule that specifies who can access BOI information.

In issuing its final rule establishing a BOI reporting requirement last September, the Department of Treasury said it was doing so to “crack down on illicit finance and enhance transparency.”

It will require most corporations, limited liability companies, and other U.S. businesses to report information about their beneficial owners, meaning the people who own or control the company, according to FinCEN.

“For too long, it has been far too easy for criminals, Russian oligarchs, and other bad actors to fund their illicit activity by hiding and moving money through anonymous shell companies and other corporate structures right here in the United States,” acting FinCEN Director Himamauli Das said at the time. “This final rule is a significant step forward in our efforts to support national security, intelligence, and law enforcement agencies in their work to curb illicit activities. The final rule will also play an important role in protecting American taxpayers and businesses who play by the rules, but are repeatedly hurt by criminals that use companies for illegal reasons.”

Final rulings have not yet been established for the due diligence rule, which would require credit unions to obtain the BOI when a new account for a legal entity is opened by a client, or for its access rule.

Last December, FinCEN issued a notice of proposed rulemaking for the access rule, which said the CTA was only permitted to disclose BOI under “specific circumstances” under five categories:

    • “U.S. federal, state, local, and tribal government agencies requesting BOI for specified purposes;
    • Foreign law enforcement agencies, judges, prosecutors, central authorities, and competent authorities (foreign requesters);
    • Financial institutions (FIs) using BOI to facilitate compliance with customer due diligence (CDD) requirements under applicable law;
    • Federal functional regulators and other appropriate regulatory agencies acting in a supervisory capacity assessing FIs for compliance with CDD requirements; and
    • “The U.S. Department of the Treasury (Treasury) itself.”

Recognizing that BOI contains sensitive information, FinCEN said it would protect it from “unauthorized disclosure” by imposing strict access-control protocols and penalty provisions for those that share BOI without authorization.

This includes criminal and civil penalties, including up to 10 years of jail time in some cases.

McHenry introduced two pieces of legislation in June, including the Protecting Small Businesses Information Act, to delay enacting the CTA rules until all of them are finalized. The other proposed bill, the Accountable Through Confirmation Act, would aim to ensure FinCEN remained accountable.

Last month, a bipartisan bill called The Protect Small Businesses and Prevent Illicit Financial Activity Act was introduced by other lawmakers to delay FinCEN’s BOI requirements for up to a year to give businesses more time to comply with the requirements.


Featured image: jdwfoto/iStock

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