Congress has passed an anti-money laundering law. Interest groups are still fighting it.
Three years ago, when Congress passed an anti-corruption law intended to help combat money laundering through shell companies, it received bipartisan support.
Senator Sherrod Brown, Democrat of Ohio, called it “way overdue.” Senator Marco Rubio, Republican of Florida, called it an “important provision” that would help law enforcement agencies tackle human trafficking and terrorist financing.
Now, just weeks before a central aspect of the Corporate Transparency Act takes effect, it is under attack from advocacy groups and ideological foes who say it will not work as intended and will place too great a burden on tens of millions of small businesses. .
The intense opposition underscores a little-recognized element of the way Washington works: Passing a law doesn’t always end the fight over divisive issues.
Once a bill becomes law, its implementation is often transferred to a government agency. That body can then spend years determining the details of how the legislation should be applied, leaving room for more lobbying, lawsuits, and other actions that could reform the law in meaningful ways.
In the case of the Corporate Transparency Act, the Ministry of Finance is responsible for implementation. The department is under pressure to overhaul its approach by small business and financial trade groups, which object to the costs and bureaucratic complexity it says it would entail.
The intent of the law is to discourage money laundering or the channeling of money to terrorist groups by exposing who is behind companies set up or used for these purposes. It exempts most large companies, whose ownership is already fairly well documented, but imposes some new reporting requirements on many small and newly formed companies.
A small business group is suing Treasury Secretary Janet L. Yellen over her agency’s interpretation of the law, calling it unconstitutional. Senior Republicans in the House of Representatives and the Senate have suggested delays.
At issue is the law’s definition of a reporting requirement known as “beneficial ownership” – or who actually owns or controls companies.
Below the Business Transparency Actbeneficial owners are defined as shareholders who own 25 percent or more of a reporting company. But they are also defined as individuals with “substantial control,” such as decision-making authority, over a company.
Beneficial owners must submit their name, address, dates of birth and current identification information (such as a passport or driver’s license) as part of their application. Their information could later be shared with banks and law enforcement agencies, although the rules for third-party access have not yet been finalized.
The Treasury Department’s Financial Crimes Enforcement Network spent nearly two years translating the beneficial ownership provision into clearly defined guidelines. It is actively working on other elements of the law.
The regulatory process took place against the backdrop of Russia’s invasion of Ukraine in 2022 and Hamas’s attacks on Israel in October – two events that have increased the urgency of combating money laundering and terrorist financing. Dozens of other countries, including major economies such as Britain, France and Brazil, require beneficial ownership reporting; many others are imposing new requirements, according to Open Ownership, an organization that helps governments implement and refine beneficial ownership registries.
Transparency groups and their supporters in Congress say the lack of a registry in the US has made the country a global outlier for years.
“It’s been a long road to get to this point,” said Senator Sheldon Whitehouse, Democrat of Rhode Island. “As our bill becomes law, I hope that America will no longer be the easiest place in the world for criminals and kleptocrats to stash illicit money.”
But the battle over the best way to achieve that goal is still fierce — more than 13 years after Carolyn Maloney, then a member of Congress from New York, first proposed a version of the law. (It took six different iterations and more than a decade for the bill to pass.)
Small businesses are leading the charge. They say the new disclosure requirements are confusing and potentially expensive.
Sixty-three percent of respondents to a recent survey among small businesses conducted by the National Small Business Association reported that they were “somewhat” or “extremely concerned” about the Corporate Transparency Act’s new disclosure requirements – even though 47 percent of respondents had “no idea” what the act even entailed.
“This massive lack of understanding is a huge red flag,” the study said.
The group has encouraged its members to call their representatives in Congress to express their concerns about the new reporting requirements. The American Bankers Association, which represents banks of all sizes, and the American Institute of Certified Public Accountants have also lobbied lawmakers to delay or change the current Treasury Department rules.
They have found sympathizers in Representative Patrick T. McHenry, the North Carolina Republican who chairs the House Financial Services Committee, and Senator Mike Rounds, the South Dakota Republican who serves on the Senate Banking Committee. Both lawmakers have introduced bills to delay the rollout of the beneficial ownership requirement, arguing that more time and clarity on the Treasury Department’s final rules are needed to protect small businesses and their information.
To get the small business message across, Todd McCracken, president and chief executive of the National Small Business Association, and his board found a small real estate investor and manager in Huntsville, Alabama, to help the group sue the government for the new measure. regulations.
The property manager, Isaac Winkles, is now a co-plaintiff in the association’s federal lawsuit against Ms. Yellen, her agency and the former acting head of the Treasury Department’s Financial Crimes Enforcement Network, known as FinCEN. Mr Winkles predicted that complying with the new disclosures would be costly for his business and said it had already caused problems in obtaining credit from his local banks.
“Are they trying to drive these small business owners away?” Mr. Winkles asked in a recent interview. “There are certainly other ways to get that information other than once again imposing an unnecessary burden on small businesses.”
A spokesman for the Justice Department, which is defending Ms. Yellen and her office in the lawsuit, declined to comment.
On Nov. 20, attorneys for the small business association and the Justice Department argued before Judge Liles Burke in U.S. District Court in Huntsville over whether the new rules had actually harmed Mr. Winkles and other small businesses and whether they should remain in their current form be constitutional.
Judge Burke promised to take action “as quickly as I can.”
Andrea Gacki, the director of FinCEN, acknowledged the tensions inherent in the implementation of the Corporate Transparency Act.
“This is really all about dealing with the continued exploitation of anonymous companies to hide and launder money,” she said in a recent interview. “FinCEN has had to balance the dire national security imperative to get this right” and its effect on small businesses, she added.
FinCEN plans to roll out more resources to help companies understand beneficial ownership reporting measures and their deadlines, Ms. Gacki said. (The department has already gone live with a small business of 56 pages compliance guide and a long one web page list of frequently asked questions, packed with detailed answers and decision tree images.)
Despite the legal and legislative challenges, Ms. Gacki said, “we are not voluntarily considering delay.” She declined to comment on the lawsuit.
Supporters of the law say the criticism is exaggerated.
“There has been a lot of scaremongering,” said Erica Hanichak, director of government affairs at the Financial Accountability and Corporate Transparency, or FACT, Coalition, a nonpartisan anti-corruption organization in Washington. “These are very simple pieces of information that most small businesses can track down and find.”