ASA Supports Rep. McHenry (R-NC)’s Protecting Small Business Information Act
Rep. McHenry (R-NC)’s Protecting Small Business Information Act (H.R. 4035) would delay the Corporate Transparency Act (CTA)’s January 1, 2024, effective date. The CTA’s reporting requirements will subject tens of millions of small businesses to higher compliance costs, privacy risks, and hefty fines and prison terms. With the Treasury Department woefully behind not just in its rulemaking process, but also in terms of engaging and educating affected businesses, ASA supports the effort to delay the CTA from taking effect. By delaying the CTA reporting requirements from taking effect until a robust regulatory framework is put into place, this legislation will help ensure affected businesses are not subjected to an overly burdensome and unpredictable compliance regime.
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 first challenge is the CTA applies only to businesses with under $5 million in annual revenues and fewer than 20 employees, thus ensuring that the very companies who least can 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. These companies and other legal entities will be subjected to increased paperwork, privacy risks, and potentially devastating fines and prison terms.
The second challenge is the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) is ill-prepared to implement and administer the new reporting regime. The agency is also woefully behind in promulgating the key rules necessary to implement the CTA. Despite a looming effective date of January 1, 2024, 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.
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 Americans the certainty they need to comply with the new statute, as well as giving Congress more time to rethink this whole approach.