Under The Microscope: Examining FinCEN's Implementation Of The Corporate Transparency Act
Summary
Transcript of an April 30, 2024 hearing of the House Committee on Small Business titled Under the Microscope: Examining FinCEN's Implementation of the Corporate Transparency Act. Dan Meuser presided at the start, and Roger Williams and Nydia Velazquez gave opening statements. Witnesses were Carol Roth, a small business expert from Chicago, Roger Harris, President of Padgett, Timothy M. Opsitnick of Technology Concepts & Design, Inc., and Gary Kalman, Executive Director of Transparency International US. The Committee met at 10:03 a.m. in Room 2360 of the Rayburn House Office Building, and the record includes material from America's Credit Unions and the Community Association Institute.
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“Under The Microscope: Examining FinCEN's Implementation Of The Corporate Transparency Act.”
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[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
UNDER THE MICROSCOPE: EXAMINING FINCEN'S
IMPLEMENTATION OF THE CORPORATE
TRANSPARENCY ACT
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
----------
HEARING HELD
APRIL 30, 2024
----------
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 118-048
Available via the GPO Website: www.govinfo.gov
UNDER THE MICROSCOPE: EXAMINING FINCEN'S
IMPLEMENTATION OF THE CORPORATE TRANSPARENCY ACT
UNDER THE MICROSCOPE: EXAMINING FINCEN'S
IMPLEMENTATION OF THE CORPORATE
TRANSPARENCY ACT
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
APRIL 30, 2024
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 118-048
Available via the GPO Website: www.govinfo.gov
------
U.S. GOVERNMENT PUBLISHING OFFICE
55-252 WASHINGTON : 2024
HOUSE COMMITTEE ON SMALL BUSINESS
ROGER WILLIAMS, Texas, Chairman
BLAINE LUETKEMEYER, Missouri
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
BETH VAN DUYNE, Texas
MARIA SALAZAR, Florida
TRACEY MANN, Kansas
JAKE ELLZEY, Texas
MARC MOLINARO, New York
MARK ALFORD, Missouri
ELI CRANE, Arizona
AARON BEAN, Florida
WESLEY HUNT, Texas
NICK LALOTA, New York
CELESTE MALOY, Utah
NYDIA VELAZQUEZ, New York, Ranking Member
JARED GOLDEN, Maine
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
GREG LANDSMAN, Ohio
MARIE GLUESENKAMP PEREZ, Washington
SHRI THANEDAR, Michigan
MORGAN MCGARVEY, Kentucky
HILLARY SCHOLTEN, Michigan
JUDY CHU, California
SHARICE DAVIDS, Kansas
CHRIS PAPPAS, New Hampshire
Ben Johnson, Majority Staff Director
Melissa Jung, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Roger Williams.............................................. 19
Hon. Nydia Velazquez............................................. 3
Hon. Dan Meuser (Presiding)...................................... 1
WITNESSES
Ms. Carol Roth, Small Business Expert and Owner, Chicago, IL..... 5
Mr. Roger Harris, President, Padgett, Athens, GA................. 7
Mr. Timothy M. Opsitnick, Executive Vice President and General
Counsel, Technology Concepts & Design, Inc., Cleveland, OH..... 8
Mr. Gary Kalman, Executive Director, Transparency International
US, Washington, DC............................................. 10
APPENDIX
Prepared Statements:
Ms. Carol Roth, Small Business Expert and Owner, Chicago, IL. 29
Mr. Roger Harris, President, Padgett, Athens, GA............. 31
Mr. Timothy M. Opsitnick, Executive Vice President and
General Counsel, Technology Concepts & Design, Inc.,
Cleveland, OH.............................................. 38
Mr. Gary Kalman, Executive Director, Transparency
International US, Washington, DC........................... 45
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
America's Credit Unions...................................... 55
Community Association Institute.............................. 57
Citizens for Responsibility & Ethics in Washington (CREW).... 60
Engine....................................................... 68
Financial Accountability and Corporate Transparency (FACT)
Coalition.................................................. 76
Main Street Alliance......................................... 79
National Multifamily Housing Council (NMHC) and the National
Apartment Association (NAA)................................ 107
NFIB......................................................... 110
SBIA......................................................... 116
Small Business Majority...................................... 123
Associated Builders and Contractors (ABC).................... 126
Various statements submitted by Carol Roth................... 129
UNDER THE MICROSCOPE: EXAMINING
FINCEN'S IMPLEMENTATION OF THE
CORPORATE TRANSPARENCY ACT
----------
TUESDAY, APRIL 30, 2024
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10:03 a.m., in Room
2360, Rayburn House Office Building, Hon. Roger Williams
[chairman of the Committee] presiding.
Present: Representatives Williams, Luetkemeyer, Stauber,
Meuser, Van Duyne, Mann, Alford, Crane, Bean, Maloy, Velazquez,
Landsman, McGarvey, Scholten, Thanedar, and Davids.
Mr. MEUSER. [Presiding.] Good morning all. As is tradition
in the 118th Congress Small Business Committee, we do start
with a prayer and the Pledge. So I am going to turn it over to
Congressman Blaine Luetkemeyer to lead us in a prayer.
Mr. LEUTKEMEYER. Thank you, Mr. Chairman. Everybody bow
your head, please.
Heavenly Father, we ask you today to bless our efforts as
much as you can for the great work that we are trying to do
here for the citizens of our great country. Please keep our
military men and women safe as they try to keep us safe.
You are the ultimate leader of all and so we put our hand
in yours as you lead us through our day, through our efforts to
try and do the better job to continue to protect our country,
lead our country, to continue to provide for our country in a
way that is helpful to all.
We ask these things in your name, in your son's name. With
that, thank you for another great day. And as that, we continue
to ask for your blessings. Amen.
Mr. MEUSER. If you would also please stand for the Pledge?
I pledge allegiance to the flag of the United States of
America. And to the Republic for which it stands, one nation
under God, indivisible, with liberty and justice for all.
Well, thank you very much. Good morning, everyone. I now
call the Committee on Small Business to order. Without
objection, the Chair is authorized to declare a recess of the
Committee at any time. I recognize myself for my opening
statement.
I want to welcome you all to today's hearing, which will
focus on the Financial Crimes Enforcement Network's
implementation of the Corporate Transparency Act. Just as a
side note, Chairman Roger Williams is at an important press
conference, asked to attend with our leadership, and he will be
with us within the next 15 to 20 minutes.
But I would like to start by thanking our witnesses for
joining us today. Your attendance is certainly greatly
appreciated for taking the time and the travel to be here with
us, and we value your input and your expertise.
Congress passed the Corporate Transparency Act to detect
illegal funds moving through the financial system. If you can
better detect and prevent illicit funds from entering the
financial system it should reduce overall criminal behavior.
For example, FinCEN's beneficial ownership rule is meant to
show who is profiting from a business activity and reduce the
number of shell companies used by criminals. This requires some
businesses with less than 20 employees to disclose ownership
information of anyone with a 25 percent stake in the company.
This information is saved to a database for law enforcement
and financial institutions to help detect criminals that have
previously been hidden by LLCs or other companies. However,
FinCEN's implementation of this law and the corresponding
regulations have been overly broad, leading to unnecessary
regulatory burdens on our nation's job creators.
These concerns coming from the Small Business Committee
have overshadowed many of the benefits of the Corporate
Transparency Act. Nearly half of small business owners said
they had no idea what the Corporate Transparency Act is and had
never heard of the government agency FinCEN, and suddenly they
are getting something in the mail asking for personal
information with the threat of massive fines if they do not
comply.
When some businesses have received these notices, they have
turned to their lawyers or accountants or congressional offices
for help to fulfill these requirements. However, we are hearing
that the rules are written in a way that makes these trained
professionals hesitant or unwilling to take on this task. This
is a telltale sign that something has gone wrong in
implementing this law.
In addition to confusing regulations coming out of FinCEN,
serious privacy concerns have been raised about this data
collection. In 2021, an employee at FinCEN leaked the financial
information of President Trump's former campaign manager, Paul
Manafort, to smear their political rival. The employee who
leaked the information rightfully received a 6-month prison
sentence.
However, with the changes in the Corporate Transparency Act
many more people have access to this type of financial
information. And business owners are rightfully concerned that
their data could be leaked, stolen, or used against them. The
Biden administration's implementation of this law fails to
strike the balance in detecting illicit activities in our
financial system and burdening all small businesses with
expensive new mandates.
I hope this hearing sheds some light on the many challenges
that our nation's job creators are facing and will begin to
work correcting--on correcting some of these issues coming out
of FinCEN.
I would like to once again thank our witnesses for being
here with us today. We look forward to our meeting--to our
hearing.
And with that, I will now yield to our distinguished
Ranking Member from New York, Ms. Velazquez.
Ms. VELAZQUEZ. Thank you, Mr. Chairman and good morning,
everyone. Thank you for being here.
The Corporate Transparency Act is landmark legislation
aimed at cracking down on criminals, both foreign and domestic,
who for years have been exploiting weak federal laws to engage
in illegal activity through anonymous shell companies here in
the United States.
Passed in 2021 with broad bipartisan support, the CTA
requires the Treasury Department's Financial Crimes Enforcement
Network to develop and maintain a registry of the real
beneficial owners of established businesses.
Establishing a BOI registry enables law enforcement to
better target oligarchs, kleptocrats, and terrorist
organizations who use anonymous shell companies to launder
illicit funds, evade taxes, finance terrorism, and facilitate
bribes to corrupt public officials. Not only do these anonymous
shell companies do substantial harm and present a threat to our
national security, but they also undermine competition here at
home by taking advantage of legitimate small businesses.
Prior to the CTA's passage there were numerous examples of
criminals' utilization of anonymous shell companies to engage
in illegal activity. For instance, an anonymous company
associated with the Taliban was able to secure contracts with
the Department of Defense to supply American troops in
Afghanistan.
Foreign leaders use shell companies to hide their
involvement in the drug trade and loan their money to
Hezbollah, and Chinese drug traffickers use shell companies to
sell deadly fentanyl to Americans here at home.
Criminals have also used anonymous companies to sell
billions of dollars of counterfeit goods from luxury brands and
American consumers has been sold billions of dollars in
counterfeit medicines and medical products from India and
China.
The problems do not stop at national security and
undermining consumer welfare. These anonymous entities are
responsible for exploiting resources intended for real American
small businesses. According to a GAO report from 2023, over
half the charges for fraud in the PPP and EIDL program involved
the use of shell companies to launder these funds, and two-
thirds included nonoperating companies like the ones this law
targets.
Small businesses overwhelmingly support the need for the
CTA. More than three-quarters of small businesses expressed
support in 2018 for legislation requiring businesses to divulge
their beneficial owners' true identities at the time of
formation, and 84 percent of small business owners said the use
of anonymous companies to win contracts or obtain government
funding was a problem.
Under the CTA, FinCEN began accepting electronic filings of
beneficial ownership information on January 1st. But despite
its critical importance, too many small businesses remain
unaware of their reporting obligation.
More must be done to communicate with small businesses
about these requirements, and I am interested in learning how
we can help do that here this morning--but that is not a good
reason to demonize this law, fear monger about regulatory
impact, or cut funding for such a crucial national security
agency.
That said, for most affected entities reporting should be
relatively simple. The reporting page on the FinCEN website is
easy to use, makes use of dropdown menus, and only requires
relatively basic information that most small business owners
either already know or have readily accessible, such as tax and
personal identification numbers, legal names, and addresses.
Given that the majority of the 32 million small businesses
affected as sole proprietors finding this information should be
quick and easy. According to a recent survey, 68 percent of
small business owners that have already filed indicated the
process was easy.
I want to thank the witnesses for their willingness to
testify today, and I yield back. Thank you.
Mr. MEUSER. The gentlelady yields.
I will now introduce our witnesses. The first witness here
with us today is Ms. Carol Roth. Ms. Roth is a small business
owner and has extensive experience and expertise in related
small business matters. Ms. Roth has been a judge on the series
America's Greatest Makers on TBS and the host of Microsoft's
Office Small Business Academy show, as well as a panelist on
FOX Business' Bulls & Bears and CNBC's Closing Bell.
Ms. Roth has written three books with her most recent book,
``You Will Own Nothing,'' becoming a New York Times bestseller.
She also regularly writes for a number of online publications
including op-eds for FOX News and FOX Business. Ms. Roth has
been named a top 100 small business influencer by Small
Business Trends multiple times. She earned her Bachelor of
Science in finance and management from the Wharton School of
Business at the University of Pennsylvania. Thank you for
joining us today.
Our next witness here with us is Mr. Roger Harris. Mr.
Harris is the president of Padget Business Services located in
Athens, Georgia. Mr. Harris has served as president of Padget
Business Services since 1992, offering services to thousands of
small business owners ranging from government compliance to tax
advice through hundreds of individually owned locations. Prior
to serving as president, Mr. Harris served as President and
Chairman of the Board in one of the largest franchises in the
system.
He was a panelist on President Bush's Advisory Panel on
federal Tax Reform and served as Chair of the Internal Revenue
Service Advisory Council.
Mr. Harris earned his degree in accounting and finance from
the University of Georgia, J.M. Tull School of Accounting. So,
Mr. Harris, we certainly look forward to your testimony as
well.
Our next witness with us today is Mr. Timothy Opsitnick.
Mr. Opsitnick is the executive vice president and general
counsel of Technology Concepts & Designs, Inc., located in
Cleveland, Ohio, which provides a comprehensive suite of
services including digital forensics and cybersecurity.
Mr. Opsitnick previously founded JURINNOV, Ltd., which
provides the legal and business communities with innovative
solutions to address their data security needs. He also
recently served as Chairman of the Council on Small Business
Enterprises.
Mr. Opsitnick earned his Bachelor of Arts in political
science and psychology from Ohio--how do we pronounce that--
Wesleyan--I should know that--University before earning his JD
from Case Western Reserve University School of Law. Thank you
for joining us here today.
And I now recognize Ranking Member from New York, Ms.
Velazquez, to briefly introduce our last witness appearing
before us today.
Ms. VELAZQUEZ. Thank you, Mr. Chairman. Our final witness
today is Mr. Gary Kalman. Mr. Kalman is the Executive Director
of Transparency International U.S. and oversees the
organization's U.S. operation focusing on illicit finance and
the U.S. role in global anti-corruption efforts.
He was a founding member of the Financial Accountability
and Corporate Transparency Coalition where he served as its
Executive Director from 2016 to 2019. He was also a founder of
Americans for Financial Reform, a coalition that in the
aftermath of the 2008 financial crisis led the successful fight
for the Dodd-Frank Financial Reform bill.
He is currently an advisory counsel for the International
Coalition Against Illicit Economies, and he is a top advocate
for anti-corruption and transparency issues.
Thank you, Mr. Kalman, for joining us. We look forward to
your testimony.
Thank you, Mr. Chairman.
Mr. MEUSER. Thank you.
Now, before recognizing the witnesses I do need to remind
you all that your oral testimony is restricted to 5 minutes in
length. If you see the light turn red in front of you it means
your 5 minutes have concluded and you should wrap up your
testimony.
I do now recognize Ms. Roth for your 5-minute opening
remarks.
STATEMENTS OF CAROL ROTH, SMALL BUSINESS EXPERT AND
OWNER; ROGER HARRIS, PRESIDENT, PADGETT; TIMOTHY M.
OPSITNICK, EXECUTIVE VICE PRESIDENT AND GENERAL
COUNSEL, TECHNOLOGY CONCEPTS & DESIGN, INC.,; AND
GARY KALMAN, EXECUTIVE DIRECTOR, TRANSPARENCY
INTERNATIONAL US
STATEMENT OF CAROL ROTH, SMALL BUSINESS EXPERT AND
OWNER
Ms. ROTH. Good morning. I am Carol Roth, a small business
expert and a small business owner myself. On behalf of small
businesses across the United States I am asking that you, our
bipartisan advocates for small business, immediately overturn
the Corporate Transparency Act's beneficial ownership
information rule passed by Congress which unfairly targets
American small businesses.
The Constitution of the United States protects the natural
rights of all Americans, including against federal government
overreach. While preventing financial crimes is a worthwhile
endeavor, your methods cannot do so in a way that infringes
upon Americans' natural rights or assumes that they are guilty
without due process.
Asking small businesses and their owners to report
sensitive personal information and identification to an
organization involved in monitoring financial crimes,
unfortunately, does just that. It is not only an invasion of
privacy but it also creates additional burdens and challenges
for small business owners.
And once again, by exempting big businesses from this
reporting rule, it specifically and unfairly targets and
penalizes small business owners with a different standard and
set of rules.
Small businesses overall are not shell companies. They are
the backbone of the economy. If FinCEN has concerns about money
laundering, cartel activity, or otherwise, they should be using
the courts to receive information on those specific cases and
entities.
I imagine you would agree that it is highly unlikely that
those who would engage in such cartel or money laundering
activities would be forthcoming with the information that
FinCEN is seeking. Given that, the rule is ineffective, that
is, cartels and money launderers won't be swayed to
participate, while also unconstitutionally penalizing law-
abiding Americans and infringing on their rights. If there is a
concern about foreign entities, well, then the rule should
focus on them exclusively.
Moreover, the penalties, which include significant
financial and criminal penalties including jail time, are
egregious. Plus the rule exposes small business owners to fraud
and privacy violations. In fact, the very first alert on the
FinCEN BOI landing page, right in the center of the website, is
an alert about fraudulent information solicitation attempts
from third parties.
Creating this type of database, in addition to the privacy
violations from hackers and unsavory parties, also creates
concerns for abuse internally. FinCEN itself has come under
fire for its alleged unjustified data usage.
In a time when small business owners have been brutalized
by unfair, slanted COVID mandates and their aftereffects, such
as labor shortages and supply chain interruptions, historic
inflation, and other challenges, the last thing they need is
more administrative burden both in the original reporting and
remembering that any time a piece of data changes they need to
provide an update or they face jail time.
I personally have had dozens of small business owners tell
me they are considering dissolving their LLCs to become sole
proprietors without an entity specifically in response to this
rule. This will expose these entrepreneurs to more liabilities
and other issues because they are trying to escape being
targeted.
This cannot be how we treat entrepreneurs. Being a small
business owner is fraught with challenges. The government
should be doing everything possible to uplift small businesses
and remove barriers that interfere with their success.
Instead, with the powers granted to FinCEN and this rule,
Congress has added another barrier and is treating small
businesses like criminal masterminds. The ends absolutely do
not justify the means here.
But the most important piece is the rule's
unconstitutionality. A federal District Court in Alabama has
already found the CTA BOI rule directed at small business
reporting to be unconstitutional. Unfortunately, based on the
ruling scope, FinCEN is choosing to ignore this for everyone
but the plaintiffs in that case, a peculiar outcome. If it is
unconstitutional, it is unconstitutional period and should be
immediately shut down.
FinCEN has many tools at their disposal and a court system
to help their efforts on financial crimes. They should use
those tools and not harm a good portion of America's more than
33 million small businesses and their owners in the process.
Good intentions don't always produce good outcomes, and
this is a perfect example. Congress put this in motion and
needs to be the one to fix it.
Again, I respectfully ask you to work with your
counterparts in the Senate to have Congress immediately
overturn the powers given to FinCEN and the CTA BOI rule. Thank
you for your time and consideration.
Mr. MEUSER. Thank you very much.
I now recognize Mr. Harris for his 5-minute opening
remarks.
STATEMENT OF ROGER HARRIS, PRESIDENT, PADGET
BUSINESS SERVICES
Mr. HARRIS. Thank you and good morning, Mr. Chairman and
Ranking Member and Members of the House Small Business
Committee. My name is Roger Harris, and I represent a company
called Padget who has provided accounting, tax, and advisory
services to small businesses for almost 60 years.
And our definition of our target client is a client with
fewer than 20 employees so normally when we see legislation,
first thing we do is we look for the small business exception.
However, when we looked at the Corporate Transparency Act we
found not only was there no small business exception our
clients were the target of the legislation.
So that means we had to react to the requirement and try to
find a way to service our clients because our firm and firms
like ours are the primary advisors to small businesses with
fewer than 20 employees so they would turn to us and expect us
to be the firm to help them comply with this.
Unfortunately, as we dug into it and as we talked to our
legal advisors and our insurance carriers, we were being told
to stay away from providing this service, that we were
potentially going to face great risk as a firm if we provided
these services to our customers. Now, why? What were some of
the reasons we were given that we should stay away from this?
Number one is the amount of the penalties which are severe
and could be assessed not only on the business owner but on us.
We lack the guidance and examples of certain things, like
substantial control and most recently willful behavior in terms
of assessing the penalty. What is considered willful behavior?
There were other issues. There is a 30-day timeframe to
turn around certain things within the law. None of us have
relationships with small businesses that allow us to react in
30-day cycles so that presented a problem.
And just generally speaking we were just being told do not
do this. Do not do this. And yet, knowing that our clients were
dependent upon us, we started to say we have to find a way so
we started working with groups like AICPA, the National
Association of Enrolled Agents and other accounting
associations.
We came up to DC and met with many of your staffs to look
for ways to try to make this work. We actually had meetings
with FinCEN and tried to find a way to see if there was any way
to, number one, create more awareness because if our clients
did not hear it from us they had no idea that this rule or law
was ever in existence.
And if we could not serve them we were going to be faced, I
believe, with massive noncompliance in the small business
community. And if the noncompliance is not going to be because
these businesses are laundering money. It is because they are
not filing a form. So we need to find a way if we are going to
have this rule to make it work.
So we think that there are some common sense things that we
can do to see if we can make this work. Number one, I want to
endorse the suggestion that AICPA made, which was because of
the legal result in Alabama to put implementation on hold
until, first of all, that that lawsuit is settled, and then
give us an additional 12 months after that to try to find fixes
to see if we can make this work.
We also need to really look at the 30-day requirement. It
is just not practical for most things. Personally, I would
rather not have a 30-day requirement at all, but if we are
going to have to have 30 days would like to see something as
simple as your driver's license renewing to start a clock
ticking for noncompliance.
We need changes in third party certification to fit more
like what we do when we prepare someone's tax return. Right now
we are being asked to take a stronger position legally on the
beneficial owner than we do on that same business' tax return.
And next I think the IRS has worked with us to support
small businesses for years, and I think FinCEN could learn some
things on how they communicate, how they issue guidance, how
they issue examples to our group so we can assist this in the
small business community.
So I think the summary of what I am saying today is that
this isn't going to work as it is currently structured. It is
going to cause massive noncompliance in the small business
community. And again, I will remind you that is not because
they are laundering money. It is because they didn't file a
form.
So I am hoping that you can help us in making what we think
are reasonable changes to allow us to do our job and get the
compliance that I think was anticipated when the bill was
passed.
Thank you for holding this hearing. Thank you for allowing
us to be here today, and I look forward to your questions.
Mr. MEUSER. Thank you very much.
I now recognize Mr. Opsitnick for your 5-minute opening
remarks.
STATEMENT OF TIMOTHY OPSITNICK, EXECUTIVE VICE
PRESIDENT AND GENERAL COUNSEL, TECHNOLOGY CON-
CEPTS & DESIGN, INC., AND NATIONAL SMALL BUSINESS AD-
MINISTRATION
Mr. OPSITNICK. Thank you, Mr. Chairman. Mr. Chairman,
Members of the Committee, Ranking Member Velazquez, thank you
for holding today's hearing on the implementation of the
Corporate Transparency Act.
My name is Tim Opsitnick and I am the part owner of several
small businesses, including Opsitnick, LLC, OnCall Cyber, Ltd.,
and serve on the boards for several nonprofits and small
businesses. I am also the executive vice president of TCDI, a
business focused on legal services, computer forensics, and
cybersecurity.
I am grateful to be here today on behalf of the National
Small Business Association testifying on an issue that is truly
critical to the entire small business community.
Before I begin, I would like to address the elephant in the
room. As you may know, the NSBA is involved in active
litigation over the constitutionality of the CTA. I am not here
to address that case but rather to speak to some of the
specific impacts that the law has had on small businesses that
I work with and to shed light on the experiences that
entrepreneurs and main street business leaders face in the
current regulatory environment.
I am active in small business groups and chambers at the
federal, state, and local level. Through these groups and my
advisory work, I have made connections with small business
owners across industries, locations, and sizes from
multigenerational family businesses to first-time entrepreneurs
working out of their apartments.
In my experience, first-timers are much more fragile. With
every minute and every dollar critical to survival they can
least afford to spend significant time and money on compliance
and have the least awareness of complicated federal
regulations, yet, paradoxically, are the first to be implicated
and impacted by the CTA.
As of January 1, any non-exempt new entity must report its
beneficial owners to FinCEN within 90 days of formation. This
places the first reporting burden on fledgling entrepreneurs
who are least prepared to comply. Moreover, the regulations are
unclear even when simplified for the public. Specifically I
would like to draw your attention to FinCEN's 57-page Small
Entity Compliance Guide, as well as the 45-page FAQ.
A first-time entrepreneur looking to open a coffee shop,
for example, must push through 102 pages of explanatory
language to understand the reporting burden. Given permitting
and other delays, it is entirely possible that our aspiring
barista would have to act on all of this before a single cup of
coffee was served to a customer, all under the threat of
criminal sanctions.
Compounding problems like the government's limited
outreach, the lack of clarity, and strong liability concern,
small businesses also face a dearth of expert advisers able and
willing to interpret the regulation or to help them file.
Secretary Yellen said that FinCEN is making reporting as
easy as possible. A small business shouldn't need a certified
accountant or lawyer. As a small business owner and as a
lawyer, I completely disagree.
For example, in determining who must be a beneficial owner
the filer must determine not only who is an owner but must list
those with substantial control over the business. Lawyers do
not understand the meaning of substantial control, let alone
the barista I mentioned. The term would make for good law
school discussion.
As to the financial burdens, a recent NSBA survey revealed
that the small business owners are anticipating average
compliance costs of nearly $8,000 in the first year.
Nearly half also intend to rely on outside advice from
multiple professionals. Worryingly, even lawyers and
accountants are woefully unprepared. Attorney list serves are
alight with conversations about what to advise clients. The
typical advice that I see is wait to the last minute.
As I mentioned, part of my work includes cybersecurity and
data privacy. Let me stress we do not know that this database
is secure. We further know that the information or access to
the database will be shared.
Every time an owner shares their information the risk that
it will be misused or lost to the dark web significantly
increases. FinCEN's own website opens with an alert about
fraudulent solicitations under the CTA.
According to NSBA research, the average cost to remedy a
small business data breach is $15,297. These figures could
cripple small businesses who are cash-strapped and cash flow-
sensitive.
Small business leaders cannot afford to be vulnerable. The
majority of small business leaders that suffer a breach will be
out of business within 6 months.
In conclusion, I would like to reiterate the small business
community's thanks to the committee for their attention to
these issues, and I very much look forward to answering
questions.
Mr. MEUSER. And outside of that it is wonderful, correct?
No, I am kidding.
Now, Mr. Kalman, we give you your 5 minutes to make your
opening remarks.
STATEMENT OF GARY KALMAN, EXECUTIVE DIRECTOR,
TRANSPARENCY INTERNATIONAL U.S.
Mr. KALMAN. Chairman Meuser, Ranking Member Velazquez, and
Members of the Committee, on behalf of Transparency
International U.S. I appreciate the opportunity to discuss the
progress towards the implementation of the Corporate
Transparency Act. Transparency International is part of the
world's largest and oldest coalition fighting corruption.
The CTA's historic anti-money laundering measure that
Congress correctly understood would strengthen the ability of
law enforcement and the U.S. national security community to
curtail the use of anonymous entities to commit crimes.
Moreover, the CTA's reporting requirements are neither
unusual nor unprecedented for everyday Americans. Most states
collect more information when granting public library cards
than is required under the CTA.
And the CTA benefits small business owners by among other
things protecting them from unfair and fraudulent competition
while imposing minimal compliance costs. The law passed with
broad bipartisan support in Congress and has seen strong vocal
support from both the Trump and Biden administrations. In the
lead up to passage, Congress gathered a litany of evidence of
the harms caused by anonymous shell companies.
In the 2018 Money Laundering Risk Assessment, the Treasury
Department wrote that drug crime and associated financial flows
has changed with the rise of China as a supplier of fentanyl
and its analogs, noting that the U.S. Drug Enforcement Agency
has determined that, ``Goods are being exported to China by
U.S. front companies as payment for drugs.''
In 2020, the U.S. Department of Justice went after millions
derived from a nearly 20-year-long scheme to evade U.S.
sanctions on Iran by laundering more than $300 million through
more than 70 front companies in California and other
jurisdictions. These and similar reports are why more than a
hundred national security experts ultimately signed a letter to
Congress calling for legislation that would require the
collection of beneficial ownership information.
Congress also heard evidence demonstrating how anonymous
companies are used to undermine our markets and disrupt
legitimate business. Anonymous companies were used to sell
knockoff products to the Pentagon and used to import and sell
counterfeit medicines from India and China. Likewise, patent
trolls and fraudsters have abused anonymous companies to target
small businesses.
Given the potential for harm, it is not surprising that in
multiple polls small business owners felt that the benefits of
the CTA's reporting requirements outweighed the cost. There
were two independent polls, one in 2018, as mentioned by the
Ranking Member, and another in 2019. Both found that roughly
three-quarters of small business owners supported beneficial
ownership disclosure requirements and support was consistent
across party lines.
Support for ending the incorporation of anonymous companies
now includes a diverse set of business trade associations,
including the U.S. Chamber of Commerce, law enforcement
agencies, faith-based organizations, and scholars from both
conservative and liberal-leaning think tanks among many, many
others.
Likewise, the Trump administration encouraged congressional
passage of the CTA. In its statement of administrative policy
it said, ``This legislation will help prevent malign actors
from leveraging anonymity to exploit these entities for
criminal gain.''
And the Biden administration echoed that support in its
U.S. strategy and countering corruption stating that, ``We will
address these deficiencies in the U.S. anti-money laundering
regime by effectively collecting beneficial ownership
information.''
The CTA requires simple reporting to mitigate these
national security and public safety threats. According to the
Small Business Administration, approximately 82 percent of all
businesses in the U.S. are non-employer firms, meaning that
there is only one person in the enterprise. True small business
owners will not have trouble identifying the owner of their
business. It is, therefore, misleading to suggest that many
reporting companies will have difficulty or costly processes in
identifying their beneficial owners.
From a practical standpoint it seems improbable for a
business to have the resources to pay for the creation of a
complex structure but not be able to name who sits at the top
of the corporate food chain.
FinCEN's rollout of the database was successful. Already
more than a million businesses have filed. In fact, a post-
rollout poll found that among those small businesses that had
filed 68 percent reported it being somewhat or very easy to
comply. Only 6 percent found it very difficult.
If Congress is concerned about the lack of awareness of the
law, I would urge Members of this committee to support
increased funding for FinCEN. There is bipartisan support for
an increase to provide additional outreach on the CTA and other
implementation costs to ease compliance.
Thank you and I look forward to your questions.
Mr. MEUSER. All right, thank you. We will now begin our
line of questioning, and I am going to begin with myself and
allow myself my 5 minutes of questioning.
So, look, since taking office the Biden administration has
instituted many regulations, many new taxes on energy and small
business, and it has not been business-friendly. In fact, it
has weakened small businesses.
So this FinCEN approach to beneficial ownership rule I
don't think we believe needs to be completely rescinded, but my
first question here will go to you, Ms. Roth, but there aren't
many small businesses that are embracing it and can handle it,
understand it. And the rollout has been tumultuous, has been a
problem.
The number that you just had brought up, Mr. Kalman, on,
what, you said 6 percent, well, I find that challenging to
believe, frankly, but data is data. But we will begin our
questioning.
So, Ms. Roth, has FinCEN reached out to small businesses?
Have they adequately reached out to let people know what the
potential fines were, what the compliance is, why this is even
being done in the first place?
Ms. ROTH. Not that I am aware of and certainly not with the
small business owners that I have spoken with. For my written
statement for the record that I submitted, I brought with me
almost 450 statements from small business owners across this
country who are vehemently opposed. Most of them when I brought
it up to them either through the media or other ways that they
have come in contact with me, had never heard of it.
They also have no idea who FinCEN is. You know, I am a
recovering investment banker so I am familiar with, you know,
the Financial Crimes Enforcement Network, but for your average
small business owner they are just trying to stay afloat. They
are not familiar with that division of the Treasury.
And when they find out, they are saying why is it that the
Financial Crimes Enforcement Division of the Treasury is asking
for my information?
So the communication certainly hasn't been there and as
small businesses find out more about it the reaction isn't
usually, oh, well, this sounds like a great thing. It is
horror, and that is why I was able to bring so many statements
to bear.
Mr. MEUSER. Of those you surveyed for this, the 450
statements against and having problems with it, can you share
with us how many said it is okay, I am handling it, I think it
is a good idea?
Ms. ROTH. None.
Mr. MEUSER. Zero?
Ms. ROTH. Zero.
Mr. MEUSER. Okay. So what percentage is that? You went to
Wharton.
Ms. ROTH. Zero.
Mr. MEUSER. Yeah, okay. Zero again, not zero, right for it.
So okay. So, Mr. Harris, let me ask you, please. Explain
the accounting industry's problem and lack of comfort assisting
small businesses to comply with this rule.
Mr. HARRIS. Like I mentioned in my statement, there are
just so much unknowns and risks that are potentially assigned
to us, which if we have to go forward with no additional
guidance, we are going to have to charge more for this service
than I think is fair for the small business owner to have to
incur because risk is something we have to factor into how we
charge.
So if we could get some cooperation. You know, there are
some things that seem simple. I know I mentioned I have been to
two FinCEN meetings. I have asked them for a definition--not a
definition, but guidance on the role of a spouse and whether a
spouse who you go home and talk to every night about your
business could be deemed to have substantial control, even
though they own nothing in the business?
And we got a non-answer, and that is where we have risk. We
need guidance. There are all kinds of--in the tax code the
spouses are addressed many times in terms of their role and the
attribution rules and all these sorts of things. So we are just
asking for the same guidance that we have everywhere else.
Without that we are going to be unable to provide the help
that these businesses are going to need. And I can tell you if
we don't help they are not going to do it.
Mr. MEUSER. Thank you.
Mr. Opsitnick, what can be improved on the FinCEN rule in
order to make you more comfortable with it?
Mr. OPSITNICK. Well, we are not comfortable with it at all,
which is the reason for our court challenge. We don't think
that this is the way at all. We, you know, we don't see any
improvement that is possible.
We are certainly willing to engage in conversation and we
haven't been given that opportunity to engage in conversation.
You know, this is kind of where I get a little bit frustrated.
We are very happy to have the opportunity right now to talk
about the Corporate Transparency Act, but we weren't given that
opportunity before. And, in fact, it was a 21-page rider
attached to a 1,500-page National Defense Authorization Act
bill where it was passed.
There was no prior discussion of it before. We didn't have
the time to discuss possible ways to improve it. It was just
passed as a rider.
And, you know, when we consider that that is impacting 33
million small businesses and 60 million employees----
Mr. MEUSER. Clearly heavy-handed government on----
Mr. OPSITNICK.--that--yes.
Mr. MEUSER.--on our small business backbone of our economy.
I thank you very much, and I yield back.
And now I recognize the Ranking Member for her 5-minute
remarks.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
The regulatory environment under this administration is
such, right, that has impacted so many small businesses I don't
know how that reconciles with the fact that 10 million small
businesses started since Joe Biden took office. Something
doesn't click here.
Mr. Kalman, the CTA took over 10 years to pass and you met
with a number of staff and Members, correct? What were the key
issues that brought Democrats and Republicans together that led
to this law passage?
Mr. KALMAN. Thank you for the question. There were a number
of issues, I think, that brought a wide variety of
constituencies. In fact, anonymous companies have been used for
so many different crimes that is why you had the variety so
national security, fentanyl trafficking, human trafficking,
counterfeit and pirated goods, fraud in government contracting,
and more.
Ms. VELAZQUEZ. Can you comment on the unique array of
organizations and interests which made up the coalition of
stakeholders that fought for this law?
Mr. KALMAN. Sure. In my written testimony I listed a number
of the different constituencies that ranged, cops, sheriffs,
local prosecutors, Republican and Democratic attorneys general,
anti-human trafficking organizations, human rights
organizations, and the whole gamut.
Ms. VELAZQUEZ. Why we are so many different interests
aligned on this path?
Mr. KALMAN. They saw, and I would also point out the law
enforcement support, of the value of the information that they
believe this would be helpful in stopping the kinds of crimes
that we have been talking about.
Ms. VELAZQUEZ. FinCEN began accepting beneficial ownership
information on reporting companies on January 1, 2024. There
are penalties for willful failure or deception in reporting.
Why is the inclusion of the word willful so important and how
does it impact small business owners?
Mr. KALMAN. So there are different standards for
culpability in different laws and negligence is amongst the
lowest. Willful is amongst the highest, so the notion that if
you don't know about the law and don't file it is incorrect to
suggest that that is rules for prosecution. You have to know
about the law and decide not to file.
Ms. VELAZQUEZ. What happens if a small business owner
accidentally makes a mistake on their submission to FinCEN?
Mr. KALMAN. They are not liable. They are not guilty of
violating the law.
Ms. VELAZQUEZ. Mr. Kalman, under the law reporting
companies must provide the beneficial owners' full legal name,
date of birth--it is this form here, right--current address,
and unique identifying number from an identification card. Can
you give us an example of when a legitimate business would be
incapable of providing this information?
Mr. KALMAN. We actually, in the 12 years of debate over
this law, people put out some hypotheticals but no one actually
came forth with a company that wouldn't. I would also point out
that Members created in the law a FINCEN identifier for those
parent companies that for some reason, legitimate or not,
didn't want their subsidiaries to know who they were, they
could use an identifier to continue that anonymity.
Ms. VELAZQUEZ. Companies are required to report updates to
the information on file within 30 days of change. Some claim
that this will subject reporting companies to harsh penalties
if they forget to update their information. Is that true?
Mr. KALMAN. If you forget again to file that is not a
violation under the law.
Ms. VELAZQUEZ. Mr. Harris, do you think it would be helpful
for Secretary of States to provide a link to FinCEN's database
when small businesses register their businesses?
Mr. HARRIS. Well, it probably wouldn't hurt, but they are
still going to reach out to firms like us and say what does
this mean? Because as I think I said in my written testimony, a
small business owner gets into business to do the one thing
they love and the 99 things that they hate, and this ranks up
there with the top of the 99. So they are just going to reach
out to us and say what does this mean, what does it do?
I mean, it couldn't hurt, but I am not sure it is a----
Ms. VELAZQUEZ. But you don't think this will help small
businesses know about the need to register?
Mr. HARRIS. It has got to create some awareness.
Ms. VELAZQUEZ. Right.
Mr. HARRIS. Right.
Ms. VELAZQUEZ. I think that there is a role for different
federal agencies and for FinCEN to understand that they have to
bring in other federal agencies such as the Small Business
Administration----
Mr. HARRIS. They should.
Ms. VELAZQUEZ.--the partners out there, small business
B2Cs, to help educate businesses that they must comply with
this regulation.
Thank you, Mr. Chairman. I yield back.
Mr. MEUSER. The Ranking Member yields back.
I now recognize Representative Luetkemeyer from Missouri
for 5 minutes.
Mr. LEUTKEMEYER. Thank you, Mr. Chairman.
I am an interesting guy to have on the committee here this
morning because I was a sponsor, the Republican sponsor, of the
Corporate Transparency Act. And as much as I hate that bill and
hate that rule, my intention on that was to make sure we
minimize the effect of this bill or this rule because it
originally was a horrendous thing.
But because of my involvement we were able to trim it down
and, in fact, you only had four things you were supposed to do
and you were supposed to be able to do on a postcard. Guess
what?
The administration continues to do what they always do,
which is misinterpret what is going on, misconstrue, and now we
have got over 50 different requirements that they are supposed
to comply with. They have totally taking a law and just torn it
up and start all over again.
In our discussions with FinCEN they say what we need to do
is target those businesses under $5 million in revenue. There
is nothing like that in the bill.
They don't need this. I agree with Ms. Roth and all of you.
They don't need this. They are tools in their toolbox right now
to go to the court and find out and get their warrants they
need to be able to go investigate. What they have done is
weaponized the financial services industry and make them
deputies in their law enforcement activities, which is wrong in
my mind.
But, again, the intention was to try and minimize what went
on and I think we did that in the course of what we were trying
to do here. However, they have taken the law again and done it
completely different.
So let's go back with the cost of this originally as to
what is going to be. I know we had Director Gacki from the
Financial Services Committee a while back, and she stated that
accounts will not be subject to criminal litigation for filing
this information. Is that the way you read that, Mr. Harris?
Mr. HARRIS. Well, I certainly hope so, but I think, again,
it is going to depend on certain definitions of what is
willful. I mean, are we willful? I wish FinCEN was as good in
offering the definitions as Mr. Kalman was about what is
willful because we have asked for that guidance and we have not
been given clear guidance on willful.
So I mean, I am not sure anybody is out to penalize small
businesses just for the sake of penalizing them, but as long as
that threat hangs over them and firms like us we are going to
have to be cautious in how we move forward. That is the best I
can do.
Mr. LEUTKEMEYER. Yes. We argued long and hard over the
words willful, as Ms. Vazquez talked about, and substantial
which I think Mr. Opsitnick mentioned a minute ago. We have
argued long and hard over those and trying to find some
definitions.
Never did really come up with some good ones that actually
work. But I know that it is very frustrating for all of us to
sit here and put something on our small businesses.
Now, I think, Mr. Opsitnick, I think you made a comment. I
think you talked about an average of, like, $8,000 per small
business it would cost. The American Action Network says it is
going to cost about $2.2 billion in total to comply with. Where
do you get your figures from and how do you come up with that?
Mr. OPSITNICK. Our figures came from a survey that we took
from our membership. Our memberships reported themselves what
they expected the cost to be to them. If you would like, I can
go through a little bit more----
Mr. LEUTKEMEYER. Yeah, no.
Mr. OPSITNICK.--about what the process might be and why
those numbers might be so much higher.
Mr. LEUTKEMEYER. Yes, well, go ahead. Just go into it a
little bit.
Mr. OPSITNICK. Yes. So, I mean, let's think about the
process. I mean, in this process, first of all when you
consider their time, the impacts of their time, first they are
going to have to read 102 pages of guidance. They are going to
have to review the website for all these other things. They are
going to have to talk to their attorneys, their accountants,
other consultants.
They are going to have to determine do they fall with any
of the exceptions. And most importantly for business owners,
they are going to talk with their peers because, frankly, we
get our best advice typically from our peers. They are going to
have to determine who is a business owner with substantial
control, which is incredibly vague.
And then they are going to have to gather the information
of the information and then they are going to have to input it.
And all of that while being distracted from generating revenue
of their current business.
Mr. LEUTKEMEYER. Thank you. You know, Ms. Roth, I agree
with you wholeheartedly. I hate this rule. I fought it from the
very beginning and once it got implemented we were trying to
figure out how to make it minimally impactful on our folks. And
instead we find out what this complex law now is with playing a
game of gotcha. It is basically what the administration is
doing here with this because we had it kind of refined down to,
I think, something that everybody could probably live with: a
postcard with four questions on it that reveal your name,
address, Social Security number, and ownership. I mean, that
should be pretty simple. But now they have turned it into this
monstrosity.
How would you see us--what would you recommend for us to do
to change this thing to make it, short of getting it out, you
know, getting rid of it altogether, how can we make it less
intrusive?
Ms. ROTH. Well, I think that, you know, when we are talking
about costs and making it less intrusive one of the key costs
we are not talking about is risk. And that is the risk that
this information gets in the wrong hands. That is the risk that
they are going to get enormous fines, that somebody is going to
say, oh, you willfully forgot this for a year and now all of a
sudden you owe $215,000 or jail time.
There is an asymmetric risk problem going on here and that
is the number one biggest cost of this right now.
Mr. LEUTKEMEYER. Okay, thank you, and I would yield back.
Mr. MEUSER. The gentlemen's time has expired.
We now recognize Representative McGarvey from Kentucky for
5 minutes.
Mr. MCGARVEY. Thank you, Mr. Chairman. I appreciate that.
And I just want to open up with a few statements that I
hope are not controversial. We should crack down on bad guys
who use shell companies to commit crimes. It is not
unreasonable to have small businesses provide some identifying
information to the government when dealing with them.
And small business owners in my district in Louisville,
Kentucky, accountants, Mr. Harris, shouldn't have to call my
office in tears because they haven't gotten guidance from
FinCEN on how to comply with BOI reporting requirements and
they think they are going to jail.
So I think we should frame this conversation in that sort
of way where we are trying to make sure that the bad guys
aren't doing bad things, that small businesses have what they
need, and they can comply.
And I think it is obvious FinCEN's rollout must be better.
My staff has taken those calls from accountants, from small
businesses, from people who honestly they think they are going
to end up in jail because of CTA. FinCEN and Treasury need to
do a much better job in educating and communicating over the
next year, but I think we can help with that, too.
And people who are just outright opposed to anything can
abandon some of the fear mongering that is causing this sort of
reaction from my constituents, so I want to ask a few
questions. I will start with Mr. Kalman. The penalties under
the Corporate Transparency Act only target individuals who
willfully provide false or incomplete information to FinCEN,
correct?
Mr. KALMAN. Correct.
Mr. MCGARVEY. Okay. And then how can FinCEN--because this
is the Small Business Committee we want to make sure that that
small businesses have what they want, the stories are real. How
can FinCEN coordinate with the SBA to ensure an adequate
rollout to help these small businesses comply with these
regulations?
Mr. KALMAN. Thank you for the question, and I think that is
actually the most productive thing we can talk about so I
appreciate you raising it.
You know, FinCEN does have some ability and, in fact, in
two days I am going to be on a webinar with some small
businesses to talk with FinCEN to talk about implementation of
the law and to help them with compliance.
But I think the number one thing that Members of this
committee could do is to join with their colleagues in asking
for more money for FinCEN specifically for implementation and
education of the constituency of small businesses. There is an
awful lot that can be done. FinCEN doesn't currently have the
resources.
Mr. MCGARVEY. Mr. Harris, I want to ask a question of you
as well. In your testimony you said you have no problem with
the goals of CTA but you do believe that the current
implementation of the BOI reporting requirements without
adjustments lead to mass noncompliance. I would ask sort of the
same question to you. Is there a role here for the SBA and
FinCEN to coordinate to get an adequate rollout for these small
businesses to comply with the regulations?
Mr. HARRIS. Well, I think there is a role for everybody
because clearly there is massive lack of awareness,
understanding. So I think we need to--if we are going to go
forward with this then we need to utilize all the tools that we
have to, number one, educate the small businesses of the
requirement, to address some of the concerns that both they and
firms like ours feel because I am not an expert in crimes,
certainly not in money laundering, so I have to defer to others
on whether this is an effective way to combat those types of
activities.
But I do know that this is not an effective rollout of a
way to combat those activities. So I think it is going to take
everybody working together to try to find a way to make this
work if we are going to go forward with it.
Mr. MCGARVEY. Thank you. I appreciate that.
Mr. Kalman, I will come back to you. We know FinCEN was
subject to a great deal of criticism for how they have educated
affected businesses during implementation, and I think with
good reason. Has the outreach and education effort--has the
outreach improved? Have the education efforts improved since
the law has gone into effect, if you know?
Mr. KALMAN. I think there has been a step up in webinars
and outreach. I think the biggest thing that FinCEN is doing is
trying to work with secretaries of state across the country and
with the IRS. These are places where small businesses just have
interactions and so those are touch points where I think they
can make a lot of difference. And I think they are stepping up
those efforts, yes.
Mr. MCGARVEY. Mr. Harris, I will ask you the same question
in the 20 seconds we have got left.
Mr. HARRIS. Everything helps. You know, like I said, I just
come back to the fact that at this point we need to channel all
of our resources to see if there is any way to make this work.
I would ask each of you to go back to your home districts
and ask a business owner if they have ever heard of it. I think
they will say no. If they say yes they probably heard it from a
firm like ours, so we have got a lot of work to do.
Mr. MCGARVEY. Thank you. I know it wasn't fair for me to
say 20 seconds answer how to fix this, but that is what we had.
Mr. Chairman, I yield back.
Chairman WILLIAMS. The gentleman yields back.
I now recognize Representative Maloy from the great state
of Utah for 5 minutes.
Ms. MALOY. Thank you, Mr. Chairman.
Mr. Harris, I was going to start with a different question
but I am going to answer your question first. So I have been in
Congress for 5 months and I have had several calls from
businesses in Utah where I represent about this, and they are
really nervous about their ability to comply and some of the
small businesses that have called me have been accounting
businesses.
Mr. HARRIS. Sure.
Ms. MALOY. I share your concerns. In fact, the first week I
was in Congress I got a call about this and I went and talked
to Mr. Luetkemeyer on the floor and so this is something I have
been looking at the entire time I have been here.
And there is discomfort and disquiet out there in the small
business community that they are going to get in trouble for
trying to comply with something they can't understand, which is
government at its worst, that we are up here talking about
intentions.
You know, this was intended to stop money laundering. This
was intended to be simple, but our intentions don't really
matter if the result is disruption to the small business
community. So we should be able to do better than that.
And to that point, Ms. Roth, you talked about asymmetric
risk problem in your last answer. Do you want to take a minute
and just unpack that a little bit for all of us?
Ms. ROTH. Sure. I am going to actually read from one of the
almost 450 small business owners who have proposed this. This
is a gentleman by the name of David Stiles, who is a
consultant. He said he will ``close his doors rather than
expose himself to the asymmetrical risk of exposure of personal
information and the potential to be prosecuted if the
government deems I have completed my documents incorrectly.
Given the complexities and ambiguities of the CTA's BOI rule, I
view the risks and consequences of running afoul of compliance
to be unacceptably high. Engaging professional help to complete
the required documentation would turn my consultancy into a
money loser.''
Ms. MALOY. Thank you. That was a even better answer than I
anticipated. And the reason we are doing this is because we are
trying to stop money laundering. I am going to open this
question up to everyone on the panel. Is anyone aware of any
money laundering businesses that have actually been picked up
with this?
Ms. ROTH. No, and I think that is sort of the fundamental
issue with what we are talking about here if we want to prevent
financial crimes. Does anyone actually think that a money
launderer or cartel is going to be the one that reports?
And we have other tools. We have suspicious activity
reports. We have the courts. So we should be focusing on those
rules and not penalizing small businesses as a way to go after
money launderers and cartels.
Ms. MALOY. Mr. Harris?
Mr. HARRIS. I am not aware of anyone, but I do the best I
can to stay away from people who launder money.
Ms. MALOY. So do I.
Mr. Opsitnick?
Mr. OPSITNICK. I am certainly not aware of anyone, and I
couldn't agree more with Ms. Roth. I mean, this is exactly what
it is about. The people who are evil are going to manipulate
the system. They are not going to comply. We are going to
comply because we follow the rules.
Ms. MALOY. Or you are going to try to comply.
Mr. OPSITNICK. We are going to do our best.
Ms. MALOY. Mr. Kalman?
Mr. KALMAN. I would say the law has been in effect for a
few months and people are just starting to file so it wouldn't
be surprising if there are no cases.
I would point out, however, that many of these directories
are very similar throughout Europe and the U.K. and have been
in place for several years and, yes, they have actually yielded
a number of cases. And we are happy to supply examples if that
is helpful.
Ms. MALOY. Well, recognizing that this is fairly new it
just feels like a good old-fashioned dragnet operation, which
we don't do in this country, because the tradeoff of violating
rights in exchange for stopping crimes is just not something
that we are willing to tolerate.
Mr. Opsitnick, you talked about how lawyers can't
understand the terms and they are not sure how to define them.
My background is in the law and definitions really matter as an
attorney. It is risky to advise a client to do something if you
are not sure where the line is to get them, you know, the line
that will cause them legal problems and you are in the middle
of a lawsuit over this very problem.
I just want to go back to this definition of willful. If
the highest penalties are someone who willfully refuses to
comply, what is the risk to a business that is that is
attempting but doesn't understand what the terms mean?
Mr. OPSITNICK. You know, what I worry about most is not the
scienter or the, you know, degree of culpability that is
engaged in the definition of willful. What I worry about is the
impact on a small business that is actually being charged and
has to then go through the process to prove that they, in fact,
did not do something willfully.
You know, the amount of money would be devastating to their
business. It would put them out of business. You can't even
imagine the amount of effort it would take to fight the
government if they come and tell you you willfully failed to
comply.
Ms. MALOY. I am going to cut you off because I only have a
few more seconds, but what we talk about a lot on this
committee is removing burdens from small businesses,
streamlining processes, making it easier for small businesses,
and it feels like this is the opposite of that.
And with that, Mr. Chair, I yield back.
Chairman WILLIAMS. The gentlelady yields back.
I now recognize Mr. Thanedar from the great state of
Michigan for 5 minutes.
Mr. THANEDAR. Thank you. Thank you, Mr. Chair, and good
morning to all of you. Thank you for being here.
My question is for Mr. Kalman. It is crucial to acknowledge
the significance of safeguarding the information collected
under the Corporate Transparency Act. This legislation marks a
critical step in combating transnational crime and corruption
by requiring the disclosure of beneficial ownership
information; however, with such sensitive data being collected
ensuring robust security measures is paramount.
Mr. Kalman, could you elaborate on the security mechanisms
in place to safeguard the information collected under the CTA,
particularly concerning access to the database by law
enforcement, national security, and financial services
professionals?
Mr. KALMAN. Sure, and thank you for the question. I think
over the course of the debate there were concerns about
security and so the security concerns that FinCEN is now
required to put in place--not everybody in law enforcement has
access to the database.
You have to be certified. You have to go through a
training. You have to go through a background check. When you
log on every logon is tracked and, therefore, there is an audit
of that and it can be traced.
You have to say that there is an existing investigation.
And there are penalties which are actually, I think, stronger
for leaking the information than there are for not reporting.
And so appropriate security measures, recognizing some of those
concerns, were negotiated and included in the law.
Mr. THANEDAR. All right. Thank you, Mr. Kalman.
And, Mr. Chair, I yield back.
Chairman WILLIAMS. The gentleman yields back.
I now recognize Representative Stauber from the great state
of Minnesota for 5 minutes.
Mr. STAUBER. Thank you, Mr. Chair and Ranking Member
Velazquez, for holding this hearing. And thank you to all the
witnesses for being here today and taking time out of your busy
schedule to shed light on this topic.
Over 700 regulations have been added to the Federal
Register costing nearly $440 billion since Joe Biden took
office and FinCEN's recent beneficial ownership information
rule is yet another regulatory burden placed on American small
business owners by this administration. It is clear the Biden
administration's priorities aren't with the men and women who
own small businesses.
Forcing the collection of personal data from millions of
small businesses opens them up to potential data breaches and
fraud. FinCEN hasn't helped provide much clarity on reporting
at this moment either.
Mr. Opsitnick, many small businesses are unaware that this
reporting obligation is pending. Can you please talk about the
potential consequence of noncompliance with the BOI rule?
Mr. OPSITNICK. Well, the consequence is devastating to a
small business to think that you could go to jail for two years
for failing to comply or that you would, you know, get civil
penalties as well. It would be devastating.
And my own experience is that there is simply nobody is
aware of this. And in the boards that I am on who would have
some responsibilities, the nonprofits, you know, my local
sportsman's club, my homeowners' association, these issues have
never been raised.
I have never received letters from my small businesses from
FinCEN. The only reason I am aware is because I happen to be a
past Chair of the local Chamber of Commerce where we, you know,
we are very much involved in these issues. So my awareness is
because I am active.
Mr. STAUBER. Yes. Thank you very much.
Mr. Kalman, on your company's website Transparency
International outlines their ``solution on beneficial ownership
transparency by saying countries should create centralized
public registers of beneficial ownership with verified
information on who ultimately owns or controls these
structures. These would allow everyone to see who is hiding
behind anonymous companies and trusts.''
Do you believe Americans should lose their right to privacy
simply for opening a business?
Mr. KALMAN. My organization does believe, as they have in
Europe and throughout the U.K., that the names behind companies
have been extremely helpful in deterring corruption and,
therefore, have supported public registries, yes.
Mr. STAUBER. Do you believe Americans should lose their
right to privacy simply for opening a business?
Mr. KALMAN. As I said, I think the value of the
information----
Mr. STAUBER. Mr. Kalman, I just have a little bit of time.
As executive director of Transparency International do you
believe your home address should be publicized?
Mr. KALMAN. I believe that not all the information, because
if you are going to get to driver's license and all of that,
that is not made public, by the way, in any of the registries
as far as I am aware.
Mr. STAUBER. Mr. Kalman, I do----
Mr. KALMAN. And so there----
Mr. STAUBER. Yes, excuse me, just with the limited time, I
know a filibuster when I see one. Should other Americans not
have a right to register a business without publicizing their
home addresses?
Mr. KALMAN. It is the business address I believe that is
actually required.
Mr. STAUBER. That is right. So you don't believe they
should be required to publicize their home address?
Mr. KALMAN. If that is the business address then it is the
business address.
Mr. STAUBER. And have you owned a small business?
Mr. KALMAN. Yes.
Mr. STAUBER. Explain please.
Mr. KALMAN. I had a small consultancy where I helped
nonprofits with some of their fundraising and administrative
efforts back when I lived in Philadelphia.
Mr. STAUBER. The Transparency International, how many
employees?
Mr. KALMAN. Transparency International U.S.?
Mr. STAUBER. Yes.
Mr. KALMAN. We currently have 5 full-time employees, sorry.
Mr. STAUBER. So you consider it a small business, right?
Mr. KALMAN. A small nonprofit, yes.
Mr. STAUBER. So I will tell you, my brothers and I owned a
small business for 31 years. What you are hearing from the
other witnesses is exactly what we have heard from other small
business owners across this country ever since I have been on
this committee. I am in my sixth year. Stop the overburdened
rules and regulations that are stifling our local economy and
our local small businesses.
I think you are--I do believe you are a good person. I just
want you to recognize the struggles that the men and women in
this country involving small businesses and the rules and
regulations, the overburdensome that you are putting on these
American small businessmen and women.
And I yield back.
Chairman WILLIAMS. The gentleman yields back.
I now recognize Representative Van Duyne from the great
state of Texas for 5 minutes.
Ms. VAN DUYNE. Thank you very much, Mr. Chairman.
Once again the Biden administration has rolled out a
regulatory framework failing to recognize the impact on small
businesses. By increasing the regulatory burden once again to
countless small businesses, this administration chose to ignore
the warnings and failed at implementing the Corporate
Transparency Act in a pro-growth manner.
With this week also National Small Business Week, I was
glad to see this Committee passed my bill, the Small Business
Regulatory Reduction Act. This bill requires the Small Business
Administration to ensure for each fiscal year the cost to small
businesses of the administration's rulemaking is not greater
than zero, and it also requires the SBA to issue a report on
any regulations issued by other federal agencies that impact
small businesses.
I look forward to seeing this bill on the floor and working
with this committee to ensure that Congress is reining in the
power of an out-of-control regulatory gluttonous executive
branch.
I am on another Committee that is meeting at the same time,
Ways and Means, and we have Secretary Yellen in front of our
Committee today. Now, I am going to have an opportunity, just
like I am with you, to ask her some questions. I am going to go
down the line. If you were in my position and you could ask
Secretary Yellen any question what would it be?
Ms. ROTH. Oh, Lord, you asked the wrong person that. You
know, I think that aside from small business the fiscal
foundation of this country is on an unsustainable fiscal path
and what the government is doing is fighting against the work
of the federal reserve. So I would ask her why they are
fighting against the Fed and how they are going to make sure
that we have a strong fiscal foundation.
Ms. VAN DUYNE. Great question.
Mr. Harris?
Mr. HARRIS. I think I would ask her if she is believing
that this bill is necessary and needs to work why isn't she
working more closely with companies like ours and people in our
profession and the small business community to make sure that
it does, in fact, work?
Ms. VAN DUYNE. Good question.
Mr. OPSITNICK. I would like to ask, you know, what makes
America great? I mean, we are the innovators. We kick butt. We
kick the world's butt. We don't want to be like Europe.
I have had the occasion to, you know, to try to set up a
corporation in the U.K. It takes weeks or months. Why would we
want to be like that?
We want to be someone who is quick and easy. I can do it in
a day today. I can get an EIN number and I can file my
corporation with the state of Ohio. Why would I want to be like
somebody else? It stifles innovation. Why would we do something
that stifles innovation?
Ms. VAN DUYNE. On that now you are getting me on our tax
cuts and JOBS Act extensions as well. You are getting me all
fired up before I go to this hearing.
Mr. KALMAN. I think the thrust of this hearing is trying to
figure out how to make this work for small businesses, and I
would ask Secretary Yellen what does she need? What does the
Treasury Department, what does FinCEN need to actually make
sure that small businesses can ease their compliance or their
resource constraints or what do they need----
Ms. VAN DUYNE. But the----
Mr. KALMAN.--to make this happen?
Ms. VAN DUYNE. But honestly that is always--always we need
more money. I am sorry but that is a copout and we can make
government work smarter. We could look at the regulations that
they are wasting time right now hiring people to do that are
not helping, that are crushing small businesses. That is the
answer. It is not, oh, we just need to hire more people. People
are sick of it.
To Ms. Roth's point, we are at a fiscal cliff right now. To
think that just throwing more money at this problem is going to
help, we are crushing our economic sector because what we are
doing is throwing more government taxpayer dollars into it.
It is not sustainable. These aren't private jobs. This is
not private sector growth. What we are seeing right now is just
being propped up by government spending that we are going to be
working to pay off for decades, lifetimes to come.
When we are adding a trillion dollars every hundred days to
our debt the last thing that I am going to ask a cabinet
secretary is, hey, can we give you more money?
We all know what this that answer is going to be. And it is
really a sad commentary that that is always our go to. We need
to be able to clean up, make sure that the regulatory burdens
that we are putting on actually do something.
Are they decreasing costs? Are they increasing safety? Are
they increasing efficiency? Does it do anything other than add
more bureaucrats, more cost, more time, and more boxes that our
businesses have to check and do nothing else but make us less
competitive around the world?
So I would hope that more thoughtfulness would go into that
type of a question than do you need more resources. And thank
you very much for your answers, and I yield.
Chairman WILLIAMS. The gentlelady yields back.
I now recognize Representative Alford from the great state
of Missouri for 5 minutes.
Mr. ALFORD. Thank you, Mr. Chair. And thank you, Chairman
Williams and Ranking Member Velazquez, for holding this
hearing.
Congress passed the bipartisan Corporate Transparency Act,
or CTA, in 2020, tasked FinCEN with creating rules to reduce
the use of companies to obscure criminal behavior and detect
funds used for crime and terrorism. FinCEN was tasked with this
job because of their expertise in investigating financial
crimes.
A result of this rulemaking, though, is the beneficial
ownership information, or BOI rule. It requires businesses with
20 or fewer employees to disclose beneficial owners of those
who have at least a 25 percent stake in a company or those who
have substantial control over a company's operations.
This vague rule has caused chaos in America's small
businesses, those least able to absorb the compliance burden
that this place is upon them. A specific problem is FinCEN's
definition of individuals that exercise control over a company.
Several legal and accounting service providers have indicated
that they will not offer assistance to clients in complying
with this rule.
Substantial fines of up to $10,000 and potential jail time
are punishable for willful noncompliance, and as we have heard,
we don't have a definition of willful. Despite the issues
raised with FinCEN, they have gone ahead with this rule which
was implemented in January of this year.
I want to start with you, Mr. Harris. Just last week a
Member of my staff told me that a constituent reached out to
our office asking for help with BOI, calling a congressional
office needing help with their BOI compliance.
Your company has worked with tens of thousands of small
businesses over the decade that your company has existed. When
you talk with clients do they have an understanding of the
requirements of this, what it is, what they need to do in this
coming year?
Mr. HARRIS. No, Congressman, they do not unless we tell
them. Again, they are not following this. This is not what they
got in business to do so if they have anywhere--we have gone on
education campaign to inform them of this requirement as it
currently exists.
But as I think someone mentioned earlier we are not doing
anything with that today in hopes that we get some changes
between now and the end of the year so that we can take on this
our role and assist our clients. We want to help them comply
but for right now we haven't found a way that we can make that
happen that is affordable to them. And after hearing somebody
is going to pay $8,000, I am reconsidering my hesitancy to do
this, but----
Mr. ALFORD. Sir, do you know how many LLCs there are in the
United States of America?
Mr. HARRIS. Well, no, but a lot.
Mr. ALFORD. I did a little research. As of 2021, there are
21.6 million limited liability corporations in America, each
subject to these new regulations. Many of those are dormant
LLCs, mom-and-pops, entrepreneurs whose thought, hey, I may
start up a little business, maybe an Etsy business, something
online, and I need a little protection so I am going to have
it. And now they are subject to a potential $10,000 fine. What
do you make of that?
Mr. HARRIS. Well, I think a $10,000 fine is going to scare
everybody away. I think one of the--I asked FinCEN a question.
I said what if a business closes? What do we do to take them
out of the database and they said ``nothing.''
So one of the concerns I have is 10 years from now how
accurate is that database with businesses that have closed are
still in it, businesses who have grown outside of it they are
still going to be in this database, so how are we going to know
who is still active and who is inactive?
But I can tell you that the fear of a $10,000 fine makes it
very hard for anyone to swallow.
Mr. ALFORD. Ms. Roth, I want to ask you a question. I do
want to read your book, ``You Will Own Nothing,'' because I
have dealt with this in real estate. I think that people are
moving, you know, they want to turn into a renter nation. Do
you think this is part of a larger scheme this type of
overregulation to tamp down small businesses so we won't have
the entrepreneur spirit and the capitalism that we have so
enjoyed all these years?
Ms. ROTH. So I will speak on behalf of small businesses
because this is what they have been telling me. This has been a
constant barrage since COVID-slanted mandates that were not
based on data and science, but were based on political clout
and connections.
They had a different set of standards and a different set
of rules they had to play by. They were absolutely crushed
then. They have been crushed by the aftereffects.
And so when you see something like this and they say, oh,
it is about corporate transparency and they say, well, why are
the big businesses exempt then? If you want corporate they are
the ones that have the means to launder money. I can't even pay
my bills.
That is what they are worried about. They are worried about
this consolidation, this cronyism, and that we are absolutely
crushing the backbone of this country.
Mr. ALFORD. Thank you. I yield back.
Chairman WILLIAMS. The gentleman yields back.
I now recognize myself for 5 minutes.
Certain industries are going to be hit harder than others
when complying with these rules coming out of FinCEN, and just
this week I was speaking with some people in the land and title
industry. And on top of the concerns they have with the
Corporate Treasury Act and the beneficial ownership rule they
said is another rule coming down the pipeline that will be even
more costly for their businesses.
And according to their estimates, this new rule in the
pipeline will add an additional $500, we have talked about
that, per transaction on top of what is already required by
FinCEN. So this is just another example of compounding costs of
regulations hammering small businesses, and when Congress
updated the Corporate Treasury Act the intent was not to burden
our nation's job creators with costly new reporting
requirements.
So, Mr. Harris, do you have any estimations on the overall
cost of complying with this rule? And how could FinCEN make the
process easier for small business to comply?
Mr. HARRIS. That is what we are still trying to determine
is what is our cost and risk is a big part of making that
assessment. I mean, yes, you can fill the form out in 15
minutes, but what all had to go into it prior to that 15
minutes from legal and risk assessment?
That is what we are trying to assess because we don't want
to make this a burden on our small business clients because
most of them are just honest, good-working, hard-working
people. They have no problem doing this as long as it can be
done quickly and affordably.
So I don't have an answer today. It is too much right now
for us to be willing to do, but we are trying to get there.
Chairman WILLIAMS. Ms. Roth, in your testimony you said
that while preventing financial crimes is a worthwhile
endeavor, exempting big businesses from the beneficial
ownership reporting rule unfairly targets and penalizes small
business owners. So why do you believe that a different set of
standards and rules are being applied to small businesses and
not to big business?
Ms. ROTH. Excuse me. It is a big point of frustration with
the small business owners. It is all across the board. If you
have a sole proprietorship, you are exempt. If you have an
entity, you are not exempt.
So we have small business owners who are saying, well,
although I like the protections of having an LLC, I am just
going to dissolve that because I don't want to be targeted. And
then they don't understand, okay, well, I get to, you know, $5
million in revenue and 20 employees and then those people are
exempt.
So what is it about these, you know, small businesses that
make up the chunk of the small businesses in this country, the
almost 33 million small businesses in this country, that that
particular group of people should be targeted, but the big
businesses don't have to do this? And sole proprietors don't
have to do it. It does feel like there is something weird going
on.
Chairman WILLIAMS. It is called government talk.
Ms. ROTH. Yeah.
Chairman WILLIAMS. Yeah.
Mr. Opsitnick, in preparation for this hearing you
indicated receiving compliance guidance from FinCEN on this
rule was difficult. Can you please describe the issues you have
had getting charity, or clarity, rather, from FinCEN and how
that will impact the services that you offer?
Mr. OPSITNICK. Well, the clarity really is the--you know,
we have taken a small act and continue to pile on. And as I
mentioned in my testimony, we have 102 pages which include the
FinCEN Small Entity Compliance Guide and Frequently Asked
Questions, and then that together with an entire website
devoted to all of this.
It is overwhelming for a small business owner, even for
those who are unaware. Contrast that currently with the
requirements that somebody has with the federal government in
starting a new business which is to get a taxpayer ID number.
It is a two-page document, the application and a set of
instructions.
That is our sole obligation today with respect to the
federal government. So this, you know, there couldn't be a more
darker contrast.
Chairman WILLIAMS. Let me tell you, I am from Texas, and we
take the right to privacy very seriously, like we all do, and
the more information we have out there the more likely a bad
actor is going to gain access. And, unfortunately, the
implementation of this rule asked for more information than is
needed to comply with the law.
So briefly, Ms. Roth, in the time remaining, how could we
better strike the balance between a business privacy and
national security concerns?
Ms. ROTH. Well, I believe that most small business owners
think that if you need to reach them that there is a way that
the government already can reach them through the IRS or some
other point of contact.
In terms of FinCEN, they have things like suspicious
activity reports and, of course, the courts that if they have a
specific entity where they need the beneficial ownership
information they should go to the courts, petition them, and
get that information.
But having a database of everybody who is involved with a
small business owner seems like a very heavy-handed way to try
to approach and solve that issue.
Chairman WILLIAMS. Thank you. All right. I want to thank
all of you for being here today. I am sorry. I was involved in
talking about--this is Small Business Week this week, so we are
promoting it. And I appreciate my colleague, Congressman
Meuser, for sitting in, and I appreciate the Ranking Member
today.
This has been a great hearing. I appreciate you all being
here and thank you a lot for taking time to come up here.
And without objection, Members have 5 legislative days to
submit additional materials and written questions for the
witnesses to the Chair which will be forwarded to the
witnesses. I ask the witnesses to please comply promptly if you
are involved in that.
And if there is no further business, without objection, the
committee is adjourned.
[Whereupon, at 11:26 a.m., the committee was adjourned.]
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