Small Businesses to Face Two Years in Prison for Mistake on Form

The Federal Government’s “Beneficial Ownership” Snoop

​Millions of small business owners are about to be hit with a nasty surprise. The Corporate Transparency Act, which passed Congress as part of the must-pass National Defense Authorization Act of 2021, goes into effect this year. Advertised as a way to combat money laundering, this new law now requires small businesses to report their “beneficial owners” to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).
 
This reporting requirement falls on any small business with fewer than 20 employees to reveal its “beneficial owner.” In plain English, this means a small business must give the government the name of anyone who controls or has a 25 percent or greater interest in that business. By Jan. 1, 2025, small businesses must submit the full legal name, date of birth, current residential or business address, and a unique identifier from a government ID of all its beneficial owners. There are significant privacy risks at stake in this seemingly innocuous law, beginning with the widespread access multiple federal agencies will have to this new database.
 
This law, which covers 32 million existing companies and will suck in an additional 5 million new companies every year, threatens anyone who makes a mistake or files an incomplete submission with up to $10,000 in fines and up to two years in prison. “The CTA will potentially make a felon out of any unsuspecting person who is simply trying to make a living in his or her own lawful business or who is trying to start one and makes a simple mistake for violations,” says the National Small Business Association (NSBA).
 
The “beneficial ownership” provision is one more way for the federal government to break down the walls of financial privacy in its quest to comprehensively track Americans’ finances. Consider another big bill, the recent Infrastructure Investment and Jobs Act of 2021, which requires $10,000 or more in cryptocurrency transactions to be reported to the government within 15 days. Incorrect or missing information may result in a $25,000 fine or five years in prison.
 
In addition, the CATO Institute reports that new regulations under consideration would hold financial advisors accountable to “elements of the Bank Secrecy Act, which currently compels banks to turn over certain financial data to the feds.” It is likely that your financial advisor will soon be required to snitch on you. This undermines the whole concept of a fiduciary, someone who is by law supposed to be loyal to your interests.
 
All of these measures are justified by the quest to track the money networks of criminals, terrorists, and drug dealers. But the data these authorities generate will be available, without a warrant, to the IRS, the FBI, the ATF, the Department of Homeland Security, and just about any agency that wants to investigate you for your personal activities or statements that some official deems suspicious.
 
The CTA’s “beneficial ownership” provision represents a new assertion by the federal government over small business. Since before the Constitution, the regulation of small business has been under the purview of the states. Now Washington is assembling a database with which it can heap new regulations on small business regardless of state policies.
 
The NSBA, which is challenging this law in court, estimates that complexities in business ownership will require companies to spend an average of $8,000 a year to comply with this law. NSBA’s lawsuit is moving forward with a named plaintiff, Huntsville business owner Isaac Winkles, in a federal lawsuit. NSBA and Winkles won summary judgment from Judge Liles Burke of the U.S. District Court of the Northern District of Alabama, who held the beneficial owner requirement to be unconstitutional because it exceeds the enumerated powers of Congress.
 
While the government appeals its case to the Eleventh Circuit, FinCEN maintains that it will only exclude small businesses from this requirement if they were members of NSBA on or before March 1. These encroachments are steady and their champions on the Hill are growing bolder in financial surveillance. The good news is that privacy activists have just acquired 32 million new allies.