Chairman Patrick McHenry recently introduced the Protecting Small Business Information Act, which would delay the Corporate Transparency Act’s January 1, 2024, effective date.
The CTA’s reporting requirements will subject tens of millions of small businesses to higher compliance costs, privacy risks, and hefty fines and prison terms. With Treasury woefully behind not just in its rulemaking process, but also in terms of engaging and educating affected businesses, we are supporting the effort to delay the CTA from taking effect.
The undersigned organizations, representing millions of small businesses operating in every community across the country, write in strong support of the Protecting Small Business Information Act of 2023 (H.R. 4035). By delaying the Corporate Transparency Act’s (CTA) reporting requirements from taking effect until a robust regulatory framework is put into place, your legislation will help ensure affected businesses are not subjected to an overly burdensome and unpredictable compliance regime.
The CTA was enacted in 2020 with the stated goal of combatting money laundering, terrorist financing, and other illicit activities. The statute requires the submission of regular reports to the federal government that include a litany of sensitive personal identifiers of the owners and senior employees and/or advisors of covered entities.
The first challenge is the CTA applies only to businesses with under $5 million in annual revenues and fewer than 20 employees, thus ensuring that the very companies who can least afford the costs associated with compliance are the ones being targeted. The Treasury Department estimates the CTA will cover over 32 million existing entities and an additional 5 million newly-created entities every year. These companies and other legal entities will be subjected to increased paperwork, privacy risks, and potentially devastating fines and prison terms.
The second challenge is the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) is ill-prepared to implement and administer the new reporting regime. As your recent letter to Secretary Janet Yellen made clear, FinCEN has yet to lay out a clear plan for engaging affected businesses to convey their upcoming responsibilities. The agency is also woefully behind in promulgating the key rules necessary to implement the CTA. Despite a looming effective date of January 1, 2024, federal regulators have yet to finalize the “Access Rule,” which specifies who can access the database and for what purposes, as well as an updated “Customer Due Diligence Rule” which applies to financial institutions.
Your legislation offers a commonsense solution to this pending regulatory trainwreck. By delaying the reporting requirements from taking effect until Treasury finalizes its rulemaking process, the Protecting Small Business Information Act would provide tens of millions of law- abiding Americans the certainty they need to comply with the new statute, as well as giving Congress more time to rethink this whole approach.
The undersigned organizations strongly support this legislation and call on Congress to enact it.