A well-intended, zealously pursued, quest often has negative consequences. Such is currently the case with the Corporate Transparency Act, which is being pushed by some of my colleagues on the House Financial Services Committee. In their quest to reduce corruption and weed out bad actors in the business world, their work is jeopardizing the privacy of millions of Americans and strangling a key engine of American economic growth—small businesses.
Introduced by Rep. Carolyn Maloney (D-NY) and cosponsored by Reps. Peter King (R-NY) and Gregory Meeks (D-NY), the Corporate Transparency Act would require companies with fewer than 20 employees to begin filing regular reports to the Treasury’s Financial Crimes Enforcement Network (FinCEN) relating to the “beneficial owners” of an enterprise. The goal is to pierce the corporate veil of shell companies and give law enforcement greater access to potential wrong-doers who use corporate shells to disguise their ill-gotten gains.
It seems my colleagues have forgotten that this is not the role of the federal government. If the authorities suspect wrongdoing, a judge can determine if it is necessary to make such information available to law enforcement. The Corporate Transparency Act would preemptively collect this information, in effect, assuming the guilt of entrepreneurs before a crime is even committed. This is not how we are supposed to treat productive members of society.
All Americans—even the capitalists that some Democrats love to hate—are entitled to privacy and due process. Throughout the history of the republic, lawmakers and law enforcement understood that if they wanted personal or business-related information, that they must have a good reason for demanding the data and they must present a warrant. This bill does not provide such protections for business owners, whose data would be available without even the fig leaf of requiring law enforcement to present search criteria before scouring the database. Moreover, considering our nation’s lackluster cyber-security, warehousing this data in anticipation of some future crime leaves small businesses vulnerable should hackers breach government databases. It also would burden them with more government paperwork.
Every business owner knows that running a company today requires more than just drive and skill. It increasingly requires completing a mountain of confusing—and often redundant—paperwork to remain in compliance with local and federal regulations. It was frustrating when I was running my own companies, and business owners in my district tell me they feel the same way. Filling out these disclosures isn’t just time consuming—it takes business owners away from other pressing business concerns. After all, banks and other government agencies already collect this information, which can be made available if a judge deems it appropriate. Creating another database at the expense of taxpayers’ money and business owners’ privacy is the height of laziness, especially when the information is already available through alternative means.
What’s worse, small business owners are the least equipped to handle this new regulatory burden. Any failure to comply results in criminal penalties: a fine of $10,000 and up to three years in prison. Large corporations with teams of lawyers can easily deal with this task, but this is asking too much from small businesses, which typically don’t retain teams of lawyers and probably have never even heard of FinCEN. This legislation would create obstacles for entrepreneurs and small business owners while unintentionally advantaging large corporations that can absorb this cost.
In my home state alone, roughly 154,000 businesses that employ some 697,000 Ohioans would be adversely affected by this legislation. Do we really want to punish job creators? We would do better to leave small businesses alone to do what they do best.
As for the minority of bad actors who might use shell companies to facilitate criminal activity, it is unnecessary to further complicate already complex business transactions by penalizing those who use shell companies for legitimate purposes. We should not enact policies that would discourage investment when there are already pathways in place for law enforcement to track criminal activity.
Small businesses—including those with fewer than 20 employees—ought to take more credit for their contributions to the American economic recovery. Congress should be rewarding and encouraging their growth, not punishing businesses with even more intrusive and costly paperwork.