Starting next year, millions of small business owners will get a letter from a federal agency they’ve never heard of, telling them they need to comply with a law nobody’s told them about. Most, like reasonable people, will probably think the notice is a scam and throw it away.
But doing so could result in hefty fines or even jail time because the scam is a new law called the Corporate Transparency Act, a particularly ill-conceived statute that manages to be both far-reaching and wholly ineffective at the same time.Won’t the new law help federal officials identify money launderers and drug smugglers? Hardly. The CTA relies on criminals to self-report accurate information about their illicit activities without any third-party verification.
Whose information is being reported? A “beneficial owner” is anyone with a 25% stake, on the board, in senior management, playing a significant consulting role, helping get the entity organized, or otherwise exercising “substantial control,” whatever that means. For smaller entities, the rules represent just another federal reporting requirement that demands their time but offers no real value. For more complicated operations, including charities with extensive boards and lots of volunteers, entities with layered ownership, or operations organized with multiple legal entities, collecting the necessary information could be daunting, if not impossible.
The good news is that Washington is beginning to recognize the coming disaster. The National Small Business Association has filed a lawsuit, NSBA v. Yellen, arguing the CTA is simply unconstitutional. If you wondered, “Under what authority is FinCEN compelling business owners to report all this personal information?”, you are not alone. The CTA is an unconstitutional info grab, and we’re confident the courts will agree.
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