Roger Testifies to Congress About The Corporate Transparency Act

There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.

Roger Harris: Hello, everybody. Welcome to a special edition of the Federal Tax Update Podcast. On April the 30th, I was asked by the House Committee on Small Business to testify at a hearing on the implementation of the Corporate Transparency Act, and we're going to let you hear a little bit of that today as a special podcast. Hope you enjoy.

Speaker 2: Good morning all. [00:00:30] As is tradition in the 118th Congress Small Business Committee. We do start with a pledge or a prayer and the pledge. So I'm going to turn it over to Congressman Blaine Luetkemeyer to lead us in a prayer.

Speaker1: 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're 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 [00:01:00] safe. Um, 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 give us the continue to provide for our country in a way that is helpful to all. We ask these things in your name. Your son's name with that. Um, thank you for another great day. Uh, and as that we we continue to ask for your blessings. [00:01:30] Amen.

Speaker2: Would also please stand for the pledge.

We went to. And you.

Speaker2: Thank you very much. Good morning everyone. I now call the Committee on Small Business to order. [00:02:00] 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 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 a important press conference asked to attend with our leadership, and he will be with us within the next 15 [00:02:30] to 20 minutes. But I would like to start by thanking our witnesses for joining us today. Uh, your attendance is certainly greatly appreciated for taking the time and the travel, uh, to to be here with us. And we value your, uh, 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 will. It should reduce overall criminal behavior. [00:03:00] For example, FinCEN 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% stake in the company. Uh, 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 [00:03:30] 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 come from the Small Business Committee have overshadowed many of the benefits of the Corporate Transparency Act. Um, 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.

Speaker2: And suddenly they're getting something in the mail [00:04:00] 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, [00:04:30] 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 six month prison sentence. However, with the changes in the Corporate Transparency Act, many more people have access to this type of financial information. Business owners are rightfully concerned that their data could be leaked, stolen or used against them. [00:05:00] 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 and 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 our meeting, [00:05:30] uh, to our hearing. And with that, I will now yield to our distinguished ranking member from New York, Miss Velazquez.

Speaker3: Thank you. 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 [00:06:00] 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 boy registry enables law enforcement to better target oligarchs, kleptocrats, kleptocrats, and terrorist organizations who use [00:06:30] 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 [00:07:00] 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 used shell companies to hide their involvement in the drug trade and launder money to Hezbollah and Chinese drug traffickers. Traffickers. [00:07:30] 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 counterfeited goods from luxury brands, and American consumers have 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. [00:08:00] These anonymous entities are responsible for exploiting resources intended for real American small businesses, according to a Gao report from 2023.

Speaker3: Over half the charges for fraud in the PGP and Eidl program involved the use of shell companies to launder these funds, and two thirds included non-operating companies like the ones this law targets, and small businesses [00:08:30] overwhelmingly support the need for 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% 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 [00:09:00] filings of beneficial ownership information on January 1st, but despite its critical importance to many, small businesses remain unaware of their reporting obligations. 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. Fearmongering [00:09:30] 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 drop down menus, and only requires relatively basic information that small. That most small business owners either already know [00:10:00] 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, filing this information should be quick and easy. According to a recent survey, 68% of small business owners that have already filed indicated the process was easy. I want to thank the witnesses for their willingness to [00:10:30] testify today and I yield back.

Speaker2: Thank you. Gentlelady yields I will now introduce our witnesses. First witness here with us today is miss Carol Roth. Uh, Miss Roth is a small business owner and has extensive experience and expertise in related small business matters. Um, miss 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 [00:11:00] Business, Bulls and Bears, and CNBC's Closing Bell. Miss Roth has written three books, with her most recent book, you Will Own Nothing becoming a New York Times Best Seller. Uh. She also regularly writes for a number of online publications, including op eds for Fox News and Fox Business. Miss Roth has been named a top 100 Small Business Influencer by Small Biz Trends multiple times. She earned her Bachelor of Science and Finance and Management from the Wharton School of Business at the University of Pennsylvania. Uh, thank you for joining us today. [00:11:30] Uh, our next witness here with us is Mr. Roger Harris. Mr. Harris, the president of Paget Business Services, located in Athens, Georgia. Mr. Harris has served as president of Paget 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.

Speaker2: Harris served as president and Chairman of the board and one of the largest franchises in the system. He was a panelist on President [00:12:00] 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 Obsitnik. Mr. Obsitnik is the Executive vice president and general counsel of Technology Concepts and Designs, Inc., located in Cleveland, Ohio, which provides [00:12:30] a comprehensive suite of services including digital forensics and cybersecurity. Mr. Sicknick previously founded Jury Nove Limited, 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 of Small Business Enterprises. Mr. Obsitnik earned his Bachelor of Arts in political science and psychology from Ohio Wesleyan. How do we pronounce that? Weslyn I should know. University. Before earning his [00:13:00] JD from Case Western Reserve University School of Law. Thank you for joining us here today. And I now recognize the ranking member from New York, Mr. Velazquez, briefly introduce our last witness appearing before us today.

Speaker3: Thank you, Mr. Chairman. Our final witness today is Mr. Gary Coleman. Mr. Coleman is the executive director of Transparency International US and oversees the organization's US operation, focusing on illicit finance and the US role [00:13:30] 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 Dodd-Frank financial reform bill. He [00:14:00] is currently an advisory counsel for the International Coalition Against Illicit Economies, and it is a top advocate for anti-corruption and transparency issues. Thank you, Mr. Coleman, for joining us. We look forward to your testimony. Thank you, Mr. Chairman.

Speaker2: Thank you. Uh, now, before recognizing the witnesses, I do need to remind you all that there that your oral testimony is restricted to five minutes in length. If you see the light turn red in front of you, it means your five minutes [00:14:30] have concluded. And you should wrap up your testimony. I do now recognize Miss Roth for your five minute opening remarks.

Speaker4: Good morning. I'm Carol Roth, a small business expert and a small business owner myself. On behalf of small businesses across the United States, I'm asking that you are bipartisan advocates for small business. Immediately overturn the Corporate Transparency Act's Beneficial Ownership Information rule passed by Congress, which unfairly targets [00:15:00] 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 American's 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, [00:15:30] unfortunately does just that. It's 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're the backbone of the economy. If FinCEN has concerns about money laundering, cartel activity [00:16:00] or otherwise, they should be using the courts to receive information on those specific cases and entities. I imagine you would agree that it's 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 rules and effective that is, cartels and money launderers won't be swayed to participate, while also unconstitutionally penalizing law abiding Americans and infringing on their rights.

Speaker4: If there's a concern about foreign entities, [00:16:30] well, then the rules 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 BOE 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 [00:17:00] 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 after effects 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 [00:17:30] 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're trying to escape being targeted.

Speaker4: This cannot be how we treat entrepreneurs. Being a small business [00:18:00] 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 in 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 [00:18:30] the CTA BOE 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's unconstitutional, it's 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 [00:19:00] 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 BOE rule. Thank you for your time and consideration.

Speaker2: Thank you very much. I now recognize Mr. Harris for his five minute opening remarks.

Speaker1: Thank [00:19:30] 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 Paget who is provided accounting, tax and advisory. Re 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, we the 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 [00:20:00] 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 [00:20:30] 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. Uh, we lacked the guidance and examples of certain things like substantial control and more recently, willful [00:21:00] behavior in terms of, uh, assessing the penalty, what is considered willful behavior. There were other issues.

Speaker1: There is a 30 day time frame 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 are dependent [00:21:30] 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, other accounting associations. We came up to DC and met with many of your staffs to to look for ways to try to make this work. Uh, 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 [00:22:00] 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 the compliance, the non compliance is not going to be because these businesses are laundering money. It's because they're not filing a form. So we need to find a way if we're going to have this rule to make it work. So we think that there are some common sense things that we can do to [00:22:30] see if we can make this work. Number one, I want to endorse the suggestion that AICPA made, which was because of the, uh, legal, uh, 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.

Speaker1: We also need to really look at the 30 day requirement. It's [00:23:00] just not practical for most things. Personally, I would rather not have a 30 day requirement at all, but if we're going to have to have 30 days, I would like to see something as simple as your driver's license renewing, uh, start a clock ticking for noncompliance. Uh, we need changes in third party certification to fit more like what we do when we prepare someone's tax return. Uh, right now, we're being asked to take a stronger position legally on the beneficial owner than [00:23:30] we do on that same business as 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'm saying today is this isn't going to work as it's currently structured. It's going to cause massive noncompliance in [00:24:00] the small business community. And again, I remind you, that's not because they're laundering money. It's because they didn't file a form. So I'm 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.

Speaker2: Thank you very much. Uh, I now recognize Mr. [00:24:30] Obsitnik for your five minute opening remarks.

Speaker5: Thank you, Mr. Chairman. Uh. Mr. chairman. Members of the committee. Ranking members. Velasquez. Thank you for holding today's hearing on the implementation of the Corporate Transparency Act. My name is Tim Obsitnik and I am the part owner of several small businesses, including Obsitnik, LLC on Call Cyber Limited, and serve on the boards for several nonprofits and small businesses. I am also [00:25:00] 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 Administration Association, testifying on an issue that is truly critical to the entire small business community. Before I begin, I'd like to address the elephant in the room. As you may know, the SBA is involved in active litigation over the constitutionality of the CTA. I am not here [00:25:30] 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 [00:26:00] 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. [00:26:30]

Speaker5: As of January 1st, any Nonexempt new entity must report its beneficial owners to FinCEN within 90 days of formation. This place is 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'd like to draw your attention to Fincen's 57 page Small Entity Compliance Guide, as [00:27:00] 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's 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 [00:27:30] problems like the government's limited outreach, the lack of clarity and strong liability concern, small businesses also face a dearth of expert advisors able and willing to interpret the regulation or to help them. File Secretary Yellen said that FinCEN is making reporting as easy as possible for a small business. Shouldn't need a certified accountant or lawyer. As a small business owner and as a lawyer, I completely [00:28:00] 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.

Speaker5: 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 NSB survey revealed that the small business owners are anticipating [00:28:30] 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 un are woefully unprepared. Attorney listservs 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 [00:29:00] 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 [00:29:30] a small business data breach is $15,297. These figures could cripple small business 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 six months. In conclusion, I'd 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. [00:30:00]

Speaker2: And outside of that, it's wonderful. Correct? No kidding. Um, now, uh, Mr. Coleman, we, uh, uh, give you your five minutes to make your opening remarks.

Speaker6: Chairman. Mr. Ranking member Velasquez and members of the committee. Uh, on behalf of Transparency International USA, I appreciate the opportunity to discuss the, uh, the progress towards the implementation of the Corporate Transparency Act. Transparency international is part of the world's largest and oldest coalition fighting corruption. [00:30:30] The CTA is a historic anti-money laundering measure that Congress correctly understood would strengthen the ability of law enforcement in the US 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 [00:31:00] 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 and lead up to passage. Congress gathered a litany of evidence of the harms caused by the by anonymous, anonymous shell companies. In the 2018 Money laundering risk assessment, the Treasury Department wrote that drug crime associated financial flows has changed with the rise of China as a supplier of fentanyl and its analogs, [00:31:30] noting that the US Drug Enforcement Agency has determined that, quote, goods are being exported to China by US front companies as payment for drugs. In 2020, the US Department of Justice went after millions derived from a nearly 20 year long scheme to evade US sanctions on Iran by laundering more than $300 million through more than 70 front companies in California and other jurisdictions.

Speaker6: These and similar reports are why more than 100 national security experts ultimately [00:32:00] 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 use to undermine our markets and disrupt 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 [00:32:30] that multiple poles, small business owners felt that the benefits of the CTA's reporting requirements outweighed the cost. There are two independent polls 1 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 of business trade associations, including the US [00:33:00] 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, quote, this legislation will help prevent malign actors from leveraging anonymity to exploit these entities for criminal gain.

Speaker6: The Biden administration echoed that support in its US strategy on countering corruption, stating [00:33:30] that we will address these deficiencies in the US in the US anti-money laundering regime by effectively collecting beneficial ownership information. The CTA requires simpler reporting to mitigate these national security and public safety threats. According to the Small Business Administration, approximately 82% of all businesses in the US 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 [00:34:00] 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% reported [00:34:30] it being somewhat or very easy to comply. Only 6% 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.

Speaker2: All right. Thank you. We will now begin our line of questioning. And we're going to begin with myself and, um, [00:35:00] allow myself my five minutes of questioning. Um, so, look, since taking office, the Biden administration's instituted many regulations, many new taxes on on energy, on small business. And it's not been business friendly. In fact, it's weakened small, small businesses. So this FinCEN approach to beneficial ownership rule, uh, I don't think we believe needs to be completely rescinded. But my first question is going to go to you, Miss Roth, but there [00:35:30] 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. Uh, the number that you just had brought up, Mr. Coleman on what you said, 6%, I, I will I find that a challenging to to to to believe frankly. But data is data but we'll begin our questioning. So Miss Roth, has FinCEN reached out to small businesses. Have they adequately [00:36:00] reached out, let people know what the potential fines were, what the compliance is, why this is even being done in the first place?

Speaker4: Not not that I'm aware of, and certainly not with the small business owners that I have spoken with. Um, for my written or 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 the media or other [00:36:30] ways that they've come in contact with me, had never heard of it. They also have no idea who FinCEN is. You know, I'm a recovering investment banker, so I'm familiar with with, you know, the Financial Crimes Enforcement Network. But for your average small business owner, they're just trying to stay afloat. They're not familiar with that division of the Treasury. And when they find out, they're saying, why is it that I'm the Financial Crimes Enforcement Division of the Treasury is asking for my information? So the communication, [00:37:00] um, certainly hasn't been there. And as people find small businesses, find out more about it, the reaction isn't usually, oh, well, this sounds like a great thing. It's horror. And that's why I was able to bring so many statements to bear.

Speaker2: Of the those you surveyed for this, the 450 statements against and having problems with it, can you share with us how many said, it's okay, I'm handling it. I think it's a good idea. None zero zero. Okay, so what percentage [00:37:30] is that? You went to Wharton? Zero.

Speaker7: Yeah.

Speaker2: Okay. Uh, zero against. Right. Not right for. So, uh. Okay. So, uh, Mr. Harris, let me let me ask you, please explain the accounting industry's problem and lack of comfort assisting small businesses to comply with this rule.

Speaker1: Like I mentioned in my statement, there's just so much unknowns and risks that are potentially assigned [00:38:00] to us, which, if we have to go forward with no additional guidance, we're going to have to charge more for this service than than I think is fair for the small business owner to have to incur, because risk is something we have to factor in to how we charge. So if we could get some cooperation, you know, there's some things that seem simple. I know I mentioned I'd 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 [00:38:30] 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's where we have risk. We need guidance. There's there's 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're just asking for the same guidance that we have everywhere else. Without that, we're going to be unable to provide the help that these businesses are going to need. [00:39:00] And I can tell you, if we don't help, they're not going to do it.

Speaker2: Uh, thank you. Mr. opposite Nick, the what can be improved on the FinCEN rule in order to make you more comfortable with it?

Speaker5: Well, we're 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 we don't see any improvement. That's that's possible. We're certainly willing to engage in conversation. And we haven't been given that opportunity to engage in conversation. [00:39:30] You know, this is this is kind of where I get a little bit frustrated. We're we're very happy to have the opportunity right now to talk about, uh, the Corporate Transparency Act. But but we weren't given that opportunity before. In fact, it was a 21 page rider attached to a 1500 page National Defense Authorization 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 [00:40:00] it. It was just passed as as a rider. And and you know, when we consider that that's impacting 33 million small businesses and 60 million, uh, employees.

Speaker2: Really heavy handed government on our small business backbone of our economy, I thank you very much. And I and I yield back. And now I recognize the ranking member for, uh, her five minute remarks.

Speaker3: Thank you, Mister chairman. Uh, the regulatory environment under this administration is such. [00:40:30] Right. Uh, that has impacted so many small businesses. I don't know how that reconcile with the fact that 18 million small businesses starts since Joe Biden took office. So something doesn't click here. Uh, Mr. Coleman, the CTA took over ten years to pass. And you met with [00:41:00] a number of staff and members. Correct? And what were the key issues that brought Democrats and Republicans together that led to this law passage?

Speaker6: Um, thank you for the question. Um, there were a number of issues, I think, that brought a wide variety of constituencies. In fact, anonymous companies have been used, uh, for so many different crimes that you that's why you had the the variety. So [00:41:30] national security, fentanyl trafficking, human trafficking, uh, counterfeit and pirated goods, fraud and government contracting and more.

Speaker3: And can you comment on the unique array of organizations and interests which made up the coalition of stakeholders that fought for this law?

Speaker6: Sure. Uh, in my written testimony, I listed a number of the different constituencies that ranged, uh, cops, sheriffs, local prosecutors, Republican and Democratic, uh, attorneys [00:42:00] general, human anti-human trafficking organizations, human rights organizations, and the whole gamut.

Speaker3: Um, why were so many different interests aligned on on this passage?

Speaker6: They saw and I would also point out the law enforcement support of the value of the information that they believe, uh, this this would be helpful in stopping the kinds of crimes that we've been talking about.

Speaker3: Uh, FinCEN began accepting beneficial ownership information on reporting companies on January 1st, 2024. [00:42:30] 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?

Speaker6: Um, so there's 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 [00:43:00] have to know about the law and decide not to file.

Speaker3: And what happens if a small business owner accidentally makes a mistake on their submission to FinCEN?

Speaker6: They're not liable. They're not guilty of violating the law.

Speaker3: Mr. Coleman, under the law reporting, under the law reporting, companies must provide the beneficial owners full legal name, date of birth. Is this form here? Right. Carrying address [00:43:30] 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?

Speaker6: Um, we actually in the 12 years of the debate over this law, no one people put out some hypotheticals, but no one actually came forth with a company that wouldn't I would also, uh, point out that, uh, members created in the law a FinCEN identifier for those [00:44:00] parent companies that for some reason, legitimate or not, didn't want their, uh, subsidiaries to know who they were. They could use an identifier to continue that, uh, anonymity.

Speaker3: And 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?

Speaker6: Uh, if [00:44:30] you forget again to file, that is not a violation under the law.

Speaker3: Mr. Harris, uh, do you think it will be helpful, uh, for Secretary of States to provide a link to Fincen's database? When small businesses register their businesses.

Speaker1: It probably wouldn't hurt, but they're 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 [00:45:00] 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're 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'm not sure it's a.

Speaker3: But you don't think this will help small businesses know about the need.

Speaker1: It's got to create some awareness. Right?

Speaker3: Right. Because 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, [00:45:30] the partners out there, uh, small business banks to help educate businesses that they must comply with this regulation. Thank you, Mr. Chairman.

Speaker2: Ranking member yields back. We now recognize representative representative Lukemire for Missouri for five minutes.

Speaker1: Thank you, Mr. Chairman. I'm interesting guy to have on the committee here this morning because I was a sponsor the Republican sponsor Corporate Transparency Act. As much as I hate that bill and [00:46:00] 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, and because of my involvement, we were able to trim it down. And in fact, you only had four things you're supposed to do, and it's supposed to be able to do it on a on a postcard. Guess what? The administration continues to do what they always do, which is misinterpret what's going on. Read misconstrue. And now we've got over 50 different, uh, requirements that that they're supposed to comply with. They've [00:46:30] totally taken the law and just torn it up and start all over again. In our discussions with FinCEN, they said, well, we need to do is target those businesses under $5 million in revenue. There's nothing like that in the bill. They don't need this. I agree with Miss Ross 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 the warrants. They need to be able to go investigate. What they've done is weaponize the financial services industry, make them deputies in their law enforcement, [00:47:00] um, 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're trying to do here. However, they've taken the log in and done it completely different. So let's go back with the cost of this originally.

Speaker1: So what it's going to be I know we had Director Jackie from the Financial Services Committee a while back, and she stated that accountants will not be subject to criminal obligation for filing this information. Is that the way you read that, Mr. Harris? Well, I certainly hope so. But [00:47:30] I think, again, it's going to depend on the certain definitions of what is willful. I mean, are we willful? I wish FinCEN was as good and offering the definitions as Mr. Coleman was about what is willful, because we've asked for that guidance and we have not been given clear guidance on willful. So, I mean, I, I'm not sure anybody's 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're going to have to [00:48:00] be cautious in how we move forward. That's the best I can. Yeah. We argued long and hard over the words, willful, as Miss Vasquez talked about, and substantial, which I think Mr. Offset mentioned a minute ago. We argued long and hard over those and trying to find some definitions, and never did really come up with some good ones that actually work. But I know that it's very frustrating for all of us to sit here and put something on our on our small businesses. Now, the I think Mr.. Upset you made a comment. I think you talked about an average of like $8,000 [00:48:30] per small business. It would cost the American Action Network says it's going to cost about $2.2 billion in total to comply with. Um, where do you get your figures from on how do you come up with that?

Speaker5: 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. Um. If you'd like, I can go through a little bit more about what the process might be and why those numbers might be so much higher.

Speaker1: Yeah, [00:49:00] yeah, yeah.

Speaker5: So I mean, let's, let's, 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're going to have to read 102 pages of, of guidance. Uh, they're going to have to review the, the website for all these other things. They're going to have to talk to their, their attorneys, their accountants, uh, other consultants. They're going to have to determine, do they fall with any of the exceptions? And most importantly, for business owners, they're going to talk with their peers [00:49:30] because, frankly, we get our best advice, typically from our peers. Um, they're going to have to determine who's who's a business owner with substantial control, which is is incredibly vague. Um, and then they're going to have to gather the information of the information, and then they're going to have to input it and all of that while being distracted from generating revenue of their current business.

Speaker1: Thank you. Um. You know, it's, uh. [00:50:00] I miss Miss Roth. Um, I agree with you wholeheartedly. I hate this this rule. I fought it from the very beginning. Once it got implemented, we tried to figure out how to make it minimally impactful on our on our folks. And instead, we found out with this complex law, now with playing a game of gotcha is basically what the administration is doing here with this, uh, because we had it kind of refined down to, I think, 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, and ownership. [00:50:30] I mean, that should be pretty simple. But now they've 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?

Speaker4: Well, I think that, you know, when we're talking about costs and making it less intrusive, one of the key costs we're not talking about is risk. And that is the risk that this information gets in the wrong hands. That's the risk that they're going to get enormous fines, that somebody's going to say, oh, you willfully forgot this for a year, and now [00:51:00] 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.

Speaker1: Okay. Thank you I yield back.

Speaker2: Gentleman's time has expired. We now recognize representative McGarvey from Kentucky for five minutes.

Speaker8: Thank you, Mister 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. [00:51:30] Uh. 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 BOE reporting requirements, and they think they're going to jail. So I think we should frame this conversation [00:52:00] 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's obvious Fincen's rollout must be better. My staff has taken those calls, uh, from accountants, from small businesses, from people who honestly, they think they're going to end up in jail because of CTA, FinCEN and Treasury need to do a much better job in educating and communicating [00:52:30] 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, uh, this sort of reaction from my constituents. So I want to ask a few questions, and I'll start with Mr. Coleman. The penalties under the Corporate Transparency Act only target individuals who willfully provide false or incomplete [00:53:00] information to fencing. Correct?

Speaker6: Correct.

Speaker8: Okay. And then how can FinCEN. Because this is a small business committee. We want to make sure that the 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?

Speaker6: Um, thank you for the question. And I think that is actually the most productive thing we can talk about. Um, so I appreciate you raising it. You know, FinCEN does have some [00:53:30] ability. And in fact, uh, in two days, I'm 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, um, of of the constituency of small businesses. Um, there is an [00:54:00] awful lot that can be done. Fincen doesn't currently have the resources.

Speaker8: 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. Um, but you do believe that the current implementation of the Boi reporting requirements without adjustments lead to mass noncompliance? Um, I'll 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?

Speaker1: Well, I think [00:54:30] there's a role for everybody because clearly there's massive lack of awareness, understanding. So I think we need to if we're 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'm not an expert in, uh, crimes, certainly not in money laundering. So I have to defer to others on [00:55:00] 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's going to take everybody working together to try to find a way to make this work if we're going to go forward with it.

Speaker8: Thank you. I appreciate that, Mr. Cohen. I'll come back to you. We know FinCEN was subject to a great deal of criticism for how they've educated affected businesses during implementation, and I think with good reason. Has the outreach and education efforts, [00:55:30] have the has the outreach improved? Have the education efforts improved since the law has gone into effect? You know.

Speaker6: Um, 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, um, 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.

Speaker8: Mr. Harris, I'll ask you the same question in the 20s [00:56:00] we got left.

Speaker1: Um, 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's 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've 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 got a lot of work to do.

Speaker8: Thank you. I know it wasn't fair for me to say 20s answer how to fix this, but that's what we had. Mr. chairman, I yield back.

Speaker1: The gentleman yields back. I now [00:56:30] recognize Representative Malloy for.

Speaker9: A great state of Utah for five minutes.

Speaker10: Thank you, Mr. Chairman. Uh, Mr. Harris, I was going to start with a different question, but I'm going to answer your question first. So I've been in Congress for five months, and I've had several calls from businesses in Utah where I represent about this, and they're really nervous about their ability to comply. And some of the small businesses that have called me have been accounting businesses that share your concerns. Um, in fact, the first week I was in Congress, [00:57:00] I got a call about this, and I went and talked to Mr. Lukemire on the floor. And so this is something I've been looking at the entire time I'm here. I've been here, um, and there there is discomfort and disquiet out there in the small business community that they're going to get in trouble for trying to comply with something they can't understand, which is government at its worst that we're 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 [00:57:30] disruption to the small business community. So we should be able to do better than that. And to that point, Miss 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?

Speaker7: Sure.

Speaker4: I'm going to actually read from one of the almost 450 small business owners who have proposed this. The 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 risks of exposure of personal [00:58:00] 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 BOE 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.

Speaker10: Thank you. That was an even better answer than I anticipated. Um, and and the reason we're doing this is because we're trying to stop money laundering. I'm [00:58:30] 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?

Speaker4: No. And I think that's sort of the fundamental issue with what we're talking about here. If we want to prevent financial crimes, does anyone actually think that a money launderer or a 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 [00:59:00] as a way to go after money launderers and cartels.

Speaker10: Mr. Harris.

Speaker1: I'm not aware of anyone, but I do the best I can to stay away from people who launder money.

Speaker10: So so do I.

Speaker5: I am, I am certainly not aware of anyone, and I couldn't agree more with Miss Roth. I mean, this is exactly what it's about. The people who are evil are going to manipulate the system. They're not going to comply. We're going to comply because we follow the rules.

Speaker10: Are you going to try to comply?

Speaker5: We're going to do our best.

Speaker6: Um, I would say [00:59:30] the law's been in effect for a few months and people are just starting to file, so it wouldn't be surprising that there's no cases. I would point out, however, that many of these directories, very similar throughout Europe and the UK, have been in place for several years. And yes, they have actually yielded a number of cases, and we're happy to supply examples if that's helpful.

Speaker10: Well, recognizing that this is fairly new, it just feels like a good old fashioned dragnet operation, um, which we don't do in this country because it the, the trade off of violating [01:00:00] rights in exchange for stopping crimes is just not something that we're we're willing to tolerate. Um, Mr. Obsitnik, you talked about how lawyers can understand the terms, and and they're not sure how to define them. My background is in the law, and definitions really matter. As an attorney, it's risky to advise a client to do something if you're not sure where the line is to get them, you know the line that will cause them legal problems. [01:00:30] Um, and you're in the middle of a lawsuit over this very problem. I just want to go back to this definition of willful, um, if if the highest penalties are someone who willfully refuses to comply, what's the risk to a business that's that is attempting but doesn't understand what the terms mean?

Speaker5: You know, what I worry about most is not the the center, the, you know, degree of culpability that is engaged in the definition [01:01:00] of willful. What I worry about is the impact on a small business that's actually being charged, and has to then go through the process to prove that they, in fact, did not do something willfully. The, you know, the amount of money would be devastating to their business. It would put them out of business. It just you can't even imagine the amount of effort it would take to fight the government. If they come and tell you, you willfully fail to comply.

Speaker10: I'm going to cut you [01:01:30] 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. With that, Mr. Chair, I yield back.

Speaker9: Lady yields back. And I recognize Mr. Representative Tanager from the great state of Michigan for five minutes.

Speaker11: Thank you. Thank you, Mr. Chair. And good morning to all of you. Thank you for being here. Uh, my question is for Mr. Coleman. [01:02:00] Um, it's crucial to acknowledge the significance of safeguarding the information collected under the Corporate Transparency Act. Um, 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 [01:02:30] is paramount. Uh, Mr. Coleman, could you elaborate on the security mechanisms in place to safeguard the information collected under this CDA, particularly concerning access to the database by law enforcement, national security and financial services professionals?

Speaker6: Uh, sure. And thank you for the question. Um, I think over the course of the debate, there [01:03:00] were concerns about security. And so, uh, the security concerns that FinCEN is now required to put in place. Not everybody in law enforcement has access to the database. It 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 log on is tracked. And therefore there's an audit of that and it can be traced. You have to say that there's an existing investigation, um, and criminal. And there are penalties which are actually, [01:03:30] I think, stronger for leaking the information than there are for not reporting. And so, uh, appropriate security measures, recognizing some of those concerns, uh, were negotiated and included in the law.

Speaker11: All right. Thank you, Mr. Coleman. And chair, I yield back.

Speaker9: The gentleman yields back. I now recognize Representative Stauber from the great state of Minnesota for five minutes.

Speaker12: I thank you, Mister chair and ranking member of Alaska's, for holding this hearing. And thank you to all [01:04:00] the witnesses for being here today, 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 [01:04:30] 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. Fin says FinCEN hasn't helped provide much clarity on reporting at this moment, either. Mr. Obsitnik many small businesses are unaware that this reporting obligation is impending. Can you please talk about the potential consequences of noncompliance with the boy rule?

Speaker5: No. [01:05:00] The the 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's simply nobody is aware of this. And in the boards that I'm on, who would have some responsibilities in nonprofits, you know, my local, my local sportsman's club, my homeowner's association. These issues [01:05:30] have never been raised. I've never received letters from my small businesses from FinCEN. I the only reason I'm aware is because I happen to be past chair of the local chamber of commerce, where we, you know, we're very much involved in these issues. So I my awareness is because I'm I'm active.

Speaker12: Yeah. Thank you very much. Uh, Mr. Coleman, on your company's website, Transparency International outlines their quote solution on beneficial ownership transparency by saying countries should create centralized [01:06:00] public registers of beneficial ownership with verified information on who ultimately owns or controls these structures. These would allow everyone to see who's hiding behind anonymous companies and trusts. End quote. Do you believe Americans should lose their right to privacy simply for opening a business? I'm.

Speaker6: My organization, uh, does believe, as they have in Europe and throughout the UK, that the names behind [01:06:30] companies, um, have been extremely helpful in deterring, uh, corruption and therefore have supported, uh, public registries. Yes.

Speaker12: Do you believe Americans should lose their right to privacy simply for opening a business?

Speaker6: As he said, I think the, uh. The value of the information. Mr. Coleman.

Speaker12: I just have a little bit of time. As executive director of Transparency International, do you believe your home address should be [01:07:00] publicized?

Speaker6: The, um, I believe that the not all the information, because if you're going to get to driver's license and all of that, that is not made public, by the way, uh, in any of the registries, as far as I'm aware, I do. So there. Yeah.

Speaker12: Excuse me, just with the limited time I know filibuster when I see one, should other Americans not have a right to register a business without publicizing their home addresses?

Speaker6: It's the business [01:07:30] address. I believe that is actually required.

Speaker12: That's right. So you don't believe they should be required to publicize their home address?

Speaker6: Uh, if that is the business address, then it is the business address.

Speaker12: Have you owned a small business? Yes. Explain, please.

Speaker6: Uh, I had a small consultancy where I helped, uh, nonprofits, uh, with some of their fundraising and, uh, administrative, uh, efforts. Uh, back [01:08:00] in when I lived in Philadelphia.

Speaker12: The, uh, Transparency International. How many employees.

Speaker6: Do you, uh, transparency international. Us? Yeah. Uh, we currently have four full. Four full time. Five full time employees. Sorry.

Speaker12: So you considered a small business, right?

Speaker6: A small nonprofit, yes.

Speaker12: So I will tell you, I've owned, uh, my brothers and I owned a small business for 31 years. What you're hearing from the other witnesses is exactly [01:08:30] what we've heard from other small business owners across this country. Uh, every ever since I've been on this committee, I'm in my sixth year. Stop the overburdened rules and regulations that are stifling our local economy and our local small businesses. I think you're I do believe you're 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 [01:09:00] that you're putting on these American small business men and women. And I yield back.

Speaker9: The gentleman yields back. I now recognize Representative Van Dine from the great state of Texas for five minutes.

Speaker7: 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 [01:09:30] 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 pass my bill, the Small Business Regulatory Reduction Act. This bill requires that 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 [01:10:00] 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. Um, I'm on another committee that is meeting at this same time, Ways and Means. And we've got Secretary Yellen in front of our committee today. Now I'm going to have an opportunity, just like I am with you to ask her some questions. I'm going to go down the line. If you were in my position and you could ask Secretary [01:10:30] Yellen any question, what would it be?

Speaker4: Oh, Lord, you asked the wrong person that, um, 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're fighting against the fed and how they're going to make sure that we have a strong fiscal foundation.

Speaker7: Great question, Mr. Harris.

Speaker1: I think I would ask her if [01:11:00] 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?

Speaker13: Good question.

Speaker5: I would 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, but we don't want to be like Europe. I've had the occasion to, um, you know, to try to set up a corporation in, [01:11:30] in the, in the U.K., it takes weeks or months. Why would we want to be like that? We want to be someone who's quick and easy. I can do it in a day. Today I can get an Ein number and I can get file my corporate 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?

Speaker7: Well, now now you're getting me on the our Tax Cuts and Jobs Act extensions as well, and getting me all fired up before [01:12:00] I go to this hearing.

Speaker6: Um, I think the, the thrust of this hearing is trying to figure out how to make this work for small businesses. And I would ask, uh, Secretary Yellen, what does she need? What is the Treasury Department? What does FinCEN need to actually make sure that small businesses can ease their compliance? Are there resource constraints or what what do they need to make this?

Speaker7: Honestly, that's always, always we need more money. I'm sorry, but that is a cop out. If we can make government work smarter, we can look at the [01:12:30] regulations that they are wasting time right now. Hiring people to do that are not helping, that are crushing small businesses. That's the answer. It is not oh, we just need to hire more people. People are sick of it. To miss 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're doing is throwing more government taxpayer dollars into it. It's not sustainable. These aren't private [01:13:00] jobs. This is not private sector growth. What we're seeing right now is it's being propped up by government spending that we are going to be working to pay off for decades, lifetimes to come, when we're adding $1 trillion every 100 days to our debt. The last thing that I'm going to ask a cabinet secretary is, hey, can we give you more money? We all know what that answer is going to be. And it's really a sad commentary that that is always our go to. We need [01:13:30] 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 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 then. Do you need more resources? And thank you [01:14:00] very much for your answers and I yield.

Speaker9: Lady goes back and now recognize Representative Alfred from great state of Missouri for five minutes.

Speaker14: Thank you, Mr. Chair. And, uh, thank you, uh, Chairman Williams and Ranking Member Velasquez for holding this hearing. Uh, Congress passed a bipartisan Corporate Transparency Act, or CTA, in 2020. Task 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 [01:14:30] with this job because of their expertise in investigating financial crimes. The result of this rulemaking, though, is that 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% 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 [01:15:00] 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 or punishable for willful noncompliance. And as we've 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 this year. Um, I want to start with you, Mr. Harris. Just last week, a member of, uh, [01:15:30] my staff told me that a constituent reached out to our office asking for help with Boe, calling a congressional office, needing help with their BOE compliance. Uh, 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, this coming year?

Speaker1: Uh, no, Congressman, [01:16:00] they do not unless we tell them, um, again, they're not following this. This is not what they got into business to do. So, uh, if they have any awareness, we have gone on an 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 role and assist our clients. We want to help them comply, but to but for right now, we [01:16:30] haven't found a way that we can make that happen that's affordable to them. After hearing somebody is going to pay $8,000, I'm reconsidering my hesitancy to do this. But.

Speaker14: Sir, do you know how many LLCs they are in the United States of America?

Speaker1: Well, no, not not a lot.

Speaker14: I did a little research. As of 2021, there are 21.6 million limited liability corporations in America, each subject to these new regulations. [01:17:00] Uh, many of those are dormant LLCs, mom and pops entrepreneurs who thought, hey, I may start up a little business, maybe an Etsy business, something online, and I need a little protection. So I'm going to have it. And now they are subject to a potential $10,000 fine. What do you make of that?

Speaker1: 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? [01:17:30] What do we do to take them out of the database? And they said nothing. So one of the concerns I have is ten years from now, how accurate is that database with businesses that have closed or are still in IT, businesses who have grown outside of it, they're still going to be in this database. So how are we going to know who's still active and who's inactive? But I can tell you, the fear of a $10,000 fine, uh, makes it very hard for anyone to swallow.

Speaker14: Mr. Roth, I want to ask you a question. I do want to read your book. You will own [01:18:00] nothing because I've dealt with this in real estate. I think, uh, 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 to to tamp down small businesses. So, so we won't have the entrepreneurial spirit and the capitalism that we've so enjoyed all these years.

Speaker4: 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 [01:18:30] 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've been crushed by the after effects. And so when you see something like this and they say, oh, it's about corporate transparency. And they say, well, why are the big businesses exempt then if you want corporate, they're the ones that have the means to to launder money. I can't even pay my bills. That is what they're worried about. [01:19:00] They're worried about this consolidation, this cronyism and that that we are absolutely crushing the backbone of this country.

Speaker14: Thank you I yield back.

Speaker9: Gentleman yields back. I now recognize myself for five minutes. Uh, 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 even more [01:19:30] cost be costly for their businesses. And according to their estimates, this new rule in the pipeline will add an additional $500. We've talked about that per transaction on top of what is already required by FinCEN. So this is just another example of compounding cost of regulations hammering small businesses. And when Congress updated the corporate Treasury or Corporate Treasury Transparency Act, the intent was not to burden our nation's job creators with costly new reporting requirements. So, Mr. Harris, uh, do you have any estimations that on the overall cost of complying with this rule, and how could FinCEN [01:20:00] make the process easier for small businesses to comply?

Speaker1: That's what we're 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's what we're 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 [01:20:30] doing this as long as it can be done quickly and affordably. So I don't have an answer today. It's too much right now for us to be willing to to do, but we're trying to get there.

Speaker9: Uh, Miss Roth, um, 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?

Speaker15: I [01:21:00] have no idea. That is why I'm here today. Um, it's a big point of frustration.

Speaker4: Excuse me? It's a big point of frustration with the with the small business owners. Um, it's 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'm 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 revenue and 20 employees [01:21:30] 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 piece of 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 does feel like there's something weird going on.

Speaker9: It's called government talk. Yeah, yeah. Uh, Mr.. I'm sitting in preparation for this hearing. You indicated receiving [01:22:00] compliance guidance from Vincent on the on this rule was difficult. Can you please describe the issues you've had getting charity or clarity rather from FinCEN, and how that will impact the services that you offer?

Speaker5: Well, the clarity really is, is the, uh, you know, we've 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 and frequently [01:22:30] asked questions. And then that together with an entire website devoted to all of this, it's overwhelming for a small business owner, even even for those who are unaware. Contrast that currently with the requirements that somebody has, uh, with the federal government and starting a new business, which is to get a taxpayer ID number. It's a two page document, the application and a set of instructions. That's our sole obligation today to with respect to the federal government. So it you know, there couldn't be a more darker [01:23:00] contrast.

Speaker9: Yeah, let me tell you, I'm 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. As for more information than is needed to comply with the law. So briefly, Miss Roth and time remaining, how could we better strike the balance between a business privacy and national security concerns?

Speaker4: Well, I believe that most small business owners think that if you need [01:23:30] to reach them, that there's 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 say, go to the courts, petition them and get that information. But having a database of everybody who's involved with the small business owner seems like a very heavy handed way to try to approach [01:24:00] and solve that issue. Thank.

Speaker9: All right. I want to thank all of you for being here today. I'm sorry. I was involved in a talking, a talking about this a small business week this week. So we're promoting it. And I appreciate my colleague Congressman Musser 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 [01:24:30] time to come up here. And without objection, members have five 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 that. If you're involved in that and if there's no further business. Without objection, the committee is adjourned.

Creators and Guests

Roger Harris, EA
Roger Harris, EA
President at Padgett Business Services
Roger Testifies to Congress About The Corporate Transparency Act
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