Small Business Coalition Letter Opposing the “Corporate Transparency Act”

By at 10 June, 2019, 1:19 pm

The Honorable Maxine Waters


House Committee on Financial Services

2129 Rayburn House Office Building

Washington, DC 20515


The Honorable Patrick McHenry

Ranking Member

House Committee on Financial Services

4340 O’Neill House Office Building

Washington, DC 20024


Dear Chairwoman Waters and Ranking Member McHenry,

While we support the goal of preventing wrongdoers from exploiting United States corporations
and limited liability companies (LLCs) for criminal gain, the undersigned organizations write to
express our strong opposition to H.R. 2513, the Corporate Transparency Act of 2019. This
legislation would impose burdensome, duplicative reporting burdens on approximately
4.9 million small businesses in the United States and threatens the privacy of lawabiding, legitimate small business owners.

The Financial Crimes Enforcement Networks (FinCEN) Customer Due Diligence (CDD) rule
became effective in May of 2018. The CDD rule requires financial institutions to collect the
beneficial ownership information of legal entities with which they conduct commerce. This
legislation would shift the reporting requirements from large banks, those best equipped to
handle the reporting requirements, to millions of small businesses, those least equipped to
handle the reporting requirements.

The reporting requirements in the legislation would not only be duplicative, but they would also
be burdensome. Under this legislation, millions of small businesses would be required to
register with FinCEN, upon incorporation, and file annual reports with FinCEN for the life of the
business. Failure to comply with these reporting requirements would be a federal crime with
civil penalties of up to $10,000 and criminal penalties of up to 3 years in prison.

This legislation contains a definition of beneficial ownership that expands upon the current
CDD rule. The CDD rule requires disclosure of any owners with a 25 percent ownership
interest in a business and any individual with significant responsibilities to control a business.
The draft bill would expand that definition, requiring disclosure of any individual who “receives
substantial economic benefits from the assets of” a small business. The legislation defers to
regulators at the Department of Treasury to determine “substantial economic benefits.”

In addition, this legislation would impose a “look-through” reporting requirement, necessitating
small business owners to look through every layer of corporate and LLC affiliates to identify if
any individuals associated with such entities are qualifying beneficial owners. Ownership of an
entity by one or more other corporations or LLCs is common. Corporate and LLC shareholders
would already have their own independent reporting obligation under this bill to disclose any
beneficial owners, making this provision excessively burdensome.

H.R. 2513 raises significant privacy concerns as the proposed FinCEN beneficial ownership
database would contain the names, dates of birth, addresses, and unexpired drivers’ license
numbers or passport numbers of millions of small business owners. This information would be
accessible upon request “through appropriate protocols” to any local, state, tribal, or federal
law enforcement agency, or to law enforcement agencies of other countries via requests by
U.S. federal agencies. This type of regime presents unacceptable privacy risks.

The Corporate Transparency Act also introduces serious data breach and cybersecurity risks.
Under the legislation, FinCEN would maintain a database of private information that could be
hacked for nefarious reasons. As the 2015 breach of the Office of Personnel Management
demonstrated, the federal government is not immune from cyber-attacks and harmful
disclosure of information. In addition, millions of American companies would be required to
maintain and distribute information about owners and investors in the company, thus creating
another point of vulnerability for attack. This risk is particularly acute because the Corporate
Transparency Act is focused only on small businesses and those entities are often the leastequipped to fight off cyber intrusions.

While this letter does not enumerate all of our concerns, it highlights the problems H.R. 2513
would cause for millions of small businesses in the United States.

Air Conditioning Contractors of America
American Hotel and Lodging Association
American Rental Association
Asian American Hotel Owners Association
Associated Builders and Contractors
Auto Care Association
International Franchise Association
National Association for the Self-Employed
National Association of Home Builders
National Association of Wholesaler-Distributors
National Restaurant Association
National Retail Federation
National Roofing Contractors Association
National Small Business Association
National Tooling and Machining Association
Precision Machined Parts Association
Precision Metalforming Association
Service Station Dealers of America and Allied Trades
S-Corporation Association
Small Business & Entrepreneurship Council
Specialty Equipment Market Association
The Real Estate Roundtable
Tire Industry Association

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