Small Business Group Files Legal Claim Against New US AML Laws

November 17, 2022
The National Small Business Association has announced the filing of a constitutional challenge to the Corporate Transparency Act of 2019, which introduces new beneficial ownership rules.

The National Small Business Association (NSBA) has announced the filing of a constitutional challenge to the Corporate Transparency Act of 2019 (CTA), which introduces new beneficial ownership rules.

An established Washington, DC trade association has taken the US government to court over plans to introduce new beneficial ownership rules.

The bill represents more than a decade of negotiations between Republicans and Democrats to enhance money laundering and terrorist financing rules in the US.

The law requires millions of companies to disclose their ownership and control structures to the US Treasury.

Last week, VIXIO reported that it is anticipated that the law, which specifically targets smaller firms, will be challenging for businesses to comply with.

However, it was also suggested that Treasury’s Financial Crimes Enforcement Network (FinCEN) would work closely with trade associations to help those in scope get to grips with the new law.

According to the NSBA, under the CTA, the federal government is mandating small business owners to “undergo a duplicative and burdensome paperwork process — punishing small businesses at a time when every dollar, employee and lost hour counts.

“The CTA is a poorly thought out and heavy-handed federal mandate that will be a bureaucratic nightmare for small-business owners,” said Todd McCracken, NSBA president and chief executive.

“If implemented, small businesses will be forced to spend millions of hours and billions of dollars on paperwork instead of creating jobs and helping grow our economy.”

The NSBA filed the suit in the US District Court for the Northern District of Alabama, arguing that the CTA infringes on the states’ inherent and sovereign powers over the formation and governance of entities.

It also argued that the law does not regulate commerce under Congress’ power to do so, infringes upon an individual’s rights to apply for, form, own and provide for the self-governance of entities under state law.

Burdensome rules

FinCEN issued its final rule establishing reporting requirements for beneficial ownership information (BOI) in late September.

The rule, created under the CTA, establishes who must file a BOI report, what information must be reported and when a report is due.

Under the CTA, the federal government is creating a national registry that would require small business owners to submit detailed information.

The register is intended to end shell companies, which typically exist only on paper and have no office or employees. As exposed by investigative journalist groups, these companies are often used by high net-worth individuals to evade taxes and bad actors to launder ill-gotten gains in the US.

Existing rules — the Customer Due Diligence framework — currently require banks to collect information to provide ownership verification.

These financial institutions also are required to monitor and report suspicious activities to FinCEN and law enforcement.

Here, the association argues that its members are now being struck with burdensome rules that the banks are used to dealing with.

“The CTA is simply passing the buck from big banks, which have legions of staff to absorb this kind of reporting requirement, to small businesses like mine,” stated NSBA chair Mike Stanek, who hails from Ohio. “A simple mistake has the potential to land a small-business owner in jail for as long as two years.”

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