A new federal law could help crack down on money laundering, but its critics say it is burdening many Georgia businesses with additional paperwork, for which noncompliance has a high cost.
The Corporate Transparency Act, passed by Congress and effective since Jan. 1, requires that most businesses share ownership information with the federal government or face daily fines of almost $600 and criminal penalties for missing deadlines.
The law targets shell companies, which typically have no employees or place of business and tend to exist solely for financial transactions. Money laundering is a lucrative criminal enterprise and a large part of domestic financial crime that is estimated by the federal government to be worth more than $300 billion annually.
The federal statute isn’t widely known but it brings the United States in line with international standards for fighting financial crime, the U.S. Department of the Treasury has said in related litigation.
“The Corporate Transparency Act would have a substantial positive impact if the government can figure out how to use the data correctly,” said Jonathan Wilson, an Atlanta attorney who wrote a book on the act and cofounded a company to help businesses with reporting duties.
The legislation has already come under attack in the courts. In Alabama, a federal judge found the act unconstitutional and blocked its enforcement on the National Small Business Association’s roughly 65,000 members, though it remains in effect for other would-be filers. The case is now before the Atlanta-based federal appeals court, which is due to hear oral arguments in September.
In late May, the National Federation of Independent Business and others filed a lawsuit in a Texas federal court challenging the act and its reporting requirements.
As money launderers are unlikely to reveal themselves under the new law, it just ends up burdening legitimate companies in Georgia and across the country, says Hunter Loggins, the NFIB’s Georgia director.
“It’s just hurting the good actors out there,” he told The Atlanta Journal-Constitution. “I get what they’re trying to do. But we don’t think it’s the right way to go about it. It’s an overreach, I believe.”
Who files and who doesn’t?
The act’s reporting requirements kicked in on Jan 1. Companies established before then have until the end of the year to file an initial report comprising information about their owners and decision makers. Shorter deadlines are in play for businesses created or registered after Jan 1.
The government wants to better track the people behind an estimated 32 million companies nationwide by requiring them to file what is called a Beneficial Ownership Information report. They must list basic details about a company, including its name, state of organization, taxpayer identification number and principal place of business. Everyone with ownership and control of the company must disclose their full legal name, date of birth, residential address, and a copy of official identification such as a driver’s license or passport.
Credit: TNS
Credit: TNS
Any time a company’s reported information changes, for example if an owner moves house or an executive is replaced, an updated report must be filed within 30 days.
Mark Jackson, the president of Georgia architecture and engineering firm Croft & Associates, sought Wilson’s help in filing reports. He said filing “takes a minute and there’s a couple of things that are confusing about it.”
“You don’t want to get it wrong,” Jackson said. “Yes, it costs a little money (to use an attorney). But to me, it’s like insurance.”
Credit: HYOSUB SHIN / AJC
Credit: HYOSUB SHIN / AJC
Reports can be submitted for free through the website of the Financial Crimes Enforcement Network, known as FinCEN, which is a bureau of the Treasury.
Certain entities are exempt, including many nonprofits, banks, credit unions, insurers and publicly traded corporations.
There is also a large business exception for companies that have more than 20 full-time employees and a physical place of business in the United States and which filed a tax return in the preceding year showing more than $5 million in gross receipts from U.S. sources.
“The reasoning is if you are large enough … if law enforcement thought that you were laundering money, they could send some FBI guys down to your office, raid the place and figure out what was going on,” Wilson told the AJC. “One of the complaints by business owners about this law is that it tends to put the burden of compliance on the smallest companies, and in a sense, that’s true.”
Wilson said the hassle of lodging reports in the required time frame is the only downside for those who have nothing to hide. He said filing reports won’t be that difficult for the vast majority of businesses.
Awareness of the law is limited
Loggins says one of the key problems with the act is that the majority of small business owners don’t know about it and have never heard of FinCEN.
The NFIB surveyed small business owners nationwide in late 2023 and found that 83% of respondents were unaware of the regulations. Loggins said the federation has heard from legislators concerned that their constituents are not prepared for the new reporting requirements.
“There’s been no guidance really from the feds,” Loggins said. “You have to be a financial expert or hire a third party or an attorney. And our businesses, they can’t afford teams of lawyers and accountants and compliance experts. They’re typically a one or two-person shop.”
Wilson said the government has promised not to enforce penalties under the Act in 2024 as business owners familiarize themselves with the requirements. He said it’s better for a company to file a report late than not at all.
Pending legal challenges
The NFIB and other business organizations have weighed in on the National Small Business Association case, asking the federal appellate court to uphold the Alabama judge’s ruling. Wilson said businesses not party to the case are still obligated to file reports while the statute is litigated.
Loggins said the NFIB is also encouraging its members to lobby their representatives to support a federal repeal that was introduced in the U.S. House in late April.
“Our folks need relief in any way they can get it,” he said.
Though the government is required to keep company reports confidential, many business owners are worried their information could fall into the wrong hands, Loggins said.
Credit: HYOSUB SHIN / AJC
Credit: HYOSUB SHIN / AJC
Wilson said he plans to start a nonprofit with attorneys, data scientists and artificial intelligence specialists who can help the government manage reported information and “connect the dots.”
“This is the right way to go about the (money laundering) problem, but collecting the data is only the first step,” he said. “Figuring out how to use the data will be the second step, and we’re not there yet.”
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