By Jamie Herzlich, Newsday
The U.S. Treasury Department has issued a final rule that would create a new database containing personal ownership information that an estimated 32 million small businesses must submit.
The rule’s intended to make it “harder for criminals, organized crime rings, and other illicit actors to hide their identities and launder their money through the financial system,” according to Treasury.
But some experts say the rule, which requires additional guidance, may be burdensome and costly to legitimate small businesses.
“The overall spirit of the rule was something we agreed with, but we also wanted to do it in a way that minimizes the burden of small businesses,” says Will Gardner, a Washington-based director of policy at the U.S. Chamber of Commerce Center for Capital Markets Competitiveness.
In January 2021, Congress passed the Corporate Transparency Act, which aimed to improve anti-money laundering enforcement in the U.S., he says. The legislation directs the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to create a new federal database requiring certain businesses to report their beneficial owners and the company applicants of the entity, says Gardner, who provides more insight at https://tinyurl.com/yyjw4msa. See https://tinyurl.com/5y5hbmcc for beneficial owner and applicant definitions.
Christine Malafi, senior partner and chair of the corporate department at Campolo, Middleton & McCormick LLP in Ronkonkoma, agrees, noting, “a lot of small businesses do not have their corporate books in order.”
And while “the purpose of the rule is laudable, I’m not sure the people who are intent on laundering money through a front company are going to report that they are involved in the companies,” she says.
Malafi also expressed concern over the security of the information being submitted, which includes the beneficial owner’s name, birthdate, address and a unique identifying number from a document such as a passport or license.