The implementation of the Corporate Transparency Act (CTA), a law that requires small businesses to self-report their beneficial owners’ information to the Financial Crimes Enforcement Network (FinCEN), has proven to be a compliance challenge so far, according to testimony before a Congressional committee.
The House Committee on Small Business heard from small business owners during a hearing on the law on April 30. Testimony from witnesses outlined the early issues with the law, confusion from small businesses on how they can comply with its requirements and security concerns over how FinCEN is protecting the data it collects. “Let me stress — we do not know the database is secure,” Tim Opsitnick, a member of the National Small Business Association, told the committee. “We further know that the information and/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.”
Carol Roth, an author and small business advocate, told the committee that the U.S. Treasury has provided little or no guidance so far to help business owners understand their compliance obligations under the new law, which went into effect on Jan. 1, 2024. Additionally, she provided a record of nearly 450 statements from small business owners that said they were not aware of the CTA or familiar with FinCEN. “Your average small business owner is just trying to stay afloat, and isn’t familiar with that division of Treasury,” she said. “And when they find out they ask, ‘Why is it that the Financial Crimes Enforcement Network is asking for my information?’ So, the communication hasn’t been there.”
The hearing came just a few days after Sen. Tommy Tuberville (R-AL) and Rep. Warren Davidson (R-OH) introduced a bill to repeal the CTA. The law is also being challenged in the courts, where a federal judge in Alabama ruled it unconstitutional in March on grounds that it transcended the limits the Constitution imposes on the legislative branch.
While the matter continues to make its way through the courts and is being reconsidered by Congress, FinCEN has started taking steps to help businesses better understand the requirements. In mid-April, the agency updated an FAQ on beneficial ownership information and reporting obligations. That new FAQ can be found here.