Nov. 21, 2022

Law Requires 32 Million Small Businesses to Report Private Ownership Information

The National Small Business Association (NSBA) has filed a lawsuit in the U.S. District Court for the Northern District of Alabama challenging the Corporate Transparency Act (CTA). The 2021 law requires businesses with fewer than 20 employees to disclose beneficial owners’ information to the Department of Treasury’s Financial Crimes Enforcement Network. Businesses that fail to comply with the reporting requirements could face up to $10,000 in fines and two years in prison.

The lawsuit challenges the constitutionality of the CTA, claiming that it represents an unprecedented attempt by the federal government to gather the personal information of millions of law-abiding citizens and residents who own or control small businesses, disproportionately targeting those business owners and subjecting them to increased paperwork, privacy risks and prosecution.

“The CTA is a poorly thought out and heavy-handed federal mandate that will be a bureaucratic nightmare for small-business owners,” NSBA President and CEO Todd McCracken said. “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 CTA was enacted as a way to combat money laundering and corruption, but as the NSBA argues, it actually is a step backward in that effort because it shifts the focus from a “follow the money” policy targeted at banks and economic transactions to a broader approach requiring 32 million entities to report their owners’ private information, with no notion that any of those businesses are actually doing anything illegal. In a letter co-signed by FEDA and other trade associations, the NSBA states “…the CTA is nothing more than a law enforcement dragnet that imposes its heaviest burdens on law-abiding small business owners.”

“It is clear whatever marginal benefit the CTA affords law enforcement will be far outweighed by the costs borne by small businesses and their owners,” the letter continues. “It is also clear that the CTA exceeds the confines of the Constitution by collecting, for law enforcement purposes, the personal information of millions of individuals without establishing any reasonable suspicion of wrongdoing. This law is poorly considered and unconstitutional.  We look forward to the courts striking down this ill-advised law.”