Benjamin Franklin once said, “those who would give up essential liberty, to purchase a little temporary safety, deserve neither liberty nor safety.”
The founding father’s point was that the trade-off between freedom and security can be eroded with good intentions, and that’s exactly what Congress is doing with its efforts to pass H.R. 2513, otherwise known as “The Corporate Transparency Act.”
The premise for the legislation sounds good enough: Let’s help law enforcement stop money launderers, criminal organizations and terrorist groups that might use front businesses to conduct their activities.
Unfortunately, further scrutiny reveals that this legislation is like using a shotgun to kill a house fly. Instead of locking up criminals, it will create a whole new class of them, whose only crime will be confusion surrounding burdensome and complex paperwork (the Corporate Transparency Act makes it a federal crime to fail to comply with the paperwork and reporting requirements, with civil penalties up to $10,000 and criminal penalties of up to three years in prison).
Most of these new criminals will be the owners of your local family-owned small businesses.
This is because the Corporate Transparency Act imposes the burdensome and intrusive requirements on those least equipped to handle them: corporations and Limited Liability Companies (LLCs) that have 20 or fewer employees. It requires them to file new reports with the Treasury Department’s Financial Crimes Enforcement Network upon the creation of the business, and periodically for the life of the business.
Small business owners cannot afford the teams of lawyers, accountants and compliance experts that large businesses and financial institutions can afford.
The burden will fall solely on the small business owner, who is likely to run afoul of the new law for simple paperwork violations and compliance errors.
And time spent gathering and reporting information is valuable time business owners could spend operating and growing their businesses. According to the National Federation Independent Business 2016 Small Business Problems and Priorities survey, small businesses report that the burden of federal paperwork ranks in the top 20% of the problems they face.
H.R. 2513 also raises serious privacy concerns for small business owners. The paperwork includes personal information on owners of the business. It requires the Treasury Department to retain this information for the life of the business plus five years, granting broad access of that information to federal, state, local or tribal law enforcement agencies through a simple request.
The legislation is not limited to the kinds of businesses that the federal government already closely regulates (such as drug making or firearms manufacturing). The proposed federal intrusion into the lives of Americans through a general investigative scheme without individualized suspicion is antithetical to American freedom.
Under the proposed legislation, the Treasury Department’s Financial Crimes Enforcement Network is allowed to share it with any requesting law enforcement agency, and even a foreign government, if a federal agency makes the request on their behalf. It also requires the requester to keep quiet about where they got the small business’ information, unless the federal government authorized disclosure.
While we appreciate efforts to discourage wrongdoers from exploiting U.S. companies for illegal activities, Congress should do so in a way that does not put small businesses’ privacy at risk or create undue burdens on those who can least afford them.
Charlie Owens is the state director of the National Federation of Independent Business in Michigan.
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