A recent House subcommittee hearing featured a discussion on how to best protect Americans from the growing risk of financial fraud — but Democrats questioned how a proposal to eliminate the Corporate Transparency Act’s reporting requirements would forward that goal.
Background.
The CTA, passed with bipartisan support as part of the National Defense Authorization Act for fiscal year 2021, requires certain entities created by filing or registering with a secretary of state or comparable office to submit information about their beneficial owners to Treasury’s Financial Crimes Enforcement Network (FinCEN).
The Trump administration’s Treasury recently walked back that requirement, limiting reporting obligations to foreign entities and persons. The current administration relies on a provision in the CTA that allows Treasury, in consultation with the Attorney General and Homeland Security, to provide an exemption from the reporting requirements for a class of entities. It also relies on 31 U.S.C. 5318(a)(7), which grants Treasury general authority to provide exemptions from certain requirements related to monetary transactions.
Repealing the CTA.
At the April 1 hearing of the House Financial Services Subcommittee on National Security, Illicit Finance, and International Financial Institutions, it was clear that many Republicans still aren’t satisfied with the recent weakening of the CTA. Up for discussion was legislation to repeal the CTA entirely, or to amend the statute to specify that only foreign entities are subject to the requirements. (Both proposals are entitled the Repealing Big Brother Overreach Act.)
Subcommittee Chair Warren Davidson (R-OH) opened by expressing gratitude to the Trump administration for rolling back CTA reporting requirements, which he said caused business owners and homeowners associations to provide private information to the government. “Our Constitution says that when the government wants to know private information, they need probable cause — at least reasonable suspicion — to get a warrant or a subpoena,” said Davidson.
“Surely we can minimize the financial harm suffered by Americans exploited by scammers without infringing on their civil liberties or adding ways to make ordinary citizens criminals,” he added. But Davidson also stressed the need to “equip law enforcement agencies with better tools to go after criminals that are continually operating unseen.”
Contradictory aims?
Some Democrats, however, questioned how repealing the CTA could help law enforcement crack down on financial crimes. Representative Juan Vargas (D-CA) was the first to point out the “contradiction” in some Republican committee members’ testimony about the CTA versus proposals to crack down on financial crimes against the elderly, cryptocurrency abuses, and more.
“If you listen to what some of you said — since the government has a whole bunch of information, they ought to give it to us, and sometimes in real time, so we can help them solve this fraud problem,” said Vargas. “And then I hear from somebody else saying the government has too much information, and this information, in fact, could be hacked.”
In a back-and-forth with Flagstar Bank’s Darrin McLaughlin, who appeared on behalf of the American Bankers Association, Vargas noted that in the effort to combat fraud, it seems like banks are “asking for a lot of information, private information that a lot of people would have a problem with.” Vagas said he “get[s] that the government has a lot of information. You’d like some of that too.” But the lawmaker questioned why his “colleagues on the other side” hadn’t called that out as “a massive invasion of privacy,” yet are taking aim at the CTA.
Representative Sam Liccardo (D-CA), who previously served as a prosecutor at the Santa Clara County District Attorney’s Office and federal prosecutor in the Southern District of California, also drew attention to the seeming contradiction.
Witness Kathy Stokes, representing AARP agreed. “We’ve heard a lot about concerns of administrative burden and concerns of data privacy,” noted Stokes. “I want to turn to the burden of the victim.” Stokes said that the Federal Trade Commission’s estimate of the amount stolen in 2023 is $158.3 billion. While some tweaks to the CTA and reporting rule may be needed, Stokes said “we can’t be moving away from rules that help protect consumers.”
Liccardo also pushed National Federation of Independent Business’ Jeff Brabant on what the “extraordinary burden” of the CTA’s reporting rule is — noting beneficial owners just need to provide “four basic pieces information” which “any bank would require.” NFIB has challenged the CTA on constitutional grounds — its case is currently before the 11th U.S. Circuit Court of Appeals.
Liccardo said, “in my experience, certainly trying to get the identity of those individuals controlling these entities are engaged in criminal activity was pretty important.” But Brabant countered that the CTA is merely a “duplication of the Customer Due Diligence Rule” and that the information could easily be subpoenaed from a bank during an investigation.
Liccardo said that in his experience, that’s not sufficient. “What happens if you’re just investigating for the first time, and you actually need to know who you can subpoena?” he asked. “You don’t know exactly where to go because you don’t have ownership information to begin with.”
Reactions.
Transparency International’s Scott Greytak questioned the legitimacy of some lawmakers’ data privacy concerns. “Nowhere is going to be perfectly safe from hackers,” Greytak told Checkpoint, but he challenged “this argument that hackers see this treasure trove because people have uploaded scanned images of their driver’s licenses” to FinCEN’s database. Hackers would likely have an easier time accessing a state driver’s license system, or gain more from hacking into the Social Security system, he explained.
Not only that, said Greytak, but “there are a number of countries that have beneficial ownership databases that are public,” including the United Kingdom. He questioned how FinCEN’s database “can that be that dangerous if literally, entire societies that are similar to ours allow [their databases] to be open.”
As far as next steps, Greytak noted that despite “gutting” the CTA reporting rule, the Trump administration is defending the CTA across 12 court cases. He also doubts Congress “has the numbers right now” to advance a bill to repeal the CTA.
Greytak anticipates “more voices from the law enforcement community coming out critical of the rule,” which he said narrowed reporting entities from 32.5 million to just 12,000.
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