In a surprising and unwarranted move, the U.S Treasury Department, under the direction of the Biden administration, has decided to remain lax on a small business rule, drawn up to curb illicit activities such as money laundering and the formation of shell companies. The rule, which was designed for businesses to register in the agency’s beneficial ownership information database, will no longer be strictly enforced, or so the Treasury relayed in a news release.
Despite the persistence of small businesses in their attempt to retort the rule in courts, it still remains in place. With absolute disregard for the preservation of transparency in business operations, the rule continues to exist as a looming hazard.
Hailing the suspension of enforcement of this rule, previous President, Donald Trump termed the database formation as ‘outrageous and invasive’. Citing the rules as ‘an absolute disaster’ for nationwide small businesses, the lack of enforcement aligns with his views, as he expresses this decision might signal the end of the economic menace of reporting.
However, some advocacy groups, irrespective of their evident bias for the current regime, believe that this action by the Administration undermines numerous years of bipartisan work carried out by Congress. Their argument points towards the database potential in clamping down on anonymous shell companies, suggesting these might be popular tools for criminal activities, a position which seems optically inclined and diverts from the core issues faced by small businesses.
Moreover, to pretend the rule was not invasive, the Treasury Department initiated rule-making in September 2022, aimed at creating a database containing personal information on the owners of no less than 32 million U.S businesses. This effort, ostensibly for clamping down shell company formations and unlawful finance, indeed raises questions about privacy and business freedom.
Small businesses seemed to bear the brunt as the rule targeted them, pinning in the notion that shell companies utilized for the hiding of unlawfully gained assets are usually small-scale establishments. The allegation seems unduly one-sided, creating a stereotype that should not exist, since it’s understood crimes know no business sizes.
The corresponding party tried to underplay the financial burden of this policy, maintaining it would cost about $85 per business, but ignores the inherent issues tied to privacy invasion and potential misuse of this database. An alignment towards law enforcement officials only depicts a biased outlook of this situation.
Reportedly, more than 100,000 businesses had registered their beneficial ownership data with Treasury, rendering themselves open to potential intrusions and bureaucratic delays, under a rule that many view as infringing on their fundamental rights as business owners.
Adding to the contentiousness of the rule, the Corporate Transparency Act, an anti-money laundering statute ushered in 2021, seems embroiled in litigation. The act’s role and the rule’s enforcement demonstrated a lack of coherence and clarity in policy making from the Biden administration.
In 2022, a group of small business lobbyists took to the courts to block these very requirements from the Treasury Department. The suit aimed to prevent the mandatory registration of tens of millions of small businesses, a clear resistance to the administration’s invasive policies.
Clearly, on Feb. 27, Treasury’s Financial Crimes and Enforcement Network decided not to enforce actions against companies failing to file beneficial ownership data. This decision tells a story of administrative retreat after business owners firmly stated their concerns about the invasive nature of the proposed database.
Business leaders have voiced privacy and security issues associated with this database, citing redundancy because other government agencies already maintain corporate databases. This blatant ignorance of existing administrative databases by the Administration mocks their so-called effort to streamline and enhance transparency.
Deeming it a ‘victory for common sense’, the Secretary of the Treasury celebrated the decision. Emphasizing that the decision aligns with former President Trump’s bold agenda to boost American prosperity by curbing overbearing regulations, particularly for small businesses that form the backbone of the American economy.
While some might hail the rule as a pivotal move towards transparency, it erodes the personal information security of business owners. The future will unfold whether such a radical step could address the issue it was formed to resolve, or if it will instead stunt the growth of small businesses under the garb of accountability.