REARDON: Beneficial Ownership And The FinCEN Files

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Brian Reardon Contributor
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The “FinCEN Files” released over the weekend reveals just how right the Main Street business community has been to oppose the beneficial ownership bill moving through Congress. The leaders of the House and Senate banking committees hope to include this legislation in the pending conference report to the Defense Authorization Act. Based on what we’ve learned from the FinCEN files, however, they need to stop now.

As a reminder, in an effort to crack down on money laundering, the beneficial ownership legislation would require millions of small businesses to annually report the personal information of their owners to the Financial Crimes Enforcement Network (FinCEN). Failure to do so would be a felony, punishable with large fines and years in prison. Not surprisingly, the business community and its allies, including the American Bar Association and the ACLU, are not crazy about this idea.

We’ve argued that any new information collected is highly unlikely to help crack down on actual criminal activities. Tony Soprano will refrain from reporting the personal information of his extended crime family, while millions of law-abiding business owners will duly submit accurate information to FinCEN which will be no help to them whatsoever. Quality aside, the volume of the data coming into FinCEN alone will be simply overwhelming – the CBO estimates there will be 25 to 30 million reports a year. There is simply no way they can effectively manage, analyze and make effective use of a database that large.

We’ve raised concerns about the integrity of the database and the ability of the Treasury to keep it secure. These reports could be leaked or hacked and would be used against business owners for political purposes, or to gain leverage in unrelated litigation. And, we’ve argued that the bill largely exempts the very actors who are most responsible for money laundering activities – banks, accountants and financial advisors.

That’s what the business community and its allies have argued.  Here’s what we’ve learned from the FinCEN Files leak:

  1. The data is not being effectively used. Despite the fact that SARs reports are limited to reports of “suspicious” activity reported by financial institutions engaged in the transactions, the volume of information transmitted to the Treasury Department clearly is overwhelming and not effectively analyzed or managed. Beneficial ownership reports are not limited to suspicious activity – they apply to all businesses and their owners. If the Treasury can’t make full use of SARs, how will it effectively use beneficial ownership information?
  2. The data is not secure. The FinCEN Files include thousands of leaked “Suspicious Activity Reports” highlighting financial transactions of actors both good and bad. This is the same database that proponents of the beneficial ownership bill assure us is secure and will not be made public.
  3. Anti-money laundering efforts should not exempt banks. Congress created the current SAR program in 1992 in an effort to make the banks the frontline in the fight against money laundering. It added to this effort with “Know Your Customer” rules requiring banks to collect key information on their account holders.  These reporting requirements get to the heart of the effort to crackdown on money laundering – it is hard to launder money without a bank account. Yet the beneficial ownership bill would exempt banks and more than a dozen other financial industries from their new reporting requirements.

The simple fact is that the beneficial ownership bill included in the House Defense Authorization Act will be wholly ineffective against money laundering activities, and is only gaining traction now because the large banks who are required to collect this information hope to use it to unload these reporting requirements onto their customers.

These are the same banks who, as evidenced by the FinCEN Files, are helping to facilitate suspicious financial transactions across the world. The senators and representatives pushing the beneficial ownership bill should shift their focus to the suspicious activities taking place right in front of them in the financial sector, rather than trying to manufacture new crimes on Main Street.

Brian Reardon is the President of the S Corporation Association and a former White House official at the National Economic Council.