House committee passes CTA repeal bill

The House Financial Services Committee voted to advance legislation that would effectively repeal the Corporate Transparency Act and its beneficial ownership information reporting requirements.

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The Repealing Big Brother Overreach Act would limit beneficial ownership information reporting to foreign-owned companies, codifying a move by the Treasury Department last year scaling back enforcement of the requirements under the Trump administration. Last March, the Treasury Department’s Financial Crimes Enforcement Network posted an interim final rule requiring only foreign companies to report on their true owners to FinCEN while exempting domestically owned companies. The reporting requirements are supposed to deter money laundering, tax evasion, corruption, drug and human trafficking and other illicit activities by anonymous shell companies, but have been criticized for being too broad and costly to implement, especially for small businesses. 

Business groups such as the National Small Business Association and the National Federation of Independent Business have filed lawsuits against the CTA, which was passed as part of a larger defense authorization bill in 2021, leading to a series of conflicting court decisions that went as far as the Supreme Court last year. Last week, the NSBA petitioned the Supreme Court for a hearing in its ongoing lawsuit against the CTA. The American Institute of CPAs has also asked the Treasury to delay and relax the requirements to ease the burden on CPAs and their small business clients. The Washington Post editorial board published an op ed on Sunday calling for repeal of the CTA.

The House Financial Services Committee voted 26 to 25 to advance the repeal bill after a markup session on Tuesday, although future action is uncertain as it would need to be passed by the House and Senate to go into effect, perhaps as part of a larger bill such as the budget reconciliation measure that Republicans are preparing in order to extend funding for the Department of Homeland Security. 

During the markup session, Rep. Warren Davidson, R-Ohio, who introduced the bill last year, spoke on behalf of the legislation. “This bill has over 190 co-sponsors,” he said. “It’s broad support, because we’ve heard from small businesses and individual citizens from around the country who have been shocked to find that their small business is presumed to have committed a crime. Therefore, they’re essentially being served a search warrant.”

He said his office had been contacted by a constituent who is the president of a local  homeowners association asking why he needed to file a report with FinCEN. Davidson pointed to the need for Congress to address the CTA, even though the Treasury Department has already posted a Notice of Proposed Rulemaking scaling back the requirements. 

“I think the administration has thoughtfully addressed this with rulemaking, and now it’s our burden to do this with lawmaking,” he said.

Democrats, however, criticized the legislation, with Rep. Stephen Lynch, D-Massachusetts, and Nydia Velázquez, D-New York, reportedly saying it would encourage weapons trafficking, human trafficking and terrorism and tie the hands of law enforcement officials trying to investigate anonymous shell companies.

Financial accountability and corporate transparency advocacy groups also blasted the move. “This bill would undo 15 years of bipartisan work by Congress to end the scourge of anonymous shell companies,” said Erica Hanichak, deputy director of the FACT Coalition, in a statement. “There could be no greater gift to the fentanyl traffickers, fraudsters and U.S. adversaries that rely on the anonymity that shell companies provide than gutting the Corporate Transparency Act. Congress should be moving to strengthen this critical anti-money laundering law, not tear it down.”

“Today’s vote ignores clear warnings from American national security and law enforcement officials and moves the United States one step closer to a system where anonymous companies can once again serve as a roadblock to police and prosecutors trying to do their jobs,” said Gary Kalman, executive director of Transparency International U.S., in a statement Tuesday. “These entities are not abstract — they are the tools that drug cartels, human traffickers, corrupt politicians and money launderers use to move profits, conceal ownership and expand operations across our borders.”

“After 30 years investigating international corruption and recovering over $1 billion in stolen assets, I’ve seen firsthand how anonymous U.S. shell companies are used by kleptocrats, foreign officials and cartels to launder illicit funds and purchase luxury assets in this country,” said Debra LaPrevotte, a former FBI official and senior investigator at Restitution Impact Ltd., in a statement. “Gutting the Corporate Transparency Act would eliminate a key tool needed by law enforcement to follow the money and stop the United States from being a safe haven for criminal proceeds.”