[House Hearing, 118 Congress] [From the U.S. Government Publishing Office] UNDER THE MICROSCOPE: EXAMINING FINCEN'S IMPLEMENTATION OF THE CORPORATE TRANSPARENCY ACT ======================================================================= HEARING before the COMMITTEE ON SMALL BUSINESS UNITED STATES HOUSE OF REPRESENTATIVES ONE HUNDRED EIGHTEENTH CONGRESS SECOND SESSION ---------- HEARING HELD APRIL 30, 2024 ---------- [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Small Business Committee Document Number 118-048 Available via the GPO Website: www.govinfo.gov UNDER THE MICROSCOPE: EXAMINING FINCEN'S IMPLEMENTATION OF THE CORPORATE TRANSPARENCY ACT UNDER THE MICROSCOPE: EXAMINING FINCEN'S IMPLEMENTATION OF THE CORPORATE TRANSPARENCY ACT ======================================================================= HEARING before the COMMITTEE ON SMALL BUSINESS UNITED STATES HOUSE OF REPRESENTATIVES ONE HUNDRED EIGHTEENTH CONGRESS SECOND SESSION __________ HEARING HELD APRIL 30, 2024 __________ [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Small Business Committee Document Number 118-048 Available via the GPO Website: www.govinfo.gov ------ U.S. GOVERNMENT PUBLISHING OFFICE 55-252 WASHINGTON : 2024 HOUSE COMMITTEE ON SMALL BUSINESS ROGER WILLIAMS, Texas, Chairman BLAINE LUETKEMEYER, Missouri PETE STAUBER, Minnesota DAN MEUSER, Pennsylvania BETH VAN DUYNE, Texas MARIA SALAZAR, Florida TRACEY MANN, Kansas JAKE ELLZEY, Texas MARC MOLINARO, New York MARK ALFORD, Missouri ELI CRANE, Arizona AARON BEAN, Florida WESLEY HUNT, Texas NICK LALOTA, New York CELESTE MALOY, Utah NYDIA VELAZQUEZ, New York, Ranking Member JARED GOLDEN, Maine KWEISI MFUME, Maryland DEAN PHILLIPS, Minnesota GREG LANDSMAN, Ohio MARIE GLUESENKAMP PEREZ, Washington SHRI THANEDAR, Michigan MORGAN MCGARVEY, Kentucky HILLARY SCHOLTEN, Michigan JUDY CHU, California SHARICE DAVIDS, Kansas CHRIS PAPPAS, New Hampshire Ben Johnson, Majority Staff Director Melissa Jung, Minority Staff Director C O N T E N T S OPENING STATEMENTS Page Hon. Roger Williams.............................................. 19 Hon. Nydia Velazquez............................................. 3 Hon. Dan Meuser (Presiding)...................................... 1 WITNESSES Ms. Carol Roth, Small Business Expert and Owner, Chicago, IL..... 5 Mr. Roger Harris, President, Padgett, Athens, GA................. 7 Mr. Timothy M. Opsitnick, Executive Vice President and General Counsel, Technology Concepts & Design, Inc., Cleveland, OH..... 8 Mr. Gary Kalman, Executive Director, Transparency International US, Washington, DC............................................. 10 APPENDIX Prepared Statements: Ms. Carol Roth, Small Business Expert and Owner, Chicago, IL. 29 Mr. Roger Harris, President, Padgett, Athens, GA............. 31 Mr. Timothy M. Opsitnick, Executive Vice President and General Counsel, Technology Concepts & Design, Inc., Cleveland, OH.............................................. 38 Mr. Gary Kalman, Executive Director, Transparency International US, Washington, DC........................... 45 Questions for the Record: None. Answers for the Record: None. Additional Material for the Record: America's Credit Unions...................................... 55 Community Association Institute.............................. 57 Citizens for Responsibility & Ethics in Washington (CREW).... 60 Engine....................................................... 68 Financial Accountability and Corporate Transparency (FACT) Coalition.................................................. 76 Main Street Alliance......................................... 79 National Multifamily Housing Council (NMHC) and the National Apartment Association (NAA)................................ 107 NFIB......................................................... 110 SBIA......................................................... 116 Small Business Majority...................................... 123 Associated Builders and Contractors (ABC).................... 126 Various statements submitted by Carol Roth................... 129 UNDER THE MICROSCOPE: EXAMINING FINCEN'S IMPLEMENTATION OF THE CORPORATE TRANSPARENCY ACT ---------- TUESDAY, APRIL 30, 2024 House of Representatives, Committee on Small Business, Washington, DC. The Committee met, pursuant to call, at 10:03 a.m., in Room 2360, Rayburn House Office Building, Hon. Roger Williams [chairman of the Committee] presiding. Present: Representatives Williams, Luetkemeyer, Stauber, Meuser, Van Duyne, Mann, Alford, Crane, Bean, Maloy, Velazquez, Landsman, McGarvey, Scholten, Thanedar, and Davids. Mr. MEUSER. [Presiding.] Good morning all. As is tradition in the 118th Congress Small Business Committee, we do start with a prayer and the Pledge. So I am going to turn it over to Congressman Blaine Luetkemeyer to lead us in a prayer. Mr. LEUTKEMEYER. Thank you, Mr. Chairman. Everybody bow your head, please. Heavenly Father, we ask you today to bless our efforts as much as you can for the great work that we are trying to do here for the citizens of our great country. Please keep our military men and women safe as they try to keep us safe. You are the ultimate leader of all and so we put our hand in yours as you lead us through our day, through our efforts to try and do the better job to continue to protect our country, lead our country, to continue to provide for our country in a way that is helpful to all. We ask these things in your name, in your son's name. With that, thank you for another great day. And as that, we continue to ask for your blessings. Amen. Mr. MEUSER. If you would also please stand for the Pledge? I pledge allegiance to the flag of the United States of America. And to the Republic for which it stands, one nation under God, indivisible, with liberty and justice for all. Well, thank you very much. Good morning, everyone. I now call the Committee on Small Business to order. Without objection, the Chair is authorized to declare a recess of the Committee at any time. I recognize myself for my opening statement. I want to welcome you all to today's hearing, which will focus on the Financial Crimes Enforcement Network's implementation of the Corporate Transparency Act. Just as a side note, Chairman Roger Williams is at an important press conference, asked to attend with our leadership, and he will be with us within the next 15 to 20 minutes. But I would like to start by thanking our witnesses for joining us today. Your attendance is certainly greatly appreciated for taking the time and the travel to be here with us, and we value your input and your expertise. Congress passed the Corporate Transparency Act to detect illegal funds moving through the financial system. If you can better detect and prevent illicit funds from entering the financial system it should reduce overall criminal behavior. For example, FinCEN's beneficial ownership rule is meant to show who is profiting from a business activity and reduce the number of shell companies used by criminals. This requires some businesses with less than 20 employees to disclose ownership information of anyone with a 25 percent stake in the company. This information is saved to a database for law enforcement and financial institutions to help detect criminals that have previously been hidden by LLCs or other companies. However, FinCEN's implementation of this law and the corresponding regulations have been overly broad, leading to unnecessary regulatory burdens on our nation's job creators. These concerns coming from the Small Business Committee have overshadowed many of the benefits of the Corporate Transparency Act. Nearly half of small business owners said they had no idea what the Corporate Transparency Act is and had never heard of the government agency FinCEN, and suddenly they are getting something in the mail asking for personal information with the threat of massive fines if they do not comply. When some businesses have received these notices, they have turned to their lawyers or accountants or congressional offices for help to fulfill these requirements. However, we are hearing that the rules are written in a way that makes these trained professionals hesitant or unwilling to take on this task. This is a telltale sign that something has gone wrong in implementing this law. In addition to confusing regulations coming out of FinCEN, serious privacy concerns have been raised about this data collection. In 2021, an employee at FinCEN leaked the financial information of President Trump's former campaign manager, Paul Manafort, to smear their political rival. The employee who leaked the information rightfully received a 6-month prison sentence. However, with the changes in the Corporate Transparency Act many more people have access to this type of financial information. And business owners are rightfully concerned that their data could be leaked, stolen, or used against them. The Biden administration's implementation of this law fails to strike the balance in detecting illicit activities in our financial system and burdening all small businesses with expensive new mandates. I hope this hearing sheds some light on the many challenges that our nation's job creators are facing and will begin to work correcting--on correcting some of these issues coming out of FinCEN. I would like to once again thank our witnesses for being here with us today. We look forward to our meeting--to our hearing. And with that, I will now yield to our distinguished Ranking Member from New York, Ms. Velazquez. Ms. VELAZQUEZ. Thank you, Mr. Chairman and good morning, everyone. Thank you for being here. The Corporate Transparency Act is landmark legislation aimed at cracking down on criminals, both foreign and domestic, who for years have been exploiting weak federal laws to engage in illegal activity through anonymous shell companies here in the United States. Passed in 2021 with broad bipartisan support, the CTA requires the Treasury Department's Financial Crimes Enforcement Network to develop and maintain a registry of the real beneficial owners of established businesses. Establishing a BOI registry enables law enforcement to better target oligarchs, kleptocrats, and terrorist organizations who use anonymous shell companies to launder illicit funds, evade taxes, finance terrorism, and facilitate bribes to corrupt public officials. Not only do these anonymous shell companies do substantial harm and present a threat to our national security, but they also undermine competition here at home by taking advantage of legitimate small businesses. Prior to the CTA's passage there were numerous examples of criminals' utilization of anonymous shell companies to engage in illegal activity. For instance, an anonymous company associated with the Taliban was able to secure contracts with the Department of Defense to supply American troops in Afghanistan. Foreign leaders use shell companies to hide their involvement in the drug trade and loan their money to Hezbollah, and Chinese drug traffickers use shell companies to sell deadly fentanyl to Americans here at home. Criminals have also used anonymous companies to sell billions of dollars of counterfeit goods from luxury brands and American consumers has been sold billions of dollars in counterfeit medicines and medical products from India and China. The problems do not stop at national security and undermining consumer welfare. These anonymous entities are responsible for exploiting resources intended for real American small businesses. According to a GAO report from 2023, over half the charges for fraud in the PPP and EIDL program involved the use of shell companies to launder these funds, and two- thirds included nonoperating companies like the ones this law targets. Small businesses overwhelmingly support the need for the CTA. More than three-quarters of small businesses expressed support in 2018 for legislation requiring businesses to divulge their beneficial owners' true identities at the time of formation, and 84 percent of small business owners said the use of anonymous companies to win contracts or obtain government funding was a problem. Under the CTA, FinCEN began accepting electronic filings of beneficial ownership information on January 1st. But despite its critical importance, too many small businesses remain unaware of their reporting obligation. More must be done to communicate with small businesses about these requirements, and I am interested in learning how we can help do that here this morning--but that is not a good reason to demonize this law, fear monger about regulatory impact, or cut funding for such a crucial national security agency. That said, for most affected entities reporting should be relatively simple. The reporting page on the FinCEN website is easy to use, makes use of dropdown menus, and only requires relatively basic information that most small business owners either already know or have readily accessible, such as tax and personal identification numbers, legal names, and addresses. Given that the majority of the 32 million small businesses affected as sole proprietors finding this information should be quick and easy. According to a recent survey, 68 percent of small business owners that have already filed indicated the process was easy. I want to thank the witnesses for their willingness to testify today, and I yield back. Thank you. Mr. MEUSER. The gentlelady yields. I will now introduce our witnesses. The first witness here with us today is Ms. Carol Roth. Ms. Roth is a small business owner and has extensive experience and expertise in related small business matters. Ms. Roth has been a judge on the series America's Greatest Makers on TBS and the host of Microsoft's Office Small Business Academy show, as well as a panelist on FOX Business' Bulls & Bears and CNBC's Closing Bell. Ms. Roth has written three books with her most recent book, ``You Will Own Nothing,'' becoming a New York Times bestseller. She also regularly writes for a number of online publications including op-eds for FOX News and FOX Business. Ms. Roth has been named a top 100 small business influencer by Small Business Trends multiple times. She earned her Bachelor of Science in finance and management from the Wharton School of Business at the University of Pennsylvania. Thank you for joining us today. Our next witness here with us is Mr. Roger Harris. Mr. Harris is the president of Padget Business Services located in Athens, Georgia. Mr. Harris has served as president of Padget Business Services since 1992, offering services to thousands of small business owners ranging from government compliance to tax advice through hundreds of individually owned locations. Prior to serving as president, Mr. Harris served as President and Chairman of the Board in one of the largest franchises in the system. He was a panelist on President Bush's Advisory Panel on federal Tax Reform and served as Chair of the Internal Revenue Service Advisory Council. Mr. Harris earned his degree in accounting and finance from the University of Georgia, J.M. Tull School of Accounting. So, Mr. Harris, we certainly look forward to your testimony as well. Our next witness with us today is Mr. Timothy Opsitnick. Mr. Opsitnick is the executive vice president and general counsel of Technology Concepts & Designs, Inc., located in Cleveland, Ohio, which provides a comprehensive suite of services including digital forensics and cybersecurity. Mr. Opsitnick previously founded JURINNOV, Ltd., which provides the legal and business communities with innovative solutions to address their data security needs. He also recently served as Chairman of the Council on Small Business Enterprises. Mr. Opsitnick earned his Bachelor of Arts in political science and psychology from Ohio--how do we pronounce that-- Wesleyan--I should know that--University before earning his JD from Case Western Reserve University School of Law. Thank you for joining us here today. And I now recognize Ranking Member from New York, Ms. Velazquez, to briefly introduce our last witness appearing before us today. Ms. VELAZQUEZ. Thank you, Mr. Chairman. Our final witness today is Mr. Gary Kalman. Mr. Kalman is the Executive Director of Transparency International U.S. and oversees the organization's U.S. operation focusing on illicit finance and the U.S. role in global anti-corruption efforts. He was a founding member of the Financial Accountability and Corporate Transparency Coalition where he served as its Executive Director from 2016 to 2019. He was also a founder of Americans for Financial Reform, a coalition that in the aftermath of the 2008 financial crisis led the successful fight for the Dodd-Frank Financial Reform bill. He is currently an advisory counsel for the International Coalition Against Illicit Economies, and he is a top advocate for anti-corruption and transparency issues. Thank you, Mr. Kalman, for joining us. We look forward to your testimony. Thank you, Mr. Chairman. Mr. MEUSER. Thank you. Now, before recognizing the witnesses I do need to remind you all that your oral testimony is restricted to 5 minutes in length. If you see the light turn red in front of you it means your 5 minutes have concluded and you should wrap up your testimony. I do now recognize Ms. Roth for your 5-minute opening remarks. STATEMENTS OF CAROL ROTH, SMALL BUSINESS EXPERT AND OWNER; ROGER HARRIS, PRESIDENT, PADGETT; TIMOTHY M. OPSITNICK, EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL, TECHNOLOGY CONCEPTS & DESIGN, INC.,; AND GARY KALMAN, EXECUTIVE DIRECTOR, TRANSPARENCY INTERNATIONAL US STATEMENT OF CAROL ROTH, SMALL BUSINESS EXPERT AND OWNER Ms. ROTH. Good morning. I am Carol Roth, a small business expert and a small business owner myself. On behalf of small businesses across the United States I am asking that you, our bipartisan advocates for small business, immediately overturn the Corporate Transparency Act's beneficial ownership information rule passed by Congress which unfairly targets American small businesses. The Constitution of the United States protects the natural rights of all Americans, including against federal government overreach. While preventing financial crimes is a worthwhile endeavor, your methods cannot do so in a way that infringes upon Americans' natural rights or assumes that they are guilty without due process. Asking small businesses and their owners to report sensitive personal information and identification to an organization involved in monitoring financial crimes, unfortunately, does just that. It is not only an invasion of privacy but it also creates additional burdens and challenges for small business owners. And once again, by exempting big businesses from this reporting rule, it specifically and unfairly targets and penalizes small business owners with a different standard and set of rules. Small businesses overall are not shell companies. They are the backbone of the economy. If FinCEN has concerns about money laundering, cartel activity, or otherwise, they should be using the courts to receive information on those specific cases and entities. I imagine you would agree that it is highly unlikely that those who would engage in such cartel or money laundering activities would be forthcoming with the information that FinCEN is seeking. Given that, the rule is ineffective, that is, cartels and money launderers won't be swayed to participate, while also unconstitutionally penalizing law- abiding Americans and infringing on their rights. If there is a concern about foreign entities, well, then the rule should focus on them exclusively. Moreover, the penalties, which include significant financial and criminal penalties including jail time, are egregious. Plus the rule exposes small business owners to fraud and privacy violations. In fact, the very first alert on the FinCEN BOI landing page, right in the center of the website, is an alert about fraudulent information solicitation attempts from third parties. Creating this type of database, in addition to the privacy violations from hackers and unsavory parties, also creates concerns for abuse internally. FinCEN itself has come under fire for its alleged unjustified data usage. In a time when small business owners have been brutalized by unfair, slanted COVID mandates and their aftereffects, such as labor shortages and supply chain interruptions, historic inflation, and other challenges, the last thing they need is more administrative burden both in the original reporting and remembering that any time a piece of data changes they need to provide an update or they face jail time. I personally have had dozens of small business owners tell me they are considering dissolving their LLCs to become sole proprietors without an entity specifically in response to this rule. This will expose these entrepreneurs to more liabilities and other issues because they are trying to escape being targeted. This cannot be how we treat entrepreneurs. Being a small business owner is fraught with challenges. The government should be doing everything possible to uplift small businesses and remove barriers that interfere with their success. Instead, with the powers granted to FinCEN and this rule, Congress has added another barrier and is treating small businesses like criminal masterminds. The ends absolutely do not justify the means here. But the most important piece is the rule's unconstitutionality. A federal District Court in Alabama has already found the CTA BOI rule directed at small business reporting to be unconstitutional. Unfortunately, based on the ruling scope, FinCEN is choosing to ignore this for everyone but the plaintiffs in that case, a peculiar outcome. If it is unconstitutional, it is unconstitutional period and should be immediately shut down. FinCEN has many tools at their disposal and a court system to help their efforts on financial crimes. They should use those tools and not harm a good portion of America's more than 33 million small businesses and their owners in the process. Good intentions don't always produce good outcomes, and this is a perfect example. Congress put this in motion and needs to be the one to fix it. Again, I respectfully ask you to work with your counterparts in the Senate to have Congress immediately overturn the powers given to FinCEN and the CTA BOI rule. Thank you for your time and consideration. Mr. MEUSER. Thank you very much. I now recognize Mr. Harris for his 5-minute opening remarks. STATEMENT OF ROGER HARRIS, PRESIDENT, PADGET BUSINESS SERVICES Mr. HARRIS. Thank you and good morning, Mr. Chairman and Ranking Member and Members of the House Small Business Committee. My name is Roger Harris, and I represent a company called Padget who has provided accounting, tax, and advisory services to small businesses for almost 60 years. And our definition of our target client is a client with fewer than 20 employees so normally when we see legislation, first thing we do is we look for the small business exception. However, when we looked at the Corporate Transparency Act we found not only was there no small business exception our clients were the target of the legislation. So that means we had to react to the requirement and try to find a way to service our clients because our firm and firms like ours are the primary advisors to small businesses with fewer than 20 employees so they would turn to us and expect us to be the firm to help them comply with this. Unfortunately, as we dug into it and as we talked to our legal advisors and our insurance carriers, we were being told to stay away from providing this service, that we were potentially going to face great risk as a firm if we provided these services to our customers. Now, why? What were some of the reasons we were given that we should stay away from this? Number one is the amount of the penalties which are severe and could be assessed not only on the business owner but on us. We lack the guidance and examples of certain things, like substantial control and most recently willful behavior in terms of assessing the penalty. What is considered willful behavior? There were other issues. There is a 30-day timeframe to turn around certain things within the law. None of us have relationships with small businesses that allow us to react in 30-day cycles so that presented a problem. And just generally speaking we were just being told do not do this. Do not do this. And yet, knowing that our clients were dependent upon us, we started to say we have to find a way so we started working with groups like AICPA, the National Association of Enrolled Agents and other accounting associations. We came up to DC and met with many of your staffs to look for ways to try to make this work. We actually had meetings with FinCEN and tried to find a way to see if there was any way to, number one, create more awareness because if our clients did not hear it from us they had no idea that this rule or law was ever in existence. And if we could not serve them we were going to be faced, I believe, with massive noncompliance in the small business community. And if the noncompliance is not going to be because these businesses are laundering money. It is because they are not filing a form. So we need to find a way if we are going to have this rule to make it work. So we think that there are some common sense things that we can do to see if we can make this work. Number one, I want to endorse the suggestion that AICPA made, which was because of the legal result in Alabama to put implementation on hold until, first of all, that that lawsuit is settled, and then give us an additional 12 months after that to try to find fixes to see if we can make this work. We also need to really look at the 30-day requirement. It is just not practical for most things. Personally, I would rather not have a 30-day requirement at all, but if we are going to have to have 30 days would like to see something as simple as your driver's license renewing to start a clock ticking for noncompliance. We need changes in third party certification to fit more like what we do when we prepare someone's tax return. Right now we are being asked to take a stronger position legally on the beneficial owner than we do on that same business' tax return. And next I think the IRS has worked with us to support small businesses for years, and I think FinCEN could learn some things on how they communicate, how they issue guidance, how they issue examples to our group so we can assist this in the small business community. So I think the summary of what I am saying today is that this isn't going to work as it is currently structured. It is going to cause massive noncompliance in the small business community. And again, I will remind you that is not because they are laundering money. It is because they didn't file a form. So I am hoping that you can help us in making what we think are reasonable changes to allow us to do our job and get the compliance that I think was anticipated when the bill was passed. Thank you for holding this hearing. Thank you for allowing us to be here today, and I look forward to your questions. Mr. MEUSER. Thank you very much. I now recognize Mr. Opsitnick for your 5-minute opening remarks. STATEMENT OF TIMOTHY OPSITNICK, EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL, TECHNOLOGY CON- CEPTS & DESIGN, INC., AND NATIONAL SMALL BUSINESS AD- MINISTRATION Mr. OPSITNICK. Thank you, Mr. Chairman. Mr. Chairman, Members of the Committee, Ranking Member Velazquez, thank you for holding today's hearing on the implementation of the Corporate Transparency Act. My name is Tim Opsitnick and I am the part owner of several small businesses, including Opsitnick, LLC, OnCall Cyber, Ltd., and serve on the boards for several nonprofits and small businesses. I am also the executive vice president of TCDI, a business focused on legal services, computer forensics, and cybersecurity. I am grateful to be here today on behalf of the National Small Business Association testifying on an issue that is truly critical to the entire small business community. Before I begin, I would like to address the elephant in the room. As you may know, the NSBA is involved in active litigation over the constitutionality of the CTA. I am not here to address that case but rather to speak to some of the specific impacts that the law has had on small businesses that I work with and to shed light on the experiences that entrepreneurs and main street business leaders face in the current regulatory environment. I am active in small business groups and chambers at the federal, state, and local level. Through these groups and my advisory work, I have made connections with small business owners across industries, locations, and sizes from multigenerational family businesses to first-time entrepreneurs working out of their apartments. In my experience, first-timers are much more fragile. With every minute and every dollar critical to survival they can least afford to spend significant time and money on compliance and have the least awareness of complicated federal regulations, yet, paradoxically, are the first to be implicated and impacted by the CTA. As of January 1, any non-exempt new entity must report its beneficial owners to FinCEN within 90 days of formation. This places the first reporting burden on fledgling entrepreneurs who are least prepared to comply. Moreover, the regulations are unclear even when simplified for the public. Specifically I would like to draw your attention to FinCEN's 57-page Small Entity Compliance Guide, as well as the 45-page FAQ. A first-time entrepreneur looking to open a coffee shop, for example, must push through 102 pages of explanatory language to understand the reporting burden. Given permitting and other delays, it is entirely possible that our aspiring barista would have to act on all of this before a single cup of coffee was served to a customer, all under the threat of criminal sanctions. Compounding problems like the government's limited outreach, the lack of clarity, and strong liability concern, small businesses also face a dearth of expert advisers able and willing to interpret the regulation or to help them file. Secretary Yellen said that FinCEN is making reporting as easy as possible. A small business shouldn't need a certified accountant or lawyer. As a small business owner and as a lawyer, I completely disagree. For example, in determining who must be a beneficial owner the filer must determine not only who is an owner but must list those with substantial control over the business. Lawyers do not understand the meaning of substantial control, let alone the barista I mentioned. The term would make for good law school discussion. As to the financial burdens, a recent NSBA survey revealed that the small business owners are anticipating average compliance costs of nearly $8,000 in the first year. Nearly half also intend to rely on outside advice from multiple professionals. Worryingly, even lawyers and accountants are woefully unprepared. Attorney list serves are alight with conversations about what to advise clients. The typical advice that I see is wait to the last minute. As I mentioned, part of my work includes cybersecurity and data privacy. Let me stress we do not know that this database is secure. We further know that the information or access to the database will be shared. Every time an owner shares their information the risk that it will be misused or lost to the dark web significantly increases. FinCEN's own website opens with an alert about fraudulent solicitations under the CTA. According to NSBA research, the average cost to remedy a small business data breach is $15,297. These figures could cripple small businesses who are cash-strapped and cash flow- sensitive. Small business leaders cannot afford to be vulnerable. The majority of small business leaders that suffer a breach will be out of business within 6 months. In conclusion, I would like to reiterate the small business community's thanks to the committee for their attention to these issues, and I very much look forward to answering questions. Mr. MEUSER. And outside of that it is wonderful, correct? No, I am kidding. Now, Mr. Kalman, we give you your 5 minutes to make your opening remarks. STATEMENT OF GARY KALMAN, EXECUTIVE DIRECTOR, TRANSPARENCY INTERNATIONAL U.S. Mr. KALMAN. Chairman Meuser, Ranking Member Velazquez, and Members of the Committee, on behalf of Transparency International U.S. I appreciate the opportunity to discuss the progress towards the implementation of the Corporate Transparency Act. Transparency International is part of the world's largest and oldest coalition fighting corruption. The CTA's historic anti-money laundering measure that Congress correctly understood would strengthen the ability of law enforcement and the U.S. national security community to curtail the use of anonymous entities to commit crimes. Moreover, the CTA's reporting requirements are neither unusual nor unprecedented for everyday Americans. Most states collect more information when granting public library cards than is required under the CTA. And the CTA benefits small business owners by among other things protecting them from unfair and fraudulent competition while imposing minimal compliance costs. The law passed with broad bipartisan support in Congress and has seen strong vocal support from both the Trump and Biden administrations. In the lead up to passage, Congress gathered a litany of evidence of the harms caused by anonymous shell companies. In the 2018 Money Laundering Risk Assessment, the Treasury Department wrote that drug crime and associated financial flows has changed with the rise of China as a supplier of fentanyl and its analogs, noting that the U.S. Drug Enforcement Agency has determined that, ``Goods are being exported to China by U.S. front companies as payment for drugs.'' In 2020, the U.S. Department of Justice went after millions derived from a nearly 20-year-long scheme to evade U.S. sanctions on Iran by laundering more than $300 million through more than 70 front companies in California and other jurisdictions. These and similar reports are why more than a hundred national security experts ultimately signed a letter to Congress calling for legislation that would require the collection of beneficial ownership information. Congress also heard evidence demonstrating how anonymous companies are used to undermine our markets and disrupt legitimate business. Anonymous companies were used to sell knockoff products to the Pentagon and used to import and sell counterfeit medicines from India and China. Likewise, patent trolls and fraudsters have abused anonymous companies to target small businesses. Given the potential for harm, it is not surprising that in multiple polls small business owners felt that the benefits of the CTA's reporting requirements outweighed the cost. There were two independent polls, one in 2018, as mentioned by the Ranking Member, and another in 2019. Both found that roughly three-quarters of small business owners supported beneficial ownership disclosure requirements and support was consistent across party lines. Support for ending the incorporation of anonymous companies now includes a diverse set of business trade associations, including the U.S. Chamber of Commerce, law enforcement agencies, faith-based organizations, and scholars from both conservative and liberal-leaning think tanks among many, many others. Likewise, the Trump administration encouraged congressional passage of the CTA. In its statement of administrative policy it said, ``This legislation will help prevent malign actors from leveraging anonymity to exploit these entities for criminal gain.'' And the Biden administration echoed that support in its U.S. strategy and countering corruption stating that, ``We will address these deficiencies in the U.S. anti-money laundering regime by effectively collecting beneficial ownership information.'' The CTA requires simple reporting to mitigate these national security and public safety threats. According to the Small Business Administration, approximately 82 percent of all businesses in the U.S. are non-employer firms, meaning that there is only one person in the enterprise. True small business owners will not have trouble identifying the owner of their business. It is, therefore, misleading to suggest that many reporting companies will have difficulty or costly processes in identifying their beneficial owners. From a practical standpoint it seems improbable for a business to have the resources to pay for the creation of a complex structure but not be able to name who sits at the top of the corporate food chain. FinCEN's rollout of the database was successful. Already more than a million businesses have filed. In fact, a post- rollout poll found that among those small businesses that had filed 68 percent reported it being somewhat or very easy to comply. Only 6 percent found it very difficult. If Congress is concerned about the lack of awareness of the law, I would urge Members of this committee to support increased funding for FinCEN. There is bipartisan support for an increase to provide additional outreach on the CTA and other implementation costs to ease compliance. Thank you and I look forward to your questions. Mr. MEUSER. All right, thank you. We will now begin our line of questioning, and I am going to begin with myself and allow myself my 5 minutes of questioning. So, look, since taking office the Biden administration has instituted many regulations, many new taxes on energy and small business, and it has not been business-friendly. In fact, it has weakened small businesses. So this FinCEN approach to beneficial ownership rule I don't think we believe needs to be completely rescinded, but my first question here will go to you, Ms. Roth, but there aren't many small businesses that are embracing it and can handle it, understand it. And the rollout has been tumultuous, has been a problem. The number that you just had brought up, Mr. Kalman, on, what, you said 6 percent, well, I find that challenging to believe, frankly, but data is data. But we will begin our questioning. So, Ms. Roth, has FinCEN reached out to small businesses? Have they adequately reached out to let people know what the potential fines were, what the compliance is, why this is even being done in the first place? Ms. ROTH. Not that I am aware of and certainly not with the small business owners that I have spoken with. For my written statement for the record that I submitted, I brought with me almost 450 statements from small business owners across this country who are vehemently opposed. Most of them when I brought it up to them either through the media or other ways that they have come in contact with me, had never heard of it. They also have no idea who FinCEN is. You know, I am a recovering investment banker so I am familiar with, you know, the Financial Crimes Enforcement Network, but for your average small business owner they are just trying to stay afloat. They are not familiar with that division of the Treasury. And when they find out, they are saying why is it that the Financial Crimes Enforcement Division of the Treasury is asking for my information? So the communication certainly hasn't been there and as small businesses find out more about it the reaction isn't usually, oh, well, this sounds like a great thing. It is horror, and that is why I was able to bring so many statements to bear. Mr. MEUSER. Of those you surveyed for this, the 450 statements against and having problems with it, can you share with us how many said it is okay, I am handling it, I think it is a good idea? Ms. ROTH. None. Mr. MEUSER. Zero? Ms. ROTH. Zero. Mr. MEUSER. Okay. So what percentage is that? You went to Wharton. Ms. ROTH. Zero. Mr. MEUSER. Yeah, okay. Zero again, not zero, right for it. So okay. So, Mr. Harris, let me ask you, please. Explain the accounting industry's problem and lack of comfort assisting small businesses to comply with this rule. Mr. HARRIS. Like I mentioned in my statement, there are just so much unknowns and risks that are potentially assigned to us, which if we have to go forward with no additional guidance, we are going to have to charge more for this service than I think is fair for the small business owner to have to incur because risk is something we have to factor into how we charge. So if we could get some cooperation. You know, there are some things that seem simple. I know I mentioned I have been to two FinCEN meetings. I have asked them for a definition--not a definition, but guidance on the role of a spouse and whether a spouse who you go home and talk to every night about your business could be deemed to have substantial control, even though they own nothing in the business? And we got a non-answer, and that is where we have risk. We need guidance. There are all kinds of--in the tax code the spouses are addressed many times in terms of their role and the attribution rules and all these sorts of things. So we are just asking for the same guidance that we have everywhere else. Without that we are going to be unable to provide the help that these businesses are going to need. And I can tell you if we don't help they are not going to do it. Mr. MEUSER. Thank you. Mr. Opsitnick, what can be improved on the FinCEN rule in order to make you more comfortable with it? Mr. OPSITNICK. Well, we are not comfortable with it at all, which is the reason for our court challenge. We don't think that this is the way at all. We, you know, we don't see any improvement that is possible. We are certainly willing to engage in conversation and we haven't been given that opportunity to engage in conversation. You know, this is kind of where I get a little bit frustrated. We are very happy to have the opportunity right now to talk about the Corporate Transparency Act, but we weren't given that opportunity before. And, in fact, it was a 21-page rider attached to a 1,500-page National Defense Authorization Act bill where it was passed. There was no prior discussion of it before. We didn't have the time to discuss possible ways to improve it. It was just passed as a rider. And, you know, when we consider that that is impacting 33 million small businesses and 60 million employees---- Mr. MEUSER. Clearly heavy-handed government on---- Mr. OPSITNICK.--that--yes. Mr. MEUSER.--on our small business backbone of our economy. I thank you very much, and I yield back. And now I recognize the Ranking Member for her 5-minute remarks. Ms. VELAZQUEZ. Thank you, Mr. Chairman. The regulatory environment under this administration is such, right, that has impacted so many small businesses I don't know how that reconciles with the fact that 10 million small businesses started since Joe Biden took office. Something doesn't click here. Mr. Kalman, the CTA took over 10 years to pass and you met with a number of staff and Members, correct? What were the key issues that brought Democrats and Republicans together that led to this law passage? Mr. KALMAN. Thank you for the question. There were a number of issues, I think, that brought a wide variety of constituencies. In fact, anonymous companies have been used for so many different crimes that is why you had the variety so national security, fentanyl trafficking, human trafficking, counterfeit and pirated goods, fraud in government contracting, and more. Ms. VELAZQUEZ. Can you comment on the unique array of organizations and interests which made up the coalition of stakeholders that fought for this law? Mr. KALMAN. Sure. In my written testimony I listed a number of the different constituencies that ranged, cops, sheriffs, local prosecutors, Republican and Democratic attorneys general, anti-human trafficking organizations, human rights organizations, and the whole gamut. Ms. VELAZQUEZ. Why we are so many different interests aligned on this path? Mr. KALMAN. They saw, and I would also point out the law enforcement support, of the value of the information that they believe this would be helpful in stopping the kinds of crimes that we have been talking about. Ms. VELAZQUEZ. FinCEN began accepting beneficial ownership information on reporting companies on January 1, 2024. There are penalties for willful failure or deception in reporting. Why is the inclusion of the word willful so important and how does it impact small business owners? Mr. KALMAN. So there are different standards for culpability in different laws and negligence is amongst the lowest. Willful is amongst the highest, so the notion that if you don't know about the law and don't file it is incorrect to suggest that that is rules for prosecution. You have to know about the law and decide not to file. Ms. VELAZQUEZ. What happens if a small business owner accidentally makes a mistake on their submission to FinCEN? Mr. KALMAN. They are not liable. They are not guilty of violating the law. Ms. VELAZQUEZ. Mr. Kalman, under the law reporting companies must provide the beneficial owners' full legal name, date of birth--it is this form here, right--current address, and unique identifying number from an identification card. Can you give us an example of when a legitimate business would be incapable of providing this information? Mr. KALMAN. We actually, in the 12 years of debate over this law, people put out some hypotheticals but no one actually came forth with a company that wouldn't. I would also point out that Members created in the law a FINCEN identifier for those parent companies that for some reason, legitimate or not, didn't want their subsidiaries to know who they were, they could use an identifier to continue that anonymity. Ms. VELAZQUEZ. Companies are required to report updates to the information on file within 30 days of change. Some claim that this will subject reporting companies to harsh penalties if they forget to update their information. Is that true? Mr. KALMAN. If you forget again to file that is not a violation under the law. Ms. VELAZQUEZ. Mr. Harris, do you think it would be helpful for Secretary of States to provide a link to FinCEN's database when small businesses register their businesses? Mr. HARRIS. Well, it probably wouldn't hurt, but they are still going to reach out to firms like us and say what does this mean? Because as I think I said in my written testimony, a small business owner gets into business to do the one thing they love and the 99 things that they hate, and this ranks up there with the top of the 99. So they are just going to reach out to us and say what does this mean, what does it do? I mean, it couldn't hurt, but I am not sure it is a---- Ms. VELAZQUEZ. But you don't think this will help small businesses know about the need to register? Mr. HARRIS. It has got to create some awareness. Ms. VELAZQUEZ. Right. Mr. HARRIS. Right. Ms. VELAZQUEZ. I think that there is a role for different federal agencies and for FinCEN to understand that they have to bring in other federal agencies such as the Small Business Administration---- Mr. HARRIS. They should. Ms. VELAZQUEZ.--the partners out there, small business B2Cs, to help educate businesses that they must comply with this regulation. Thank you, Mr. Chairman. I yield back. Mr. MEUSER. The Ranking Member yields back. I now recognize Representative Luetkemeyer from Missouri for 5 minutes. Mr. LEUTKEMEYER. Thank you, Mr. Chairman. I am an interesting guy to have on the committee here this morning because I was a sponsor, the Republican sponsor, of the Corporate Transparency Act. And as much as I hate that bill and hate that rule, my intention on that was to make sure we minimize the effect of this bill or this rule because it originally was a horrendous thing. But because of my involvement we were able to trim it down and, in fact, you only had four things you were supposed to do and you were supposed to be able to do on a postcard. Guess what? The administration continues to do what they always do, which is misinterpret what is going on, misconstrue, and now we have got over 50 different requirements that they are supposed to comply with. They have totally taking a law and just torn it up and start all over again. In our discussions with FinCEN they say what we need to do is target those businesses under $5 million in revenue. There is nothing like that in the bill. They don't need this. I agree with Ms. Roth and all of you. They don't need this. They are tools in their toolbox right now to go to the court and find out and get their warrants they need to be able to go investigate. What they have done is weaponized the financial services industry and make them deputies in their law enforcement activities, which is wrong in my mind. But, again, the intention was to try and minimize what went on and I think we did that in the course of what we were trying to do here. However, they have taken the law again and done it completely different. So let's go back with the cost of this originally as to what is going to be. I know we had Director Gacki from the Financial Services Committee a while back, and she stated that accounts will not be subject to criminal litigation for filing this information. Is that the way you read that, Mr. Harris? Mr. HARRIS. Well, I certainly hope so, but I think, again, it is going to depend on certain definitions of what is willful. I mean, are we willful? I wish FinCEN was as good in offering the definitions as Mr. Kalman was about what is willful because we have asked for that guidance and we have not been given clear guidance on willful. So I mean, I am not sure anybody is out to penalize small businesses just for the sake of penalizing them, but as long as that threat hangs over them and firms like us we are going to have to be cautious in how we move forward. That is the best I can do. Mr. LEUTKEMEYER. Yes. We argued long and hard over the words willful, as Ms. Vazquez talked about, and substantial which I think Mr. Opsitnick mentioned a minute ago. We have argued long and hard over those and trying to find some definitions. Never did really come up with some good ones that actually work. But I know that it is very frustrating for all of us to sit here and put something on our small businesses. Now, I think, Mr. Opsitnick, I think you made a comment. I think you talked about an average of, like, $8,000 per small business it would cost. The American Action Network says it is going to cost about $2.2 billion in total to comply with. Where do you get your figures from and how do you come up with that? Mr. OPSITNICK. Our figures came from a survey that we took from our membership. Our memberships reported themselves what they expected the cost to be to them. If you would like, I can go through a little bit more---- Mr. LEUTKEMEYER. Yeah, no. Mr. OPSITNICK.--about what the process might be and why those numbers might be so much higher. Mr. LEUTKEMEYER. Yes, well, go ahead. Just go into it a little bit. Mr. OPSITNICK. Yes. So, I mean, let's think about the process. I mean, in this process, first of all when you consider their time, the impacts of their time, first they are going to have to read 102 pages of guidance. They are going to have to review the website for all these other things. They are going to have to talk to their attorneys, their accountants, other consultants. They are going to have to determine do they fall with any of the exceptions. And most importantly for business owners, they are going to talk with their peers because, frankly, we get our best advice typically from our peers. They are going to have to determine who is a business owner with substantial control, which is incredibly vague. And then they are going to have to gather the information of the information and then they are going to have to input it. And all of that while being distracted from generating revenue of their current business. Mr. LEUTKEMEYER. Thank you. You know, Ms. Roth, I agree with you wholeheartedly. I hate this rule. I fought it from the very beginning and once it got implemented we were trying to figure out how to make it minimally impactful on our folks. And instead we find out what this complex law now is with playing a game of gotcha. It is basically what the administration is doing here with this because we had it kind of refined down to, I think, something that everybody could probably live with: a postcard with four questions on it that reveal your name, address, Social Security number, and ownership. I mean, that should be pretty simple. But now they have turned it into this monstrosity. How would you see us--what would you recommend for us to do to change this thing to make it, short of getting it out, you know, getting rid of it altogether, how can we make it less intrusive? Ms. ROTH. Well, I think that, you know, when we are talking about costs and making it less intrusive one of the key costs we are not talking about is risk. And that is the risk that this information gets in the wrong hands. That is the risk that they are going to get enormous fines, that somebody is going to say, oh, you willfully forgot this for a year and now all of a sudden you owe $215,000 or jail time. There is an asymmetric risk problem going on here and that is the number one biggest cost of this right now. Mr. LEUTKEMEYER. Okay, thank you, and I would yield back. Mr. MEUSER. The gentlemen's time has expired. We now recognize Representative McGarvey from Kentucky for 5 minutes. Mr. MCGARVEY. Thank you, Mr. Chairman. I appreciate that. And I just want to open up with a few statements that I hope are not controversial. We should crack down on bad guys who use shell companies to commit crimes. It is not unreasonable to have small businesses provide some identifying information to the government when dealing with them. And small business owners in my district in Louisville, Kentucky, accountants, Mr. Harris, shouldn't have to call my office in tears because they haven't gotten guidance from FinCEN on how to comply with BOI reporting requirements and they think they are going to jail. So I think we should frame this conversation in that sort of way where we are trying to make sure that the bad guys aren't doing bad things, that small businesses have what they need, and they can comply. And I think it is obvious FinCEN's rollout must be better. My staff has taken those calls from accountants, from small businesses, from people who honestly they think they are going to end up in jail because of CTA. FinCEN and Treasury need to do a much better job in educating and communicating over the next year, but I think we can help with that, too. And people who are just outright opposed to anything can abandon some of the fear mongering that is causing this sort of reaction from my constituents, so I want to ask a few questions. I will start with Mr. Kalman. The penalties under the Corporate Transparency Act only target individuals who willfully provide false or incomplete information to FinCEN, correct? Mr. KALMAN. Correct. Mr. MCGARVEY. Okay. And then how can FinCEN--because this is the Small Business Committee we want to make sure that that small businesses have what they want, the stories are real. How can FinCEN coordinate with the SBA to ensure an adequate rollout to help these small businesses comply with these regulations? Mr. KALMAN. Thank you for the question, and I think that is actually the most productive thing we can talk about so I appreciate you raising it. You know, FinCEN does have some ability and, in fact, in two days I am going to be on a webinar with some small businesses to talk with FinCEN to talk about implementation of the law and to help them with compliance. But I think the number one thing that Members of this committee could do is to join with their colleagues in asking for more money for FinCEN specifically for implementation and education of the constituency of small businesses. There is an awful lot that can be done. FinCEN doesn't currently have the resources. Mr. MCGARVEY. Mr. Harris, I want to ask a question of you as well. In your testimony you said you have no problem with the goals of CTA but you do believe that the current implementation of the BOI reporting requirements without adjustments lead to mass noncompliance. I would ask sort of the same question to you. Is there a role here for the SBA and FinCEN to coordinate to get an adequate rollout for these small businesses to comply with the regulations? Mr. HARRIS. Well, I think there is a role for everybody because clearly there is massive lack of awareness, understanding. So I think we need to--if we are going to go forward with this then we need to utilize all the tools that we have to, number one, educate the small businesses of the requirement, to address some of the concerns that both they and firms like ours feel because I am not an expert in crimes, certainly not in money laundering, so I have to defer to others on whether this is an effective way to combat those types of activities. But I do know that this is not an effective rollout of a way to combat those activities. So I think it is going to take everybody working together to try to find a way to make this work if we are going to go forward with it. Mr. MCGARVEY. Thank you. I appreciate that. Mr. Kalman, I will come back to you. We know FinCEN was subject to a great deal of criticism for how they have educated affected businesses during implementation, and I think with good reason. Has the outreach and education effort--has the outreach improved? Have the education efforts improved since the law has gone into effect, if you know? Mr. KALMAN. I think there has been a step up in webinars and outreach. I think the biggest thing that FinCEN is doing is trying to work with secretaries of state across the country and with the IRS. These are places where small businesses just have interactions and so those are touch points where I think they can make a lot of difference. And I think they are stepping up those efforts, yes. Mr. MCGARVEY. Mr. Harris, I will ask you the same question in the 20 seconds we have got left. Mr. HARRIS. Everything helps. You know, like I said, I just come back to the fact that at this point we need to channel all of our resources to see if there is any way to make this work. I would ask each of you to go back to your home districts and ask a business owner if they have ever heard of it. I think they will say no. If they say yes they probably heard it from a firm like ours, so we have got a lot of work to do. Mr. MCGARVEY. Thank you. I know it wasn't fair for me to say 20 seconds answer how to fix this, but that is what we had. Mr. Chairman, I yield back. Chairman WILLIAMS. The gentleman yields back. I now recognize Representative Maloy from the great state of Utah for 5 minutes. Ms. MALOY. Thank you, Mr. Chairman. Mr. Harris, I was going to start with a different question but I am going to answer your question first. So I have been in Congress for 5 months and I have had several calls from businesses in Utah where I represent about this, and they are really nervous about their ability to comply and some of the small businesses that have called me have been accounting businesses. Mr. HARRIS. Sure. Ms. MALOY. I share your concerns. In fact, the first week I was in Congress I got a call about this and I went and talked to Mr. Luetkemeyer on the floor and so this is something I have been looking at the entire time I have been here. And there is discomfort and disquiet out there in the small business community that they are going to get in trouble for trying to comply with something they can't understand, which is government at its worst, that we are up here talking about intentions. You know, this was intended to stop money laundering. This was intended to be simple, but our intentions don't really matter if the result is disruption to the small business community. So we should be able to do better than that. And to that point, Ms. Roth, you talked about asymmetric risk problem in your last answer. Do you want to take a minute and just unpack that a little bit for all of us? Ms. ROTH. Sure. I am going to actually read from one of the almost 450 small business owners who have proposed this. This is a gentleman by the name of David Stiles, who is a consultant. He said he will ``close his doors rather than expose himself to the asymmetrical risk of exposure of personal information and the potential to be prosecuted if the government deems I have completed my documents incorrectly. Given the complexities and ambiguities of the CTA's BOI rule, I view the risks and consequences of running afoul of compliance to be unacceptably high. Engaging professional help to complete the required documentation would turn my consultancy into a money loser.'' Ms. MALOY. Thank you. That was a even better answer than I anticipated. And the reason we are doing this is because we are trying to stop money laundering. I am going to open this question up to everyone on the panel. Is anyone aware of any money laundering businesses that have actually been picked up with this? Ms. ROTH. No, and I think that is sort of the fundamental issue with what we are talking about here if we want to prevent financial crimes. Does anyone actually think that a money launderer or cartel is going to be the one that reports? And we have other tools. We have suspicious activity reports. We have the courts. So we should be focusing on those rules and not penalizing small businesses as a way to go after money launderers and cartels. Ms. MALOY. Mr. Harris? Mr. HARRIS. I am not aware of anyone, but I do the best I can to stay away from people who launder money. Ms. MALOY. So do I. Mr. Opsitnick? Mr. OPSITNICK. I am certainly not aware of anyone, and I couldn't agree more with Ms. Roth. I mean, this is exactly what it is about. The people who are evil are going to manipulate the system. They are not going to comply. We are going to comply because we follow the rules. Ms. MALOY. Or you are going to try to comply. Mr. OPSITNICK. We are going to do our best. Ms. MALOY. Mr. Kalman? Mr. KALMAN. I would say the law has been in effect for a few months and people are just starting to file so it wouldn't be surprising if there are no cases. I would point out, however, that many of these directories are very similar throughout Europe and the U.K. and have been in place for several years and, yes, they have actually yielded a number of cases. And we are happy to supply examples if that is helpful. Ms. MALOY. Well, recognizing that this is fairly new it just feels like a good old-fashioned dragnet operation, which we don't do in this country, because the tradeoff of violating rights in exchange for stopping crimes is just not something that we are willing to tolerate. Mr. Opsitnick, you talked about how lawyers can't understand the terms and they are not sure how to define them. My background is in the law and definitions really matter as an attorney. It is risky to advise a client to do something if you are not sure where the line is to get them, you know, the line that will cause them legal problems and you are in the middle of a lawsuit over this very problem. I just want to go back to this definition of willful. If the highest penalties are someone who willfully refuses to comply, what is the risk to a business that is that is attempting but doesn't understand what the terms mean? Mr. OPSITNICK. You know, what I worry about most is not the scienter or the, you know, degree of culpability that is engaged in the definition of willful. What I worry about is the impact on a small business that is actually being charged and has to then go through the process to prove that they, in fact, did not do something willfully. You know, the amount of money would be devastating to their business. It would put them out of business. You can't even imagine the amount of effort it would take to fight the government if they come and tell you you willfully failed to comply. Ms. MALOY. I am going to cut you off because I only have a few more seconds, but what we talk about a lot on this committee is removing burdens from small businesses, streamlining processes, making it easier for small businesses, and it feels like this is the opposite of that. And with that, Mr. Chair, I yield back. Chairman WILLIAMS. The gentlelady yields back. I now recognize Mr. Thanedar from the great state of Michigan for 5 minutes. Mr. THANEDAR. Thank you. Thank you, Mr. Chair, and good morning to all of you. Thank you for being here. My question is for Mr. Kalman. It is crucial to acknowledge the significance of safeguarding the information collected under the Corporate Transparency Act. This legislation marks a critical step in combating transnational crime and corruption by requiring the disclosure of beneficial ownership information; however, with such sensitive data being collected ensuring robust security measures is paramount. Mr. Kalman, could you elaborate on the security mechanisms in place to safeguard the information collected under the CTA, particularly concerning access to the database by law enforcement, national security, and financial services professionals? Mr. KALMAN. Sure, and thank you for the question. I think over the course of the debate there were concerns about security and so the security concerns that FinCEN is now required to put in place--not everybody in law enforcement has access to the database. You have to be certified. You have to go through a training. You have to go through a background check. When you log on every logon is tracked and, therefore, there is an audit of that and it can be traced. You have to say that there is an existing investigation. And there are penalties which are actually, I think, stronger for leaking the information than there are for not reporting. And so appropriate security measures, recognizing some of those concerns, were negotiated and included in the law. Mr. THANEDAR. All right. Thank you, Mr. Kalman. And, Mr. Chair, I yield back. Chairman WILLIAMS. The gentleman yields back. I now recognize Representative Stauber from the great state of Minnesota for 5 minutes. Mr. STAUBER. Thank you, Mr. Chair and Ranking Member Velazquez, for holding this hearing. And thank you to all the witnesses for being here today and taking time out of your busy schedule to shed light on this topic. Over 700 regulations have been added to the Federal Register costing nearly $440 billion since Joe Biden took office and FinCEN's recent beneficial ownership information rule is yet another regulatory burden placed on American small business owners by this administration. It is clear the Biden administration's priorities aren't with the men and women who own small businesses. Forcing the collection of personal data from millions of small businesses opens them up to potential data breaches and fraud. FinCEN hasn't helped provide much clarity on reporting at this moment either. Mr. Opsitnick, many small businesses are unaware that this reporting obligation is pending. Can you please talk about the potential consequence of noncompliance with the BOI rule? Mr. OPSITNICK. Well, the consequence is devastating to a small business to think that you could go to jail for two years for failing to comply or that you would, you know, get civil penalties as well. It would be devastating. And my own experience is that there is simply nobody is aware of this. And in the boards that I am on who would have some responsibilities, the nonprofits, you know, my local sportsman's club, my homeowners' association, these issues have never been raised. I have never received letters from my small businesses from FinCEN. The only reason I am aware is because I happen to be a past Chair of the local Chamber of Commerce where we, you know, we are very much involved in these issues. So my awareness is because I am active. Mr. STAUBER. Yes. Thank you very much. Mr. Kalman, on your company's website Transparency International outlines their ``solution on beneficial ownership transparency by saying countries should create centralized public registers of beneficial ownership with verified information on who ultimately owns or controls these structures. These would allow everyone to see who is hiding behind anonymous companies and trusts.'' Do you believe Americans should lose their right to privacy simply for opening a business? Mr. KALMAN. My organization does believe, as they have in Europe and throughout the U.K., that the names behind companies have been extremely helpful in deterring corruption and, therefore, have supported public registries, yes. Mr. STAUBER. Do you believe Americans should lose their right to privacy simply for opening a business? Mr. KALMAN. As I said, I think the value of the information---- Mr. STAUBER. Mr. Kalman, I just have a little bit of time. As executive director of Transparency International do you believe your home address should be publicized? Mr. KALMAN. I believe that not all the information, because if you are going to get to driver's license and all of that, that is not made public, by the way, in any of the registries as far as I am aware. Mr. STAUBER. Mr. Kalman, I do---- Mr. KALMAN. And so there---- Mr. STAUBER. Yes, excuse me, just with the limited time, I know a filibuster when I see one. Should other Americans not have a right to register a business without publicizing their home addresses? Mr. KALMAN. It is the business address I believe that is actually required. Mr. STAUBER. That is right. So you don't believe they should be required to publicize their home address? Mr. KALMAN. If that is the business address then it is the business address. Mr. STAUBER. And have you owned a small business? Mr. KALMAN. Yes. Mr. STAUBER. Explain please. Mr. KALMAN. I had a small consultancy where I helped nonprofits with some of their fundraising and administrative efforts back when I lived in Philadelphia. Mr. STAUBER. The Transparency International, how many employees? Mr. KALMAN. Transparency International U.S.? Mr. STAUBER. Yes. Mr. KALMAN. We currently have 5 full-time employees, sorry. Mr. STAUBER. So you consider it a small business, right? Mr. KALMAN. A small nonprofit, yes. Mr. STAUBER. So I will tell you, my brothers and I owned a small business for 31 years. What you are hearing from the other witnesses is exactly what we have heard from other small business owners across this country ever since I have been on this committee. I am in my sixth year. Stop the overburdened rules and regulations that are stifling our local economy and our local small businesses. I think you are--I do believe you are a good person. I just want you to recognize the struggles that the men and women in this country involving small businesses and the rules and regulations, the overburdensome that you are putting on these American small businessmen and women. And I yield back. Chairman WILLIAMS. The gentleman yields back. I now recognize Representative Van Duyne from the great state of Texas for 5 minutes. Ms. VAN DUYNE. Thank you very much, Mr. Chairman. Once again the Biden administration has rolled out a regulatory framework failing to recognize the impact on small businesses. By increasing the regulatory burden once again to countless small businesses, this administration chose to ignore the warnings and failed at implementing the Corporate Transparency Act in a pro-growth manner. With this week also National Small Business Week, I was glad to see this Committee passed my bill, the Small Business Regulatory Reduction Act. This bill requires the Small Business Administration to ensure for each fiscal year the cost to small businesses of the administration's rulemaking is not greater than zero, and it also requires the SBA to issue a report on any regulations issued by other federal agencies that impact small businesses. I look forward to seeing this bill on the floor and working with this committee to ensure that Congress is reining in the power of an out-of-control regulatory gluttonous executive branch. I am on another Committee that is meeting at the same time, Ways and Means, and we have Secretary Yellen in front of our Committee today. Now, I am going to have an opportunity, just like I am with you, to ask her some questions. I am going to go down the line. If you were in my position and you could ask Secretary Yellen any question what would it be? Ms. ROTH. Oh, Lord, you asked the wrong person that. You know, I think that aside from small business the fiscal foundation of this country is on an unsustainable fiscal path and what the government is doing is fighting against the work of the federal reserve. So I would ask her why they are fighting against the Fed and how they are going to make sure that we have a strong fiscal foundation. Ms. VAN DUYNE. Great question. Mr. Harris? Mr. HARRIS. I think I would ask her if she is believing that this bill is necessary and needs to work why isn't she working more closely with companies like ours and people in our profession and the small business community to make sure that it does, in fact, work? Ms. VAN DUYNE. Good question. Mr. OPSITNICK. I would like to ask, you know, what makes America great? I mean, we are the innovators. We kick butt. We kick the world's butt. We don't want to be like Europe. I have had the occasion to, you know, to try to set up a corporation in the U.K. It takes weeks or months. Why would we want to be like that? We want to be someone who is quick and easy. I can do it in a day today. I can get an EIN number and I can file my corporation with the state of Ohio. Why would I want to be like somebody else? It stifles innovation. Why would we do something that stifles innovation? Ms. VAN DUYNE. On that now you are getting me on our tax cuts and JOBS Act extensions as well. You are getting me all fired up before I go to this hearing. Mr. KALMAN. I think the thrust of this hearing is trying to figure out how to make this work for small businesses, and I would ask Secretary Yellen what does she need? What does the Treasury Department, what does FinCEN need to actually make sure that small businesses can ease their compliance or their resource constraints or what do they need---- Ms. VAN DUYNE. But the---- Mr. KALMAN.--to make this happen? Ms. VAN DUYNE. But honestly that is always--always we need more money. I am sorry but that is a copout and we can make government work smarter. We could look at the regulations that they are wasting time right now hiring people to do that are not helping, that are crushing small businesses. That is the answer. It is not, oh, we just need to hire more people. People are sick of it. To Ms. Roth's point, we are at a fiscal cliff right now. To think that just throwing more money at this problem is going to help, we are crushing our economic sector because what we are doing is throwing more government taxpayer dollars into it. It is not sustainable. These aren't private jobs. This is not private sector growth. What we are seeing right now is just being propped up by government spending that we are going to be working to pay off for decades, lifetimes to come. When we are adding a trillion dollars every hundred days to our debt the last thing that I am going to ask a cabinet secretary is, hey, can we give you more money? We all know what this that answer is going to be. And it is really a sad commentary that that is always our go to. We need to be able to clean up, make sure that the regulatory burdens that we are putting on actually do something. Are they decreasing costs? Are they increasing safety? Are they increasing efficiency? Does it do anything other than add more bureaucrats, more cost, more time, and more boxes that our businesses have to check and do nothing else but make us less competitive around the world? So I would hope that more thoughtfulness would go into that type of a question than do you need more resources. And thank you very much for your answers, and I yield. Chairman WILLIAMS. The gentlelady yields back. I now recognize Representative Alford from the great state of Missouri for 5 minutes. Mr. ALFORD. Thank you, Mr. Chair. And thank you, Chairman Williams and Ranking Member Velazquez, for holding this hearing. Congress passed the bipartisan Corporate Transparency Act, or CTA, in 2020, tasked FinCEN with creating rules to reduce the use of companies to obscure criminal behavior and detect funds used for crime and terrorism. FinCEN was tasked with this job because of their expertise in investigating financial crimes. A result of this rulemaking, though, is the beneficial ownership information, or BOI rule. It requires businesses with 20 or fewer employees to disclose beneficial owners of those who have at least a 25 percent stake in a company or those who have substantial control over a company's operations. This vague rule has caused chaos in America's small businesses, those least able to absorb the compliance burden that this place is upon them. A specific problem is FinCEN's definition of individuals that exercise control over a company. Several legal and accounting service providers have indicated that they will not offer assistance to clients in complying with this rule. Substantial fines of up to $10,000 and potential jail time are punishable for willful noncompliance, and as we have heard, we don't have a definition of willful. Despite the issues raised with FinCEN, they have gone ahead with this rule which was implemented in January of this year. I want to start with you, Mr. Harris. Just last week a Member of my staff told me that a constituent reached out to our office asking for help with BOI, calling a congressional office needing help with their BOI compliance. Your company has worked with tens of thousands of small businesses over the decade that your company has existed. When you talk with clients do they have an understanding of the requirements of this, what it is, what they need to do in this coming year? Mr. HARRIS. No, Congressman, they do not unless we tell them. Again, they are not following this. This is not what they got in business to do so if they have anywhere--we have gone on education campaign to inform them of this requirement as it currently exists. But as I think someone mentioned earlier we are not doing anything with that today in hopes that we get some changes between now and the end of the year so that we can take on this our role and assist our clients. We want to help them comply but for right now we haven't found a way that we can make that happen that is affordable to them. And after hearing somebody is going to pay $8,000, I am reconsidering my hesitancy to do this, but---- Mr. ALFORD. Sir, do you know how many LLCs there are in the United States of America? Mr. HARRIS. Well, no, but a lot. Mr. ALFORD. I did a little research. As of 2021, there are 21.6 million limited liability corporations in America, each subject to these new regulations. Many of those are dormant LLCs, mom-and-pops, entrepreneurs whose thought, hey, I may start up a little business, maybe an Etsy business, something online, and I need a little protection so I am going to have it. And now they are subject to a potential $10,000 fine. What do you make of that? Mr. HARRIS. Well, I think a $10,000 fine is going to scare everybody away. I think one of the--I asked FinCEN a question. I said what if a business closes? What do we do to take them out of the database and they said ``nothing.'' So one of the concerns I have is 10 years from now how accurate is that database with businesses that have closed are still in it, businesses who have grown outside of it they are still going to be in this database, so how are we going to know who is still active and who is inactive? But I can tell you that the fear of a $10,000 fine makes it very hard for anyone to swallow. Mr. ALFORD. Ms. Roth, I want to ask you a question. I do want to read your book, ``You Will Own Nothing,'' because I have dealt with this in real estate. I think that people are moving, you know, they want to turn into a renter nation. Do you think this is part of a larger scheme this type of overregulation to tamp down small businesses so we won't have the entrepreneur spirit and the capitalism that we have so enjoyed all these years? Ms. ROTH. So I will speak on behalf of small businesses because this is what they have been telling me. This has been a constant barrage since COVID-slanted mandates that were not based on data and science, but were based on political clout and connections. They had a different set of standards and a different set of rules they had to play by. They were absolutely crushed then. They have been crushed by the aftereffects. And so when you see something like this and they say, oh, it is about corporate transparency and they say, well, why are the big businesses exempt then? If you want corporate they are the ones that have the means to launder money. I can't even pay my bills. That is what they are worried about. They are worried about this consolidation, this cronyism, and that we are absolutely crushing the backbone of this country. Mr. ALFORD. Thank you. I yield back. Chairman WILLIAMS. The gentleman yields back. I now recognize myself for 5 minutes. Certain industries are going to be hit harder than others when complying with these rules coming out of FinCEN, and just this week I was speaking with some people in the land and title industry. And on top of the concerns they have with the Corporate Treasury Act and the beneficial ownership rule they said is another rule coming down the pipeline that will be even more costly for their businesses. And according to their estimates, this new rule in the pipeline will add an additional $500, we have talked about that, per transaction on top of what is already required by FinCEN. So this is just another example of compounding costs of regulations hammering small businesses, and when Congress updated the Corporate Treasury Act the intent was not to burden our nation's job creators with costly new reporting requirements. So, Mr. Harris, do you have any estimations on the overall cost of complying with this rule? And how could FinCEN make the process easier for small business to comply? Mr. HARRIS. That is what we are still trying to determine is what is our cost and risk is a big part of making that assessment. I mean, yes, you can fill the form out in 15 minutes, but what all had to go into it prior to that 15 minutes from legal and risk assessment? That is what we are trying to assess because we don't want to make this a burden on our small business clients because most of them are just honest, good-working, hard-working people. They have no problem doing this as long as it can be done quickly and affordably. So I don't have an answer today. It is too much right now for us to be willing to do, but we are trying to get there. Chairman WILLIAMS. Ms. Roth, in your testimony you said that while preventing financial crimes is a worthwhile endeavor, exempting big businesses from the beneficial ownership reporting rule unfairly targets and penalizes small business owners. So why do you believe that a different set of standards and rules are being applied to small businesses and not to big business? Ms. ROTH. Excuse me. It is a big point of frustration with the small business owners. It is all across the board. If you have a sole proprietorship, you are exempt. If you have an entity, you are not exempt. So we have small business owners who are saying, well, although I like the protections of having an LLC, I am just going to dissolve that because I don't want to be targeted. And then they don't understand, okay, well, I get to, you know, $5 million in revenue and 20 employees and then those people are exempt. So what is it about these, you know, small businesses that make up the chunk of the small businesses in this country, the almost 33 million small businesses in this country, that that particular group of people should be targeted, but the big businesses don't have to do this? And sole proprietors don't have to do it. It does feel like there is something weird going on. Chairman WILLIAMS. It is called government talk. Ms. ROTH. Yeah. Chairman WILLIAMS. Yeah. Mr. Opsitnick, in preparation for this hearing you indicated receiving compliance guidance from FinCEN on this rule was difficult. Can you please describe the issues you have had getting charity, or clarity, rather, from FinCEN and how that will impact the services that you offer? Mr. OPSITNICK. Well, the clarity really is the--you know, we have taken a small act and continue to pile on. And as I mentioned in my testimony, we have 102 pages which include the FinCEN Small Entity Compliance Guide and Frequently Asked Questions, and then that together with an entire website devoted to all of this. It is overwhelming for a small business owner, even for those who are unaware. Contrast that currently with the requirements that somebody has with the federal government in starting a new business which is to get a taxpayer ID number. It is a two-page document, the application and a set of instructions. That is our sole obligation today with respect to the federal government. So this, you know, there couldn't be a more darker contrast. Chairman WILLIAMS. Let me tell you, I am from Texas, and we take the right to privacy very seriously, like we all do, and the more information we have out there the more likely a bad actor is going to gain access. And, unfortunately, the implementation of this rule asked for more information than is needed to comply with the law. So briefly, Ms. Roth, in the time remaining, how could we better strike the balance between a business privacy and national security concerns? Ms. ROTH. Well, I believe that most small business owners think that if you need to reach them that there is a way that the government already can reach them through the IRS or some other point of contact. In terms of FinCEN, they have things like suspicious activity reports and, of course, the courts that if they have a specific entity where they need the beneficial ownership information they should go to the courts, petition them, and get that information. But having a database of everybody who is involved with a small business owner seems like a very heavy-handed way to try to approach and solve that issue. Chairman WILLIAMS. Thank you. All right. I want to thank all of you for being here today. I am sorry. I was involved in talking about--this is Small Business Week this week, so we are promoting it. And I appreciate my colleague, Congressman Meuser, for sitting in, and I appreciate the Ranking Member today. This has been a great hearing. I appreciate you all being here and thank you a lot for taking time to come up here. And without objection, Members have 5 legislative days to submit additional materials and written questions for the witnesses to the Chair which will be forwarded to the witnesses. I ask the witnesses to please comply promptly if you are involved in that. And if there is no further business, without objection, the committee is adjourned. [Whereupon, at 11:26 a.m., the committee was adjourned.] A P P E N D I X [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] [all]