Why Lobbyists Are Still Fighting Congress on Money Laundering

Three years ago, when Congress passed an anti-corruption law intended to help combat money laundering through shell companies, it drew bipartisan support.

Senator Sherrod Brown, Democrat of Ohio, called it “long overdue.” Senator Marco Rubio, Republican of Florida, called it an “important provision” that would help law enforcement agencies crack down on human trafficking and terrorist financing.

Now, just weeks before a central aspect of the Corporate Transparency Act is to take effect, it is under assault by interest groups and ideological foes who say it will not work as intended and will put too great a burden on tens of millions of small businesses.

The intense opposition underscores a little-recognized element of how Washington works: The passage of a law does not always end the battle over divisive issues.

Once a bill is made law, its implementation is frequently turned over to a government agency. That agency can then spend years determining the details of how to apply the legislation, providing an opening for more lobbying, litigation and other actions that can reshape the law in meaningful ways.

In the case of the Corporate Transparency Act, the Treasury Department is in charge of implementation. The department is under pressure to revise its approach from small business and financial trade groups, who object to the costs and bureaucratic complexities they say it would impose.

The law’s intention is to deter money laundering or the channeling of money to terrorist groups by exposing who is behind firms set up for or being used for those purposes. It exempts most big businesses, where ownership is already reasonably well documented, but places a number of new reporting requirements on many small and newly formed firms.

One small business group is suing Treasury Secretary Janet L. Yellen over her agency’s interpretation of the law, calling it unconstitutional. Senior Republicans in the House and the Senate have proposed delays.

At issue is the law’s definition of a reporting requirement known as “beneficial ownership” — or who actually owns or controls companies.

Under the Corporate Transparency Act, beneficial owners are defined as shareholders who own 25 percent or more of a reporting company. But they are also defined as individuals with “substantial control,” such as decision-making power, over a business.

Beneficial owners must submit their names, addresses, birth dates and up-to-date identification records — like a passport or a driver’s license — as part of their filing. Their information may later be shared with banks and law enforcement, although the rules governing third party access are not yet finalized.

The Treasury Department’s Financial Crimes Enforcement Network spent nearly two years translating the beneficial-ownership provision into clearly stated guidelines. It is actively working on other elements of the law.

The rule-making process has occurred against a backdrop of Russia’s invasion of Ukraine in 2022 and Hamas’s attacks on Israel in October — two events that have heightened the urgency of combating money laundering and terrorist funding. Dozens of other countries, including major economies like Britain, France and Brazil, mandate beneficial-ownership reporting; many others are putting new requirements in place, according to Open Ownership, an organization that helps governments implement and refine beneficial-ownership registries.

Transparency groups and their supporters in Congress say the U.S.’s lack of a registry has made it a global outlier for years.

“It’s been a long road to get to this point,” said Senator Sheldon Whitehouse, Democrat of Rhode Island. “As our bill goes into effect, my hope is that America will no longer be the easiest place in the world for criminals and kleptocrats to stow illicit money.”

But the fight over how best to achieve that objective is still running hot — more than 13 years after Carolyn Maloney, then a member of Congress from New York, first proposed a version of the act. (It took six different iterations and more than a decade to get the bill passed.)

Small businesses are leading the pushback. They say the new disclosure requirements are confusing and potentially expensive.

Sixty-three percent of respondents to a recent small-business survey conducted by the National Small Business Association reported being “somewhat” or “extremely worried” about the Corporate Transparency Act’s new disclosure requirements — even though 47 percent of the respondents had “no idea” what the act even was.

“This massive lack of understanding is a huge red flag,” the survey states.

The group has encouraged its members to call their representatives in Congress to air their concerns about the new reporting obligations. The American Bankers Association, which represents banks of all sizes, and the American Institute of Certified Public Accountants have also lobbied lawmakers for postponements or changes to the current Treasury rules.

They have found sympathizers in Representative Patrick T. McHenry, the North Carolina Republican who chairs the House Financial Services Committee, and Senator Mike Rounds, the South Dakota Republican who sits on the Senate banking committee. Both legislators have introduced bills to delay the beneficial-ownership requirement rollout, arguing that more time and clarity on the final Treasury rules is needed to protect small businesses and their information.

To drive the small-business message, Todd McCracken, president and chief executive of the National Small Business Association, and his board found a small real-estate investor and manager in Huntsville, Ala., to help the group sue the government over the new rules.

The real-estate manager, Isaac Winkles, is now the co-plaintiff in the association’s federal lawsuit against Ms. Yellen, her agency and the former acting head of the Treasury Department’s Financial Crimes Enforcement Network, known as FinCEN. Mr. Winkles predicted that complying with the new disclosures would be costly to his business and said it had already led to hassles in securing credit from his local banks.

“Are they trying to run these small business owners off?” Mr. Winkles asked in a recent interview. “There are other ways to get that information than having to put another undue burden on small business, for sure.”

A spokesman for the Justice Department, which is defending Ms. Yellen and her agency in the suit, declined to comment.

On Nov. 20, lawyers for the small business association and the Justice Department argued before Judge Liles Burke in U.S. District Court in Huntsville over whether the new rules had actually harmed Mr. Winkles and other small businesses and whether they are constitutional as they stand.

Judge Burke promised to act on the matter “as quick as I can.”

Andrea Gacki, the director of FinCEN, acknowledged the tensions inherent in implementing the Corporate Transparency Act.

“This is really all about dealing with the ongoing exploitation of anonymous companies to hide and launder funds,” she said in a recent interview. “FinCEN has had to balance the huge national security imperative to get this right” with its effect on small businesses, she added.

FinCEN plans to roll out more resources to help businesses understand the beneficial-ownership reporting measures and their deadlines, Ms. Gacki said. (The department has already gone live with a 56-page small business compliance guide and a lengthy web page listing frequently asked questions, replete with detailed answers and decision-tree graphics.)

Despite the legal and legislative challenges, said Ms. Gacki, “we are not voluntarily contemplating a delay.” She declined to comment on the lawsuit.

Supporters of the act say the criticism is overblown.

“There’s been a lot of scaremongering,” said Erica Hanichak, government affairs director at the Financial Accountability and Corporate Transparency, or FACT, Coalition, a nonpartisan anti-corruption organization in Washington. “These are really simple pieces of information for most small businesses to track down and find.”