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Velázquez Examines Impact of Anti-Money Laundering Law on Small Businesses During Committee Hearing

 Washington, D.C.— Today, the House Small Business Committee held a hearing examining the impact of the Corporate Transparency Act (CTA), legislation to crack down on foreign and domestic criminals who exploit weak federal laws to engage in illegal activity through anonymous shell companies. During the hearing, Ranking Member Nydia M. Velázquez (D-NY) highlighted the relatively simple reporting requirements for small businesses under CTA and how the law protects national security and consumer welfare.

"Beneficial Ownership reporting requirements in the Corporate Transparency Act will crack down on individuals, oligarchs, kleptocrats, and criminals hiding and laundering their illicit funds through shell companies in the U.S. These bad actors threaten national security, undermine fair competition, and exploit resources intended for small businesses," said Ranking Member Velazquez. "Under the Corporate Transparency Act, many small firms will only need to dedicate minimal time and resources to disclose their beneficial owners and will benefit from the protections offered by the law."

The CTA is a part of the Anti-Money Laundering Act of 2020 (AMLA 2020), found within the National Defense Authorization Act of FY21. Before AMLA 2020, there was no federal requirement for natural persons who own or control, indirectly or directly, corporate entities, such as limited liability corporations, to disclose their identities.

This lack of transparency has long impeded the ability of U.S. law enforcement, intelligence agencies, and regulators to pursue bad actors, like Russian oligarchs, who are hide or launder the proceeds of their crimes through U.S. real estate or other assets by using shell companies and the anonymity that they provide.

Anonymous companies can be used to harm fair competition for government contracts, gouge small businesses and their customers, and exploit programs meant for legitimate small businesses. According to a GAO report from 2023, over half the charges for fraud in the PPP and EIDL program involved using shell companies to launder these funds, and two-thirds included non-operating companies, like the ones this law targets. According to a recent survey, 68 percent of small business owners who already filed indicated that the process was easy.

During the hearing, witnesses testified on the benefits of CTA and the bill's minor reporting requirements for small firms.

“The CTA’s reporting requirements are neither unusual nor unprecedented for everyday Americans. Most states, for example, collect more information when granting public library cards than is required under the CTA,” said Gary Kalman, Executive Director of Transparency International US. “The CTA benefits small business owners by, among other things, protecting them from unfair and fraudulent competition, while imposing minimal compliance costs.”

In order to help small businesses comply with the CTA’s reporting requirements, Ranking Member Velázquez also stressed the need for the Financial Crimes Enforcement Network (FinCEN), which collects beneficial ownership information, and other relevant agencies to educate small business owners on their obligations under CTA.

“But despite its critical importance, too many small businesses remain unaware of their reporting obligations under CTA,” said Ranking Member Velázquez. “More must be done to communicate with small businesses about these requirements, but that is not a good reason to demonize this law, fearmonger about regulatory impact, or cut funding for such a crucial national security agency.”

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