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Sens. Mike Crapo (R-Wyo.) and Sherrod Brown (D-Ohio) have introduced an amendment to the National Defense Authorization Act (NDAA) for FY 2021 to create a database of beneficial owners of businesses with 20 or fewer employees. This amendment, which is based on the ILLICIT CASH Act, S. 2563, is similar to the Corporate Transparency Act, H.R. 2513. The Corporate Transparency Act, which FreedomWorks opposed, passed the House in October.
Those who support the Crapo-Brown amendment, the ILLICIT CASH Act, or the Corporate Transparency Act claim that a database of businesses with beneficial owners is necessary to crack down on fraudulent shell companies, terrorism, and foreign influence in the United States. However, these legislative efforts have more menacing motivations behind them, which is why Crapo and Brown are using a must-pass vehicle to try to push this legislation through.
In this new effort, the sponsors are trying to create a new federal definition for a “beneficial owner” even though others already exist. That’s because they want to massively expand who qualifies as an individual who “directly or indirectly” owns a business or has substantial control over it. (Interestingly, the bill’s 25 percent equity approach is well below the threshold required by the Department of the Treasury’s Office of Foreign Asset Control (OFAC), which uses a “50 percent rule” ownership test.)
Businesses that have 20 or fewer employees and $5 million or less in gross receipts would be required to provide the name, date of birth, address, and a unique identifier such as a driver’s license number or passport number to the Financial Crimes Enforcement Network (FinCEN). This information must be periodically updated with FinCEN. Larger businesses have successfully lobbied for exemptions from reporting and will not have to worry about the regulatory burdens and lack of privacy that smaller businesses will face.
There are civil and criminal penalties for reporting violations. The civil penalty is $500 per day that the violation continues or isn’t corrected. The criminal penalties could be up to a $10,000 fine and/or up to two years in federal prison. With some 5,000 criminal statutes and an estimated 300,000 regulations that carry criminal penalties, over-criminalization has been a growing concern.
The Crapo-Brown amendment only exacerbates the problem considering that unelected bureaucracy likely will exacerbate the impact of those criminal penalities through the rulemaking authority that would be given to the Department of the Treasury. This rulemaking authority could potentially expand the requirements for businesses and, in turn, widen the scope of potential criminal liability.
In addition to the potential paperwork crimes that are proposed in the Crapo-Brown amendment, the database of beneficial owners is concerning. The database will be available to the Department of the Treasury, the Internal Revenue Service, the Attorney General, federal law enforcement, state attorneys general, state regulatory authorities, and foreign law enforcement. No warrant is needed to access information in the database.
Crapo-Brown is clearly an end-run around the Supreme Court’s decision in Citizens United (2010). Sen. Sheldon Whitehouse (D-R.I.) has pushed for Congress to require the disclosure of beneficial ownership information, making the connection to “dark money” and donor disclosure. Section 4111 of House Democrats' so-called "For the People Act," H.R. 1, included language similar to Crapo-Brown.
One of the main drivers of beneficial ownership legislation is the FACT Coalition, which is an organization comprised of many leftist groups, including the AFL-CIO, Citizens for Tax Justice, Fair Share, Friends of the Earth, and Public Citizen. In May 2019, a representative of the Financial Accountability and Corporate Transparency (FACT) Coalition told the Washington Post: "Every official member of our coalition agrees that this information should ultimately be made public."
Clearly, Crapo-Brown is only the first step to the goal of the far-left. They want an aggressive tool and a political weapon. We may be several years removed from the targeting of tea party and fiscally conservative groups, but the time removed from this politically-motivated targeting shouldn't let us forget what happened.
The creation of a database of beneficial owners will undoubtedly eventually be used to pressure businesses and beneficial owners because of the causes they support. This may not be limited to only ideological nonprofits, but also religious causes that may hold traditional values. In the current political and cultural climate, the end result here is not hard to picture.