An Act to prohibit the implementation of the Financial Crimes Enforcement Network (FinCEN) Beneficial Ownership reporting requirements, recognizing the coercive nature of its enforcement measures and the duplicative nature of existing federal and state oversight mechanisms.
Section 1: Short Title
This Act may be cited as the “Beneficial Ownership Reporting Repeal Act.”
Section 2: Findings
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Beneficial ownership information is already tracked by the Internal Revenue Service (IRS) through tax filings and by state agencies through the registration of Limited Liability Companies (LLCs) and corporations.
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The Financial Crimes Enforcement Network (FinCEN) Beneficial Ownership reporting requirement is an overreach that places an undue burden on small businesses and entrepreneurs, threatening them with heavy fines and long jail sentences for non-compliance.
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Fines of up to $10,000 and jail terms of up to two years for failing to comply with FinCEN’s reporting requirements are coercive, disproportionately impacting small business owners, and do not reflect the minimal risk these entities pose compared to larger financial institutions.
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Many entities exempt from FinCEN’s Beneficial Ownership reporting requirements—including larger financial institutions, publicly traded companies, and certain regulated industries—are those most likely to engage in activities such as tax evasion, money laundering, and financial fraud, thereby undermining the stated goals of transparency and enforcement. The following entities are exempt from FinCEN’s Beneficial Ownership reporting requirements under the Corporate Transparency Act:
- Publicly Traded Companies: Companies listed on U.S. stock exchanges, which are already subject to Securities and Exchange Commission (SEC) reporting requirements.
- Regulated Financial Institutions: Entities such as banks, credit unions, and brokers that are heavily regulated and already provide beneficial ownership information to other federal regulators.
- Insurance Companies: Regulated under state insurance laws and required to disclose ownership information to state regulators.
- Registered Investment Companies: Firms such as mutual funds and exchange-traded funds that are regulated by the SEC under the Investment Company Act of 1940.
- Public Accounting Firms: Firms registered with the Public Company Accounting Oversight Board (PCAOB) are exempt due to their regulatory oversight.
- Tax-Exempt Entities: Nonprofit organizations, including 501(c)(3) organizations, which are exempt from taxation under the Internal Revenue Code and already file required disclosures with the IRS.
- Larger Operating Companies: Companies that meet all of the following criteria:
- Employ more than 20 full-time employees in the U.S.
- Report more than $5 million in gross receipts or sales to the IRS.
- Have a physical operating presence in the U.S.
- Inactive Entities: Entities that were in existence for over a year, are not engaged in active business, and have no foreign ownership or significant assets are exempt.
These exemptions typically cover entities that are already subject to other federal oversight or reporting regimes, but critics argue that these categories also encompass some of the entities most likely to be involved in activities like money laundering or tax evasion.
- Duplicative reporting creates unnecessary costs and administrative burdens for businesses already required to comply with the IRS and state registration laws, while providing minimal additional value to law enforcement and regulatory agencies.
- A significant inefficiency exists between financial institutions (FIs) and FinCEN. FIs are required to collect beneficial ownership information at the time business accounts are opened, and business owners must also file this information with FinCEN, creating a redundant process. This inefficiency adds to the compliance burden on businesses.
- Additionally, since businesses often spread assets across multiple FIs (due to federal deposit insurance limits of $250,000), they must repeatedly submit the same Beneficial Ownership Information (BOI) to multiple institutions. This redundancy further complicates compliance without enhancing transparency.
- An alternative, more efficient solution would be to incorporate BOI reporting into the registration process with the Secretary of State at the time of business formation for LLCs, Corporations, and Partnerships. This information could be shared with FinCEN, streamlining reporting and eliminating redundancies across financial institutions and FinCEN while maintaining financial crime prevention efforts.
- The lack of uniformity in reporting standards across state and federal levels and the exemptions for entities more likely to commit financial crimes makes the FinCEN requirements ineffective and biased against smaller, less-resourced entities.
- The lack of uniformity in reporting standards across state and federal levels and the exemptions for entities more likely to commit financial crimes makes the FinCEN requirements ineffective and biased against smaller, less resourced entities.
Section 3: Purpose
The purpose of this Act is to:
- Prohibit the implementation of FinCEN’s Beneficial Ownership reporting requirements, recognizing that current IRS and state-level regulatory frameworks sufficiently track beneficial ownership.
- Relieve small businesses from onerous reporting requirements that disproportionately penalize them with excessive fines and jail sentences.
- Close the loopholes created by FinCEN’s exemptions, which allow larger, high-risk entities to escape scrutiny while burdening smaller companies.
Address inefficiencies in the current process by advocating for a centralized BOI collection through state-level business registration, which can then be shared with FinCEN, reducing redundant reporting by financial institutions.
- Encourage effective, targeted financial regulation that addresses genuine risks, rather than imposing broad, punitive measures on law-abiding small business owners.
Section 4: Definitions
For purposes of this Act:
- “Beneficial ownership” refers to the individual(s) who directly or indirectly own or control 25% or more of the equity interests of a corporation, LLC, or other similar entity, or who exercise substantial control over such an entity.
- “FinCEN” refers to the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury responsible for collecting and analyzing information to combat financial crimes, including money laundering and terrorist financing.
Section 5: Prohibition on Implementation of FinCEN Beneficial Ownership Reporting Requirements
(a) Prohibition—The Financial Crimes Enforcement Network (FinCEN) shall not implement or enforce any regulation, rule, or requirement mandating the reporting of beneficial ownership information from entities already subject to tracking under the IRS or state registration processes.
(b) Rescission of Rules—Any regulations issued by FinCEN pertaining to the collection of beneficial ownership information under the Corporate Transparency Act or other related provisions are hereby rescinded.
Section 6: Exemption Review and Reporting
(a) Exempt Entities—The following entities are currently exempt from FinCEN’s beneficial ownership reporting requirements:
- Publicly traded companies subject to SEC reporting.
- Regulated financial institutions.
- Insurance companies.
- Registered investment companies.
- Tax-exempt entities under the Internal Revenue Code.
- Larger companies that employ more than 20 employees, have more than $5 million in gross receipts, and operate from a physical U.S. office.
(b) Risks of Exempt Entities—Entities in these exempt categories are statistically more likely to engage in activities such as tax evasion, money laundering, and financial fraud, given their complex corporate structures, access to global markets, and ability to hide ownership through foreign subsidiaries or opaque corporate filings.
(c) Review Requirement—The Department of the Treasury shall conduct a review of the potential risks posed by exempt entities and submit a report to Congress within 180 days of the passage of this Act, addressing the possibility of reforming exemptions that disproportionately benefit high-risk, high-revenue entities.
Section 7: Existing IRS and State Mechanisms
(a) IRS Reporting—Beneficial ownership is already reported to the IRS via tax filings, including Schedules K-1, 1065, and 1120, which provide a clear picture of ownership structures for corporations, LLCs, and partnerships.
(b) State Registration Requirements—Each state requires businesses to register their beneficial owners upon forming a corporation or LLC and to update this information when significant changes occur.
(c) Reduction of Duplicative Burdens—Recognizing that businesses are already subject to these federal and state tracking mechanisms, this Act eliminates the need for additional FinCEN reporting, which duplicates information and adds unnecessary compliance costs.
Section 8: Enforcement and Penalties
(a) Termination of Enforcement Actions—All enforcement actions initiated by FinCEN under the Beneficial Ownership reporting requirements are hereby terminated.
(b) Protection of Small Businesses—No penalties, fines, or jail sentences shall be imposed on businesses or individuals for failure to comply with the now-rescinded FinCEN reporting rules.
(c) Penalty Review—The Department of the Treasury shall conduct a review of the penalties associated with failure to file beneficial ownership information, ensuring that future regulations related to financial transparency do not disproportionately punish small businesses or result in excessive fines and jail time.
Section 9: Effective Date
This Act shall take effect immediately upon passage, and any ongoing requirements or enforcement of FinCEN’s Beneficial Ownership reporting shall cease as of the date of enactment.
Section 10: Severability
If any provision of this Act, or the application thereof to any person or circumstance, is held invalid, the remainder of the Act and the application of such provision to other persons or circumstances shall not be affected thereby.
This Act recognizes the existing mechanisms for tracking beneficial ownership at the federal and state levels and aims to prevent unnecessary, coercive reporting requirements that disproportionately burden small businesses. By repealing the FinCEN Beneficial Ownership reporting requirements, this Act protects business owners from punitive measures while addressing genuine risks posed by exempt high-risk entities.