The National Small Business Association is suing the Treasury Department over anti-money laundering reporting requirements
A small business lobby group filed a lawsuit on Tuesday to block the Treasury Department’s upcoming requirement that tens of millions of small businesses register with the government to prevent the criminal abuse of anonymous shell companies.
The National Small Business Association argues that the new reporting rule violates the US Constitution because it places undue burdens on small businesses, violates privacy and freedom of expression, and violates states’ powers to govern corporations.
The legal challenge highlights the friction between upholding privacy rights and government efforts to uncover sources of criminal activity, particularly as the US seeks to sanction Russian oligarchs and wealthy friends of Russian President Vladimir Putin since the beginning of his invasion of Ukraine.
The wealthy Russians are accused of hiding stolen money and assets in the US and around the world.
“We already have very strict rules where financial institutions actually see the money moving through the economy and follow up on the data that’s being collected,” Todd McCracken, president of the Small Business Group, said at a news conference. He said small business owners are “very concerned” about their private information being shared with the government.
The group filed a lawsuit in Alabama federal court against the Treasury Department, Treasury Secretary Janet Yellen and Acting Director of the Financial Crimes Enforcement Network Himamauli Das.
The rule, passed in September, requires most American businesses with fewer than 20 employees — some 32.6 million businesses — to register with the government by January 1, 2024. They must provide the government with details of their owners and others who benefit from them, a regulation aimed at peeling away the layers of ownership that can hide ill-gotten assets.
Treasury Department officials said the regulatory burden will be light, costing about $85 per company, but offer massive benefits to law enforcement, who will be one of the few parties with access to the database. Small businesses are targeted because shell companies, often used to hide illegally acquired assets, tend to have few employees.
Ian Gary, chief executive of the FACT Coalition, a non-profit organization that campaigns for business transparency, said in an email that the new rule “will protect our financial system and small businesses from the criminal abuse of anonymous shell companies.” A Treasury Department official declined to comment on the lawsuit.
Kenyen Brown, a lawyer representing the Small Business Association, said the law, while well-intentioned, was a “gross overstatement by the government”.
“The right ways for the government to collect money laundering and possible terrorist financing activities is for financial institutions to monitor transactions and conduct their due diligence,” he said, adding that the new registration rule is “not the way to go”.
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