Beginning this year, any individual with shares in an American domiciled company will be required to submit identifying information to FinCEN. This record collection from the US Treasury Department’s Financial Crimes Enforcement Network is intended to “curb illicit finance” by requiring a national database of every “beneficial owner” of an LLC.

As stipulated by the Corporate Transparency Actpassed by Congress in 2019 and later snuck into the National Defense Authorization Act in 2020, the US Treasury will gather this information to “prevent wrongdoers from exploiting United States corporations and limited liability companies for criminal gain, to assist law enforcement in detecting, preventing, and punishing terrorism, money laundering, and other misconduct involving United States corporations and limited liability companies“.

Though President Trump vetoed the NDAA in January 2021, the Democratic-led Congress overrode his veto and ushered the CTA into law. It came into force this year.

To the uninitiated, the CTA may not seem like a big deal. Who doesn’t want to reveal all the fat cats “dodging” their taxes from Uncle Sam using tax shelters? Or those taking advantage of US corporate structures to hide money from offshore jurisdictions?

But in the name of rooting out money laundering and proceeds of crime as they make their way through the US economy, every part-owner of a pet salon, car wash, or handyman service will be required to divulge their identity and ownership percentage to FinCEN – the US’ financial intelligence agency established to combat money laundering and terrorist financing. Guilty before proven innocent.

CTA: Hitting The Little Guys

This mass doxxing of LLCs means fewer Americans will be able to safely and privately secure their assets. Those with billions or millions of dollars will have the sanctity of well-funded lawyers and various schemes to protect their wealth. The average person will not.

Single and multi-member LLCs, legal partnerships, sole proprietorships, and trusts have evolved to protect ownership and assets for countless families, individuals, and companies. Many people chose to place ownership of their home, car, or even fishing boats under limited liability companies. It’s not about hiding from the government or tax authorities. Rather, it’s about selectively revealing what can be derived from public information about our assets.

That information will be more readily available to all facets of American governmental power – much beyond the IRS – and that also makes it a substantial central repository for hackers, leakers, and abusive government officials who could weaponize it at any moment. The daily torrent of leaks and hacks with personal and financial information of millions proves this.

The CTA Treats Ordinary People Like Criminals

The “beneficial owners” of any company or LLC are ultimately those who profit from the financial activities of said company. When a corporation owns shares in an LLC, and so on, the identity of the actual individuals may not be publicly known. On the websites of state Secretaries of State and Department of Corporations, the trail for the actual individuals who own a company may prove elusive. 

A dynamic industry of registered agents in select states provide a protective layer of legal structure to families, entrepreneurs, and individuals. To law enforcement and banking authorities, this information is easily attainable. No one can open a bank account anonymously in the US.

If there is legitimate probable cause that a company or entity is linked to crime, law enforcement already has the means and power available to subpoena banks, registered agents, and legal firms. State agencies easily divulge this information when asked. Thus far, this system has balanced Americans’ financial and commercial privacy against legitimate police investigations by requiring lawfully obtained warrants and judicial orders. 

Even though states like Delaware, New Mexico, Nevada, or Wyoming may have privacy-preserving LLC registration processes, the records of the actual beneficial owners can always be obtained by getting court orders to unmask them. Whether it’s the IRS, the FBI, or even a local sheriff’s office, this is how the rule of law works in the US.

But with the Corporate Transparency Act in full force, FinCEN will now require that the all beneficial owners be completely doxxed from the outset. And this is the most troubling aspect. Legal firms that help citizens register companies, banks that serve them accounts, and even state authorities that help with licensing will be required to check whether the beneficial owner information has been reported to FinCEN. 

The unique 50-state corporate registration process that has generated so much wealth and prosperity in the United States is effectively being nationalized and centralized before our very eyes. Like many arduous KYC/AML processes in place at banks and cryptocurrency exchanges, ordinary people are now being treated like criminals in pursuit of the tiny percentage that may be linked to wrongdoing.

How LLCs Protect Our Privacy

Ordinary middle-class Americans have used the privacy-preserving features of LLCs to protect their assets, investments, and property for years. If you wanted a modicum of privacy for your home or investments, whether from stalkers, tabloid press, or spiteful ex-partners, LLCs have always been ideal. These structures have been vital in the privacy community, and for good reason.

LLCs are organized for the purpose of offering goods and services as a business, and also to shield the individuals from liability concerns in case anything goes wrong. It allows people to set up entities in order to participate in commerce, separating it from their personal assets. It’s the bedrock of American innovation, a necessary feature of free enterprise, and a stalwart tradition rooted in the rule of law.

The beneficial owners of these companies have always had to report income to the IRS and reveal their identity in order to apply for bank accounts. But this new reporting mechanism is an additional step that will open up that information for all to view, as well as introduce new opportunities for your rights to be denied or abridged by other government agencies and companies they regulate.

What’s more, as we have seen from too many data breaches and hacks, it means that the financial information of hundreds of millions of Americans will be that much easier to obtain and exploit.

Fairness, Transparency, And Distractions

The CTA was quietly pursued by Congress under the leadership of Speaker of the House Nancy Pelosi. At the time, the rhetoric about fairness in tax and regulatory policy was a major talking point. 

The actions and various media scandals of then President Trump distracted most journalists and analysts from understanding the implications of the CTA and other complex policies that were ushered into omnibus bill packages. The House version of the CTA easily passed in a vote in the fall of 2019, with only a handful of Republicans joining an almost unanimous Democratic caucus.

The Senate version of the bill was introduced by Sen. Ron Wyden, a Democrat of Oregon, normally one of the biggest Democratic champions for privacy, tech innovation, and keeping the government out of citizens’ business. For this bill, though, the party line took precedent.

Despite efforts to neuter the bill by Ohio Congressman Warren Davidson, it was packaged together by Congress and inserted into the main military funding bill, the NDAA, in late 2020, which Trump vetoed. The Democrats’ overriding of the veto, in the final month of Trump’s presidency, cast the CTA into law. Now we’re living with the consequences.

Ironically, while lobbied as an increase in transparency for corporate entities, parts of the Corporate Transparency Act read precisely as if they were ripped from the recommendations of FATF: an unaccountable, opaque intergovernmental organization setup to combat international money laundering.

FATF’s requirement is simple: every known individual with an interest in a business venture should have that information known not only to their state tax and business regulators, but also to the federal government.

Chasing The One Percent: It’s All About The Money

In a recent court filing, House Democrats on the Financial Services Committee articulated their defense of the CTA, claiming that obtaining all beneficial owner information is “crucial to combat money laundering and its attendant national security and law enforcement risks”.

But what if it only comes down to money?

Looking at the recent numbers, the US federal government is $35 trillion in debt. The debt to GDP ratio is 135%, meaning the entire productive output of the economy in a single year (roughly $28 trillion) is dwarfed by our outstanding and ever mounting debt. With total tax revenues hovering near $5 trillion per year, this means the US would need only 7 years to pay off the national debt…if it had no other expenses. But that’s fantasyland.

The last time the US federal budget was “balanced,” meaning the government spent less than it took in, was 23 years ago in 2001. Even then, that was mostly due to accounting trickery by removing unfunded liabilities from the formula. 

The truth remains that the US government is in dire need of funds, despite having the most productive and rich economy in the world. And if it can’t print its way out of oblivion, it has to raise revenues by chasing tax dollars in every nook and cranny. By unmasking beneficial owners of every company, these regulators hope they will unearth mass riches that have been kept from government coffers. But what will they destroy along the way?

Calling Out Attacks On Financial Privacy

Thankfully, a recent court decision is chipping away at the inevitability of the Corporate Transparency Act. On March 1, 2024, a judge in an Alabama District Court declared the CTA unconstitutional, halting the government from collecting information from the specific parties involved in the case National Small Business United v. U.S. Department of the Treasury.

That case is now on appeal in the Eleventh Circuit, which could nullify the bill in its entirety, or overturn the district judge’s decision. How this case proceeds will be vital to protecting financial freedom and privacy not only for Americans, but any global citizen with a stake in the American economy.

In a amicus brief shared with the court, the Cato Institute, a prominent libertarian think tank, demolished the government’s case for enforcing CTA, arguing that the forced doxxing of beneficial ownerships violates the Fifth Amendment.

The vast majority of Americans are law-abiding and follow tax laws. Further reducing the financial privacy of 350 million people to “chase” the 0.5%-1% is a perilous path, and the court should absolutely heed the warnings by Cato and the litigants. What CTA represents, among other proposals, is a slow-roll attack on financial privacy for ordinary people.

The ratcheting-up of KYCing every financial transaction or relationship – bitcoin or fiat – is part of a larger, more sinister trend. We have to be prepared to call it out wherever it originates.

Originally published here



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