The Small Business Killer: How FinCEN Enforcement of the CTA Could Destroy the Last Bastion of the American Dream

Abstract

This article addresses an urgent matter regarding the possible repercussions of FinCEN enforcement of the Corporate Transparency Act (“CTA”) against small businesses. The CTA, passed into law in 2021 and made effective January 1, 2024, mandates the creation of a nationwide database that collects owner information of certain legal entities to help prevent money laundering and other illicit financial activities. Further, a legal entity’s failure to comply with the statute may result in civil penalties of up to $591 per day of violation and even criminal penalties.

As of January 1, 2024, tens of millions of small businesses in the U.S. have become subject to the statute’s reporting requirements. However, only a minority of affected small businesses know of the CTA, with the threat of severe financial penalties looming just over the horizon of 2025 for those unaware. Worse yet, the CTA raises numerous questions in white-collar crime, business associations, and bankruptcy law that could lead to further disproportionate harm, such as the loss of small businesses important to communities nationwide, significant FinCEN case backlogs, excessive bankruptcy filings, familial turmoil, and even mental illness in some cases.

Beyond identifying urgent concerns with the CTA, this article provides a “willful” violation standard assessment that FinCEN may use for CTA enforcement and a possible dischargeability standard for CTA penalties in bankruptcy. Moreover, the article justifies that the CTA should be repealed and replaced with alternative solutions. These solutions include enacting FinCEN’s proposed rule targeting residential real estate, enacting certain digital asset regulations drafted through bipartisan efforts, and creating an IRS database using currently-held taxpayer information.

Keywords: CTA, Money Laundering, AML, BSA, IRS, Bankruptcy, FinCEN, Illicit, Cryptocurrecy, Real Estate, Small Business, SME, Penalties, Willful, Debt, BOIR, Corporate Transparency Act, beneficial owner, FATF, registry system, reckless disregard, willfull blindness, case backlog, Subchapter V, BOI, Small Business Association