Yellen resists calls to punt deadline for beneficial ownership

WASHINGTON — Republican lawmakers raised concerns about the onerousness of a new rule requiring U.S. legal entities to submit beneficial ownership information to the Treasury's Financial Crimes Enforcement Network, quizzing Treasury Secretary Janet Yellen during a House Financial Services Committee hearing. Rep. Patrick McHenry, R-N.C., the committee chair, pressed the cabinet official to do more to alert small businesses of their new obligations and eliminate any reporting redundancies. 

"Because of rules one and two going live, every small business in America has a new reporting requirement that they are most likely unaware of," McHenry said. "And this needs to be cleared up."

The bipartisan Corporate Transparency Act, which passed Congress as part of a defense spending bill in 2021, mandated the beneficial ownership registry. The database officially opened even as Fincen continues to iron out some of the details regarding implementation of the CTA and amid political pushback. According to Yellen's update at the hearing, the database  has received only about 2.7 million filings so far, only a fraction of the estimated 31 million businesses that must file by the deadline of January 1, 2025. 

The agency previously announced it would release a trio of rules governing businesses' reporting requirements; access by law enforcement and financial entities to the database as well as a revised customer due diligence rule on how financial firms can use the data for anti-money-laundering compliance. The first of these — known as the "reporting rule," finalized September 2022 — mandates which entities, such as corporations and limited liability companies operating in the U.S., would need to report their beneficial owners. The second "access rule," released in December, detailed the conditions under which this data may be disclosed to law enforcement, financial institutions and regulators.

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Fincen will next undertake a third rulemaking to revise its existing customer due diligence rule to incorporate usage of the new BOI database into financial institutions' Bank Secrecy Act regulatory requirements. When pressed by McHenry on finalizing updates to Fincen's customer due diligence requirement, Yellen said she estimates a revised rule could come as early as the fourth quarter.

"So that's something we're working on revising to make sure it's consistent with the requirements of the corporate Transparency Act and I believe that we're hoping to get something out this fall," she said. "We're engaging right now with other stakeholder agencies to discuss the substance of the proposal, but we want to have a notice that will enable the public to weigh in with their own comments."

Rep. Ralph Norman, R-S.C., asked Yellen to consider extending the deadline for compliance with the rule, pointing out that many constituents are likely unaware of the reporting requirement. 

"These businesses are struggling…your average plumber is not going to a website, and try to find out how to comply with the beneficial ownership," he said. "Consider extending it."

The CTA penalizes companies that fail to comply with reporting and data safeguarding requirements by up to $500 for each day of noncompliance or even imprisonment in severe instances, which the Republican lawmakers see as onerous. 

"As the Treasury, extend this deadline and work on bipartisan love with us to make sure that our small businesses are taken care of," said Rep. Zach Nunn, R-Iowa. "My folks back home see a $500 fine per day as not only a gotcha but a very painful impact."

Yellen emphasized that the agency is only interested in penalizing businesses that deliberately disregard the rules. 

"The CTA penalizes willful violations of the law," Yellen said. "We're not looking to take some sort of gotcha enforcement actions against small businesses."