Welcome to Cash in the Cyber Sheets. I'm your host, James Bowers, and together we'll work with business leaders and industry experts to dive into the misunderstood business of cybersecurity and compliance to learn how to start making money from being secure and compliant. Welcome to Cash in the Cyber Sheets.
Hey everybody, welcome to Cash in the Cyber Sheets. I'm your host, James Bowers, Chief Security and Compliance Architect here at Input Output. Very happy to have you here with us today. Very excited to talk about the major victory against the Corporate Transparency Act.
We're going to get into exactly what the Corporate Transparency Act is, and if you haven't heard about it before, that's okay. Most businesses haven't. Most business owners have no idea what it is, but it could only mean that they could be thrown in prison for up to two years and get hit with a lot of fines personally.
So we're going to talk about exactly what it is today. We're going to talk about the big players in it, the National Federation of Independent Businesses. Exciting.
And really, we're going to dive into what this means for you as a business, what it means for you as a business owner, for your privacy, for your individual privacy, and also the legal issues. And I think really the key question, questions to get into today is why the hell was the government so, so hard up to get this pushed? And why was it being fought so diligently by so many different organizations and businesses themselves? Before we get into that, though, support the show, let us know how much you like us, click that like, click that subscribe. If you're listening to us on Apple Podcasts, Spotify, or actually watching us on YouTube, follow and subscribe each of those areas.
Let people know and send us some comments to let us know things that you would love to hear about and would love to have you on the show. So with that said, let's get into, I think, a little bit of the general logistics, what is the Corporate Transparency Act? Well, very book definition coming, so buckle up. But the CTA, it's part of the Anti-Money Laundering Act of 2020.
Now, its intended purpose, its primary goal that we were told that's written down on paper, but the primary goal, as it was stated, was to combat illicit financial activities like money laundering, financing of terrorism, things like that. What it required is that certain entities, primarily business owners, had to report any ownership they had in a business that was 25% or more in any non-personal entity. So that also means personal trust, irrevocable trust, land trust, things like that.
Basically, anything that you owned 25% or more of, you had to report to FinCEN, the Financial Crimes Enforcement Network, the Treasury Department. You had to provide all of your information, all of your holdings, basically everything about you, your tooth fillings, all of it. You had to submit to the Financial Crimes Database.
So, in case you broke the law, they already had everything there, which is really essentially like going down to your local police department to give them your fingerprints, to give them an inventory of everything in your house, to give them a set of backup keys, so just in case you decide to break the law. They can get in a little bit easier, and they know where everything's at already. It doesn't make sense to me.
It didn't make sense to practically everybody that heard it, which is why the National Federation of Independent Businesses, along with multiple other independent businesses, all filed a lawsuit. So, to give you a little bit of a timeline, back in 2020 is when the CTA was originally enacted. Now, over the next three years, 2021 to 2023, FinCEN, they were busy developing all the regulations, how this is going to look, and exactly what everybody's going to have to do and what the penalties are going to be.
They really shouldn't have that authority. We'll get into kind of the basis of the lawsuit, but they did it anyway. January 1st of 2024 is when official enforcement began of the BOI, the Beneficial Ownership Information Reporting Requirements.
Now, just a sidestep here real quick, if you're a business owner and you're saying, I haven't heard about any of this, no, you probably haven't, because most haven't. The majority of people that we talk to have never heard of this. Even a lot of CPAs and other financial advisors have never heard of this very serious reporting requirement that if you don't do it, if you don't report on time, can land you in prison for two years and also hit you with up to $10,000 in fines, which honestly, that seems a little unbalanced.
But that's my personal opinion. So the reporting requirements were starting January 1st, 2024, you had 90 days if you started a new entity within 2024, 90 days to report defense in. If you had a business prior to 2024, then you had to report before 2025.
And from January 1st, 2025, going forward, if you started a new entity, you had 30 days to report. And this isn't just business. This is any trust.
This is land trust, irrevocable trust. All of those kind of non-personal entities fell under this. And even though on the FinCEN network website, they made a statement that they were, how exactly did they put it? Having a robust communication program to make sure that everybody knows about this.
Well, no one heard about it. And God knows where that robust communication program was, because I never saw it. And not to go down that road, but who knows where the money went to put that communication program together, but we're not going to go there.
But that's the particulars of the CTA of the FinCEN BOI requirements. Now, December 3rd, 2024, there was a preliminary injunction that blocks all enforcement of FinCEN, all enforcement of the Corporate Transparency Act. Meaning, clearly stated, you don't need to register within the financial crimes database.
You don't need to complete that FinCEN BOI. Now, the government rationale for all of this was that they needed the access to be able to fight money laundering, to be able to see what was going on in all of these entities that a lot of illicit actors, a lot of terrorists use to hide where money's going, hide where money's being shuffled around. And the rationale was that we don't know everything that everybody has, so it's just shuffling around and trying to track it down is very difficult.
Now, I have a few issues, I have a lot of issues with that. But the biggest thing is it's all information that they already have and all information that they have access to if there's any type of suspicion of criminal activity. They can go get it right from the banks.
When the IRS is going to collect money from you because you owe lots of money in back taxes, they send out an alert that goes to every financial institution and any financial institution that has assets, money of yours, they send it right into the IRS. And if the IRS said, James owes $100,000, every single bank would send in $100,000 and then me, James, would have to go to the IRS to sort it out to say, you took too much, I only owed you $100,000. Now, that's not a tangent.
My point there is that there's already mechanisms to immediately identify where people have ownership. In any case, there are different ways you can hide it, but without getting too, too far into the BOI, because we've actually done that on another podcast. But there were a lot of loopholes and exclusions that really were some of the main ways that you could launder money using a nonprofit, being an administrator to a nonprofit, or larger entities didn't have to do this.
So the FinCEN BOI really only focused on small business owners. And that was part of the lawsuit in where everybody was really crying foul, because what this does is it is a major privacy invasion. Additionally, there's a lot of cost and complexity in doing this, in doing it the right way.
If you have, say, a business with a physical location, then you probably have an LLC for that location. Now you've got two of these FinCEN BOIs that you need to fill out. And if you have any other entities, trust and anything else, a single individual could be on the hook for five, six, seven, or more of these filings with FinCEN.
So it became incredibly complex, and knowing exactly what you had to do was very difficult. What it also does is it aggregates everybody's information, everything about them, small businesses, into one database. And listen, I'm sure that the government would have this under good lock and key, that it would be well, well secured, like every other system.
And it definitely would never be breached like some of the major databases, like, I don't know, the major credit bureaus, or some of the major medical databases, or I don't know, some of the background check companies. The ones that have over billions of records, this time it would be different. I don't even know where to go after that.
It just unfounds me so much. The other major concern here, though, is with all that complexity, all that cost, if you misstep, that could be jail time. That could be two years in jail.
If you're a small business owner, your business isn't recovering from that. Most business owners can barely afford $10,000 to $15,000 in unexpected costs. They're not going to afford multiple fines or jail time.
So that was the major premise of the lawsuit, of why so many businesses were against this, of how this looked like it was stacking against small businesses, and overall just a horrible overreach of government authority. So the lawsuit itself was from the National Federation of Independent Businesses, along with a lot of other businesses, and their main complaint was that, their argument was that, one, it violated the First Amendment rights of business owners, and infringing on the right to anonymous association. Basically, it removed your ability to have a trust, or to have some sort of an entity so that you could separate yourself from certain things.
Now it's just putting all of this out there. It also completely violated the Fourth Amendment by forcing disclosure of private information without sufficient cause. I'm not under any type of criminal investigation, but for some reason, I'm having to put all of my information into a financial crimes database.
Seems a bit odd. It also represented a completely unconstitutional overreach of Congress' authority. Now, I think that this is, I'm not a big fan of the way that this was worded, and listen, I wasn't in the court, I'm not a lawyer, but I don't even think that this is an issue with Congress' overreach.
This is an issue of institutions also creating legislation and impacts that they were not put into place to create. Legislation has to go through Congress. In this case, Congress was far overreaching into the state's authority, but just all the way around.
Complete overreach. What a complete mess. And the decision from looking at all that is that there's a preliminary injunction.
It's not completely squashed yet, but I'm hopeful. But what it does is it completely blocks the Treasury Department, FinCEN, from enforcing any of the requirements. So, if you've already submitted your FinCEN BOI information, sorry about that, it's already in the database.
If you haven't, you don't have to. So, super awesome. If you already haven't submitted, and going into 2025, any new entities that are set up, you don't need to worry about that 30-day window to get everything registered.
So, I think getting here to the end and giving personal thoughts, and I think what this means for small business, the broader implications for small business is it helps protect the businesses themselves from undue complication, cost, and I'm not sure if attack is the right word, but it feels like a lot of chess pieces being put in very convenient or perhaps inconvenient places against small businesses. This helps to eliminate some of that. It also helps protect business owners from all of the undue minutia, and this isn't going to help at all with money laundering.
But what it is going to do is create hardships for business owners and put them in a very precarious position. So, I think as we come to close everything out here, the key takeaways, the key things to come away from this is one, obviously, don't fill out your FinCEN BOI if you haven't already done it. You don't need to, but how important it is to fight and stand up for your personal rights as a business and as a business owner, because these things that are getting put into place could destroy and steal away everything that you've built.
Forget all of the other risks about data breaches and everything else. All of these things create such a precarious position, and it is so important to continue fighting against them. I think this also provides, really highlights, that balancing act between transparency and privacy, security and ability to operate, and it's very important that we set things up, that we do things to prevent financial crimes.
They lead to very bad things, but at the same time, we can't create situations that put every single business owner at such a high risk. So, as I close it out, I would encourage you, continue to follow this. We'll continue to report on it.
If you can, join the NFIB or similar organizations that fight for businesses. There's only so much time you have in a day, but get involved where you can. And also reach out to any legal resources that you have, attorneys.
Always make sure that you have everything tidied up. I'm not going to get on an audit spree here, but as part of your annual risk assessment, make sure you're looking at this side of things as well. Because it can have major impacts for you and your business.
With that, I will close this out. I will thank you very much for joining us today. It's very happy to have you.
Please tune in to us next week, 10 a.m. Can't wait to see you then. Goodbye for now.
Thanks for joining us today. Don't forget, click that subscribe button, leave us a review, and share it with your network. Remember, security and compliance aren't just about avoiding risk. They're about unlocking your business's full potential. So stay secure, stay compliant, and we'll catch you next week on Cash in the Cyber Sheets. Goodbye for now.
