`[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]



                   POTENTIAL CONSEQUENCES OF FINCEN'S
                    BENEFICIAL OWNERSHIP RULEMAKING

=======================================================================




                                HEARING

                               BEFORE THE

                   SUBCOMMITTEE ON NATIONAL SECURITY,
                          ILLICIT FINANCE, AND
                  INTERNATIONAL FINANCIAL INSTITUTIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION
                               __________

                             JULY 18, 2023
                               __________

       Printed for the use of the Committee on Financial Services


                           Serial No. 118-43
                           
                           
                           
                           
                           
               [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




                                 ______

                  U.S. GOVERNMENT PUBLISHING OFFICE

53-871 PDF                WASHINGTON : 2024


























                 HOUSE COMMITTEE ON FINANCIAL SERVICES

               PATRICK McHENRY, North Carolina, Chairman

FRANK D. LUCAS, Oklahoma             MAXINE WATERS, California, Ranking 
PETE SESSIONS, Texas                   Member
BILL POSEY, Florida                  NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
ANN WAGNER, Missouri                 DAVID SCOTT, Georgia
ANDY BARR, Kentucky                  STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas                AL GREEN, Texas
FRENCH HILL, Arkansas, Vice          EMANUEL CLEAVER, Missouri
  Chairman                           JIM A. HIMES, Connecticut
TOM EMMER, Minnesota                 BILL FOSTER, Illinois
BARRY LOUDERMILK, Georgia            JOYCE BEATTY, Ohio
ALEXANDER X. MOONEY, West Virginia   JUAN VARGAS, California
WARREN DAVIDSON, Ohio                JOSH GOTTHEIMER, New Jersey
JOHN ROSE, Tennessee                 VICENTE GONZALEZ, Texas
BRYAN STEIL, Wisconsin               SEAN CASTEN, Illinois
WILLIAM TIMMONS, South Carolina      AYANNA PRESSLEY, Massachusetts
RALPH NORMAN, South Carolina         STEVEN HORSFORD, Nevada
DAN MEUSER, Pennsylvania             RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin          RITCHIE TORRES, New York
ANDREW GARBARINO, New York           SYLVIA GARCIA, Texas
YOUNG KIM, California                NIKEMA WILLIAMS, Georgia
BYRON DONALDS, Florida               WILEY NICKEL, North Carolina
MIKE FLOOD, Nebraska                 BRITTANY PETTERSEN, Colorado
MIKE LAWLER, New York
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee

                     Matt Hoffmann, Staff Director
                     
                     
                     
                     




















                     
          Subcommittee on National Security, Illicit Finance, 
                and International Financial Institutions

                 BLAINE LUETKEMEYER, Missouri, Chairman

ANDY BARR, Kentucky                  JOYCE BEATTY, Ohio, Ranking Member
ROGER WILLIAMS, Texas                VICENTE GONZALEZ, Texas
BARRY LOUDERMILK, Georgia            WILEY NICKEL, North Carolina
DAN MEUSER, Pennsylvania             BRITTANY PETTERSEN, Colorado
YOUNG KIM, California, Vice          BILL FOSTER, Illinois
  Chairwoman                         JUAN VARGAS, California
ZACH NUNN, Iowa                      JOSH GOTTHEIMER, New Jersey
MONICA DE LA CRUZ, Texas
ANDY OGLES, Tennessee


























                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    July 18, 2023................................................     1
Appendix:
    July 18, 2023................................................    35

                               WITNESSES
                               
                         Tuesday, July 18, 2023

Kalman, Gary, Executive Director, Transparency International U.S.     9
Kuhlman, Kevin, Vice President, Federal Government Relations, 
  National Federation of Independent Business (NFIB).............     5
Richards, James, Principal and Founder, RegTech Consulting LLC...     7
Selenke, Pete, Vice President and Anti-Money Laundering/Bank 
  Secrecy Act Officer, The Central Trust Bank, Jefferson City, 
  Missouri, on behalf of the American Bankers Association (ABA)..     8

                                APPENDIX

Prepared statements:
    Kalman, Gary.................................................    36
    Kuhlman, Kevin...............................................    50
    Richards, James..............................................    60
    Selenke, Pete................................................   101

              Additional Material Submitted for the Record

Luetkemeyer, Hon. Blaine:
    Written statement of the American Institute of CPAs (AICPA)..   112
    AICPA & CIMA, Together as the Association of International 
      Certified Professional Accountants, ``Beneficial Ownership 
      Information (BOI) Report Summary of Data Fields,'' dated 
      January 1, 2023............................................   121
    American Institute of CPAs (AICPA) letter in support of H.R. 
      4035, the Protecting Small Business Information Act of 2023   123
    Written statement of the Independent Community Bankers of 
      America (ICBA).............................................   125
    Written statement of the U.S. Chamber of Commerce............   128
Beatty, Hon. Joyce:
    Written statement of Citizens for Responsibility & Ethics in 
      Washington (CREW)..........................................   129
    Written statement of the Financial Accountability and 
      Corporate Transparency (FACT) Coalition....................   133
    Written statement of the Foundation for Defense of 
      Democracies (FDD)..........................................   138
Loudermilk, Hon. Barry:
    Written statement of the National Association of 
      Manufacturers (NAM)........................................   142
    Written responses to questions for the record submitted to 
      James Richards.............................................   150
Meuser, Hon. Dan:
    Written responses to questions for the record submitted to 
      James Richards.............................................   154
    Written responses to questions for the record submitted to 
      Pete Selenke...............................................   156
Nunn, Hon. Zach:
    Letter to FinCEN from the Iowa Bankers Association re: 
      Beneficial Ownership Information Reporting Requirements 
      Proposal, dated February 3, 2022...........................   157
    Letter from the Office of the Iowa Secretary of State to 
      various Members of Congress, dated July 3, 2023............   164
    IRS release warning of a new tax scam, dated July 3, 2023....   173
Pettersen, Hon. Brittany:
    Written responses to questions for the record submitted to 
      Pete Selenke...............................................   176
Waters, Hon. Maxine:
    Written responses to questions for the record submitted to 
      Gary Kalman................................................   178
    Written responses to questions for the record submitted to 
      Kevin Kuhlman..............................................   188
    Written responses to questions for the record submitted to 
      James Richards.............................................   190
    Written responses to questions for the record submitted to 
      Pete Selenke...............................................   194

 
                   POTENTIAL CONSEQUENCES OF FINCEN'S
                    BENEFICIAL OWNERSHIP RULEMAKING

                              ----------                              

                         Tuesday, July 18, 2023

                          U.S. House of Representatives,
                        Subcommittee on National Security,
                                      Illicit Finance, and
                      International Financial Institutions,
                               Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:03 p.m., in 
room 2128, Rayburn House Office Building, Hon. Blaine 
Luetkemeyer [chairman of the subcommittee] presiding.
    Members present: Representatives Luetkemeyer, Barr, 
Williams of Texas, Loudermilk, Meuser, Kim, Nunn, De La Cruz, 
Ogles; Beatty, Nickel, Pettersen, Foster, Vargas, and 
Gottheimer.
    Ex officio present: Representatives McHenry and Waters.
    Also present: Representative Himes.
    Chairman Luetkemeyer. The Subcommittee on National 
Security, Illicit Finance, and International Financial 
Institutions will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time.
    Today's hearing is entitled, ``Potential Consequences of 
FinCEN's Beneficial Ownership Rulemaking.''
    I now recognize myself for 4 minutes to give an opening 
statement.
    Today's hearing focuses on beneficial ownership (BO) and 
the Financial Crimes Enforcement Network's (FinCEN's) 
rulemaking required by the Corporate Transparency Act (CTA). 
Beneficial ownership information reporting has been touted as 
one of the most important national security tools, yet no one 
knows anything about it. It is my hope that today's hearing 
will not only inform our constituents of this forthcoming rule, 
but will shine light on the ways the Treasury Department and 
FinCEN have distorted the purpose of this rulemaking.
    Before we dive into the weeds, however, it is important to 
set the stage. Some of my colleagues across the aisle today may 
insinuate that Committee Republicans never supported beneficial 
ownership, and that our actions since the passage of the CTA 
were carried out to undermine the legitimacy of the final rule. 
Nothing could be further from the truth. I personally worked 
with former Congresswoman Carolyn Maloney on an earlier 
iteration of the CTA. This bill, while not identical to the 
final CTA, was founded on the same principles.
    On one hand, Federal law enforcement and our local sheriffs 
were banging down our doors, warning about the ways in which 
bad actors were hiding illicit profits in shell companies. And 
on the other hand, small, mid-sized, and large banks alike were 
frustrated with the burdensome regulation without any feedback 
from the government.
    To fix this problem, Chair Maloney and I decided to shift 
the burden from the banks and place it on the Federal 
Government. If law enforcement and FinCEN wanted the 
information seamlessly, they would need to be responsible for 
its collection. Since that initial bipartisan attempt, the CTA 
changed slightly, but never lost its foundational principle. If 
the U.S. Government wants the information, the U.S. Government 
should be responsible for it. Now, we find ourselves in a 
precarious situation. We are less than 6 months away from the 
CTA's effective date of January 1, 2024, and we are left with 
more questions than answers.
    In an effort to prepare for today's hearing, I joined a 
letter in June with Chair McHenry, Chair Williams, and Chair 
Womack expressing our concerns with FinCEN's rollout of the 
Beneficial Ownership Plan. This letter asks some important 
questions about how FinCEN plans to educate 32.6 million small 
businesses about their new obligations. This should not have 
been a difficult letter to respond to. With less than 6 months 
to go, the education plans should be completed and ready to 
roll out, well before the system goes live in January. 
Disturbingly, despite the committee's request for information 
on the education and rollout strategy, there has been no 
response. The education issue, while it may seem trivial to 
those not paying attention, is indicative of the larger issues 
with the Beneficial Ownership Information (BOI) rulemaking 
process.
    FinCEN and Treasury have transformed a simple-to-follow 
filing system into a complex maze, leaving many scratching 
their heads. As I am sure we will hear from our witnesses, 
FinCEN is asking for more money and more resources, but time 
and time again they favor complexity over straightforwardness, 
complexity that will result in small business owners needing to 
hire lawyers to figure out simple things such as whether they 
need to file. This rulemaking process must be corrected. Our 
constituents deserve better than what FinCEN has put forward 
thus far. I do not see how FinCEN can move forward with a 
January 1st effective date without having a plan.
    I ask all of my colleagues to remember that if this filing 
system is not seamless, it is our small businesses picking up 
the pieces from COVID that will suffer. We need FinCEN to do 
better, and today's hearing shall be a start in outlining what 
that could look like.
    The Chair now recognizes the ranking member of the 
subcommittee, the gentlewoman from Ohio, Mrs. Beatty, for 4 
minutes for an opening statement.
    Mrs. Beatty. Thank you so much, Mr. Chairman, and thank you 
for holding this hearing. And thank you to our witnesses for 
appearing today to discuss FinCEN's beneficial ownership 
rulemaking.
    As we speak, oligarchs, kleptocrats, and other criminals 
are using anonymous shell companies to engage in money 
laundering, terrorist financing, tax fraud, corruption, 
bribery, and the list goes on with other illicit activity. That 
is why, under Democrat leadership, this committee passed 
landmark legislation to protect our national security and to 
prevent the abuse of our financial system by bad actors, both 
foreign and domestic. That was all led by then-Chairwoman 
Maxine Waters.
    Committee Democrats achieved the most-sweeping anti-money 
laundering reforms in decades with the Anti-Money Laundering 
Act of 2020 (AMLA). This major update to the Bank Secrecy Act 
(BSA) contained the historic Corporate Transparency Act (CTA), 
which aimed to prevent the use of shell companies to launder or 
hide illicit funds by imposing, for the first time, a Federal 
requirement to identify beneficial owners of certain companies. 
The CTA was intended to streamline industry compliance, 
increase transparency, and make it easier for small businesses 
to access banking services, while also making critical 
improvements to national security.
    Given the significance of these reforms and their 
considerable impact on banks, small businesses, and other 
reporting companies, it is critical that we efficiently 
implement these changes while minimizing the burden on affected 
industry. That is why Democrats strongly support robust funding 
for FinCEN to ensure it has the resources it needs to swiftly 
and properly implement the CTA.
    By contrast, my colleagues on the other side of the aisle 
have proposed substantial budget cuts to FinCEN and other 
offices at Treasury charged with protecting our national 
security. I am going to say that again: protecting our national 
security. The proposed cuts would reduce current funding levels 
by approximately 22 percent and would require the office to lay 
off 19 percent of the personnel. I cannot fathom the logic of 
slashing funds from an office that is in the midst of 
implementing a major policy overhaul pertaining to U.S. 
national security.
    I agree with you, Mr. Chairman, that today's hearing is an 
important discussion about certain flaws in FinCEN's beneficial 
ownership rulemaking that deviate from the intent of Congress. 
But I am concerned about the loopholes in draft filing form 
that undermine the effectiveness of the law, as well as 
proposals to greatly restrict access to the BOI database, which 
would render new rules practically useless. I also agree that 
FinCEN must do better in providing outreach and education to 
small businesses to ensure compliance with the law. These 
drastic budget cuts will only slow implementation of the CTA, 
weaken FinCEN's ability to pursue bad actors, and ultimately, 
jeopardize our national security.
    Mr. Chairman, I ask unanimous consent to enter into the 
record two statements: one from the Financial Accountability 
and Corporate Transparency (FACT) Coalition; and one from 
Citizens for Responsibility & Ethics in Washington (CREW.)
    Chairman Luetkemeyer. Without objection, it is so ordered.
    Mrs. Beatty. Both of these articles will reinforce my 
testimony. Thank you once again to our witnesses., and I 
certainly look forward to your testimony. I yield back.
    Chairman Luetkemeyer. The gentlelady's time has expired. 
The Chair now recognizes the Chair of the full Financial 
Services Committee, the gentleman from North Carolina, Mr. 
McHenry, for 1 minute.
    Chairman McHenry. Thank you, Mr. Chairman. I want to first 
commend the Administration on the appointment of Andrea Gacki 
as the new Director of FinCEN. This is welcome news, and I am 
hopeful it marks a turning point for the agency.
    Two Congresses ago, lawmakers came together to pass the 
Financial Transparency Act. The intention was to safeguard our 
financial system from bad actors while alleviating burdensome 
and duplicative reporting requirements. Unfortunately, the 
Biden Administration's proposed beneficial ownership regime is 
not consistent with congressional intent. The Treasury 
Department has made the final rule as complicated as possible 
by altering timelines and definitions, and even failing to put 
together a simple filing form. It is clear that if changes are 
not made, Congress must act to delay the rulemaking's effective 
date. I look forward to working with incoming Director Gacki to 
address the concerns of members of this committee in 
coordination with the Administration. This is a very important 
item for businesses across America and for millions of 
Americans who will have to comply with these new regulations.
    Thank you, Mr. Chairman. Thanks for your leadership, and I 
yield back.
    Chairman Luetkemeyer. The gentleman yields back. We have a 
minute for the ranking member of the Full Committee, but she 
apparently is not here. With that, we will move on to the 
introduction of our witnesses today, and we thank each of them 
for coming.
    First, we have Kevin Kuhlman, the vice president of Federal 
Government relations at the National Federation of Independent 
Business (NFIB). Mr. Kuhlman leads the NFIB Federal Government 
Relations team, guiding policy priorities and directing the 
organization's Federal advocacy efforts. Welcome.
    Second, we have Jim Richards, the founder and principal of 
RegTech Consulting LLC. Prior to forming RegTech Consulting in 
2018, Mr. Richards was executive vice president, Bank Secrecy 
Act (BSA) officer, and global director of financial crimes risk 
management for Wells Fargo & Company for 13 years, and the 
anti-money laundering operations executive at Bank of America. 
Welcome, Mr. Richards.
    Third, we have Pete Selenke, the vice president and Anti-
Money Laundering/Bank Secrecy Act officer for The Central Trust 
Bank, a privately-held, $19-billion bank, headquartered in 
Jefferson City, Missouri, in my district. Mr. Selenke has over 
32 years of experience in Bank Secrecy Act compliance. Mr. 
Selenke, welcome.
    And finally, we have Gary Kalman, the executive director of 
Transparency International U.S. He oversees the organization's 
U.S. operations, focusing on illicit finance and the U.S. role 
in global anti-corruption efforts. Welcome, Mr. Kalman.
    We thank each of you for taking the time to be here. Mr. 
Richards flew in from California, and Mr. Selenke from 
Missouri, and we are excited to have them both here--actually, 
all four of you. Each of you will be recognized for 5 minutes 
to give an oral presentation of your testimony. And without 
objection, each of your written statements will be made a part 
of the record.
    Those microphones in front of you move, so make sure that 
you pull them as close to you as possible. We have somebody 
trying to transcribe this, and if they can't hear it, it can't 
be transcribed. The microphones are very sensitive, but you 
have to get right on top of them, so if you would be willing to 
pull those things forward to you, that would be great.
    Mr. Kuhlman, you are now recognized for 5 minutes for your 
remarks.

      STATEMENT OF KEVIN KUHLMAN, VICE PRESIDENT, FEDERAL
       GOVERNMENT   RELATIONS,   NATIONAL  FEDERATION  OF
       INDEPENDENT BUSINESS (NFIB)

    Mr. Kuhlman. Good afternoon. Thank you, Chairman 
Luetkemeyer, Ranking Member Beatty, Chairman McHenry, and 
members of the subcommittee. My name is Kevin Kuhlman, with the 
National Federation of Independent Business (NFIB). NFIB has 
long opposed beneficial ownership information (BOI) reporting 
requirements because the regulations disproportionately impact 
small businesses under the threat of severe penalties.
    NFIB believes the Financial Crimes Enforcement Network 
(FinCEN) has overreached in implementing the legislation, 
failing both to minimize reporting burdens and provide clarity 
to small businesses. Few small businesses are aware of their 
requirements that begin in less than 6 months, and FinCEN is 
lacking in education and outreach to the small business 
community, and I appreciate everyone for recognizing that. The 
Corporate Transparency Act was inserted as a House amendment 
into an unrelated and must-pass bill, the National Defense 
Authorization Act of 2021. It never received a standalone vote 
in the Senate. Burying the provision in a large bill 
contributed to the lack of awareness of the requirements.
    The Corporate Transparency Act requires small businesses 
with 20 or fewer employees and less than $5 million in revenue 
to file periodic reports containing personally identifiable 
information (PII) with FinCEN. Failure to file completed and 
updated reports could result in civil penalties of up to 
$10,000 and criminal penalties of up to 2 years in prison. It 
is one of the most-expansive small business regulation in 
history, affecting 32.6 million small businesses in the first 
year, and 6 million small businesses every year thereafter, 
according to FinCEN's estimates. The cost of this regulation is 
a staggering $23 billion in the first year, and $6 billion per 
year moving forward. It was the costliest final regulation 
issued in 2022.
    FinCEN failed to minimize burdens on reporting companies. 
Congress instructed the Secretary of the Treasury, when 
prescribing regulations, to adhere to three directives: first, 
seek to minimize burdens on reporting companies; second, 
provide clarity to reporting companies concerning 
identification of their beneficial owners; and third, collect 
information that is highly useful to national security. NFIB 
believes FinCEN repeatedly failed to balance these statutory 
directives, often disregarding the first two intended to 
minimize burdens and provide clarity to small businesses. NFIB 
believes strongly that FinCEN overreached on the first 
rulemaking, which defines who must report, what information 
they must report, and by when they must report that 
information.
    Regarding who must report, FinCEN should have adopted or 
could have adopted a simpler definition of, ``beneficial 
owner,'' such as the existing definitions in the customer due 
diligence rule, which requires a maximum of five individuals to 
report their BOI. Instead, FinCEN broadly expanded definitions, 
which will result in employees with no ownership interest being 
swept into reporting. These definitions go beyond congressional 
intent and create compliance difficulty.
    Regarding what information must be reported, the statute 
only requires four pieces of information: full legal name; date 
of birth; current residential or business address; and a unique 
identifying number from an acceptable ID document or a FinCEN 
identifier. The final rule mandates that small businesses 
report personal information beyond this, which is not 
explicitly required in the statute, including taxpayer 
identification information, either an Employer Identification 
Number (EIN), a Taxpayer Identification Number (TIN), or a 
Social Security Number (SSN), and scanned copies of their 
drivers' licenses or passports. As a result, the draft 
application has 50 questions and spans 8 pages.
    Timing of reports: NFIB is concerned that FinCEN ignored 
congressional intent when dictating timelines. FinCEN failed to 
minimize reporting burdens on small businesses by accelerating 
these timelines. For initial reporting, they chose 1 year 
instead of the allowable 2 years. For updated reporting, they 
chose 30 days instead of the allowable 1 year, and for 
corrected reporting, they chose 30 days instead of the 
allowable 90 days. FinCEN consistently rejected lengthening 
these timelines as permitted by the statute, citing national 
security reasons.
    Very few small businesses are aware of these requirements, 
which begin in less than 6 months, on January 1, 2024. Most 
small business owners are unfamiliar with FinCEN, and receiving 
a notice in the mail a few weeks before they must file may be 
disregarded as a potential scam. After all, as recently as July 
3rd, the IRS issued a scam warning for taxpayers for an 
official-looking envelope requesting very similar personal 
information, including scanned photos of their driver's 
license.
    FinCEN is required to issue a small business compliance 
guide under the Small Business Regulatory Enforcement Fairness 
Act (SBREFA). NFIB urges FinCEN to make this guide available 
and accessible as quickly as possible. In addition, FinCEN 
should issue guidance to provide clarity on exactly what types 
of entities must file BOI reports. There is still ambiguity as 
to whether certain sole proprietorships and general 
partnerships must file reports. I included some legislative 
recommendations in my written testimony.
    NFIB would welcome the opportunity to work with the members 
of this committee to provide relief from the most-problematic 
requirements of the BOI reporting. Thank you for the 
opportunity to testify today.
    [The prepared statement of Mr. Kuhlman can be found on page 
50 of the appendix.]
    Chairman Luetkemeyer. The gentleman's time has expired. Mr. 
Richards, you are now recognized for 5 minutes.

      STATEMENT OF JAMES RICHARDS, PRINCIPAL AND FOUNDER,
                     REGTECH CONSULTING LLC

    Mr. Richards. Thank you, Chairman Luetkemeyer, Ranking 
Member Beatty, and distinguished members of the subcommittee, 
and thank you for the invitation to appear before you today to 
discuss the potential consequences of FinCEN's beneficial 
ownership rulemaking.
    My perspective is that of someone who has been in the anti-
money laundering field since the 1990s. I welcomed the AML Act 
as an opportunity to get back to what should be the singular 
purpose of our anti-money laundering laws, and that is 
protecting the financial system by providing timely, actionable 
intelligence to law enforcement in an efficient, effective, and 
secure way. And I welcomed the Corporate Transparency Act as an 
opportunity to improve how we were collecting and using 
beneficial ownership information.
    The practical implications of FinCEN's beneficial ownership 
rulemaking will be felt by 35 million small businesses, more 
than 16,000 financial institutions, and more than 400 law 
enforcement agencies. More than 60 million Americans will have 
their personal information and copies of their driver's license 
or passport in a centralized database run by FinCEN, an agency 
few of those 60 million have ever heard of.
    But FinCEN is struggling to promulgate the rules needed to 
implement the Anti-Money Laundering Act (AMLA) and the 
Corporate Transparency (CTA). FinCEN has published none of the 
nine rules needed to implement the AML Act, and has only 
published one of the three rules to implement the Corporate 
Transparency Act. And those rules that are proposed and 
finalized often go beyond congressional intent, and many are 
stunningly complex. If the reason why FinCEN is struggling to 
meet its mandate is, in fact, resource constraints, then FinCEN 
would be doing the opposite of what it is currently doing. It 
would be putting out simple rules, adhering to congressional 
intent, and publicly acknowledging that it must keep things 
simple since it doesn't have the resources to do anything else.
    The potential positive consequences of FinCEN's beneficial 
ownership rulemaking, done right, are far-reaching. If we get 
this right, all this rulemaking, and guidance, and access, and 
reporting will demonstrably and measurably reduce money 
laundering and financial crime--if we get it right. But with 
continuing resource constraints and required rulemakings 
remaining incomplete and no practical guidance to 35 million 
small businesses, we are not going to get it right on January 
1, 2024.
    America needs the Corporate Transparency Act to succeed, 
but success cannot be achieved by a rushed deployment of 
complex rules that go well beyond congressional intent. Too 
many of FinCEN's rules and proposed rules are aspirational, 
without being practical. We are deputizing 35 million small 
businesses and asking 60 million Americans to step up to 
contribute their most prized information.
    FinCEN cannot rush in half-cocked. We need to start simple, 
start strong, whether that is January 1, 2024, 2025, or 2026. 
We can adapt as needed over time, but we need to get it right 
out of the gate. Thank you.
    [The prepared statement of Mr. Richards can be found on 
page 60 of the appendix.]
    Chairman Luetkemeyer. Thank you, Mr. Richards. I now 
recognize Mr. Selenke for 5 minutes.

      STATEMENT OF PETE SELENKE,  VICE PRESIDENT  AND ANTI-
       MONEY   LAUNDERING/BANK  SECRECY  ACT  OFFICER,  THE
       CENTRAL TRUST BANK, JEFFERSON CITY, MISSOURI, ON BE-
       HALF OF THE AMERICAN BANKERS ASSOCIATION (ABA)

    Mr. Selenke. Thank you, Chairman Luetkemeyer, Ranking 
Member Beatty, and members of the subcommittee. Thank you for 
the opportunity to testify today regarding potential 
consequences of FinCEN's beneficial ownership rulemaking. My 
name is Pete Selenke, and I serve as vice president and Anti-
Money Laundering/Bank Secrecy Act officer for The Central Trust 
Bank, a mid-sized bank established in 1902 and headquartered in 
Jefferson City, Missouri. We directly serve customers in 9 
States and at more than 150 locations. Today, I am pleased to 
speak on behalf of Central Bank and our nearly 3,000 employees, 
as well as the American Bankers Association, whose members 
include small, mid-sized, regional, and large banks, which 
together employ more than 2 million people.
    As a banker with more than 32 years' experience in Bank 
Secrecy Act compliance, I am personally and deeply committed to 
protecting the U.S. financial system, our bank, and our bank 
customers from threats posed by bad actors, and I have seen 
firsthand the successes and challenges of operationalizing BSA 
regulations. Thanks to the hard work of my team of 20 BSA 
compliance professionals at The Central Bank, I am proud to 
report that we have received two awards from FinCEN in 
recognition for our work in assisting law enforcement in the 
past 5 years.
    The banking industry has changed dramatically over the past 
50 years, and so have threats posed by bad actors. To combat 
these evolving threats, the ABA strongly supported the 
enactment of both the Anti-Money Laundering Act and the 
Corporate Transparency Act, which together reflect a consensus 
among bankers, lawmakers, and regulators on the need to 
modernize our nation's Bank Secrecy Act rules so that the 
resources dedicated by banks can even more effectively and 
efficiently support law enforcement's work to prevent 21st 
Century financial crime and terrorism.
    The reforms embodied in these laws carefully balance a 
number of important priorities, including that banks must know, 
who are our customers? Law enforcement needs tools to identify 
criminals who use and exploit shell companies to commit their 
crimes. The burden to the public must be minimalized, including 
the cost borne by financial institutions eager to support law 
enforcement, and Americans' privacy rights must be protected.
    As BSA/AML professionals, my colleagues and I have 
dedicated our careers to defending the integrity of the U.S. 
financial system from bad actors and protecting our customers. 
We want nothing more than for AMLA and CTA to achieve Congress' 
goals, and that is why it is so important that FinCEN 
promulgates regulations to implement these reforms in a manner 
that is consistent with congressional intent. To that end, 
there are three areas where FinCEN must focus when creating a 
meaningful beneficial ownership regime: use, accuracy, and 
education.
    First, use. Banks need to be able to use the information in 
the beneficial ownership registry to support broader Bank 
Secrecy Act/Anti-Money Laundering (BSA/AML) program 
requirements. FinCEN's proposed limitations on a bank's ability 
to use this information to only support customer due diligence 
program compliance, not broader BSA/AML compliance, are 
inconsistent with congressional intent, and these restrictions 
will increase banks' burdens instead of reducing them.
    Second, accuracy. The beneficial ownership registry must be 
a reliable and authoritative source of information. The Federal 
Government must make sure the information in the registry is 
accurate. This responsibility should not be imposed on those 
seeking to access the database. If the accuracy of the 
registry's information is in doubt, banks may not be able to 
use the database at all.
    And third, education. We will help where we can, but 
Congress did not delegate the responsibility of informing the 
public of beneficial ownership reporting requirements to banks. 
The Federal Government needs to educate the public about the 
new legal obligations to report beneficial ownership 
information, especially when there are serious penalties for 
noncompliance.
    My colleagues and I have dedicated our careers to defending 
the integrity of the U.S. financial system from bad actors and 
protecting our customers. We look forward to working with the 
dedicated professionals at FinCEN to make these rules work for 
law enforcement, for banks, and for our customers. I look 
forward to answering your questions.
    [The prepared statement of Mr. Selenke can be found on page 
101 of the appendix.]
    Chairman Luetkemeyer. Thank you, Mr. Selenke. Mr. Kalman, 
you are recognized for 5 minutes. Welcome.

         STATEMENT OF GARY KALMAN, EXECUTIVE DIRECTOR, 
               TRANSPARENCY INTERNATIONAL U.S.

    Mr. Kalman. Thank you, Mr. Chairman. Chairman Luetkemeyer, 
Ranking Member Beatty, and distinguished members of the 
subcommittee, on behalf of Transparency International U.S., I 
appreciate the opportunity to discuss progress towards the 
implementation of the Corporate Transparency Act, a 
foundational reform to combat transnational crime and 
corruption. We are part of the world's largest and oldest 
coalition dedicated to fighting corruption. We want to thank 
the leadership of the Financial Services Committee for working 
in a bipartisan fashion to enact the CTA. Today, more than 100 
countries have followed suit, and have adopted or have pledged 
to adopt similar reforms to help protect the integrity of our 
global financial system.
    In the lead-up to the passage of the CTA, the committee 
heard a litany of examples of how anonymous corporate 
structures were used to facilitate the flow of illicit finance. 
For example, a Global Witness report called, ``Hidden Menace,'' 
found that in one case, a U.S. company that was contracted to 
supply services to troops in Afghanistan was secretly owned by 
interests associated with the Taliban. The United States 
Government was literally supplying funds that could be used to 
purchase guns and other weapons aimed at our troops.
    These reports are why nearly 100 civilian and former 
military national security experts signed a letter to Congress 
in support of the collection of beneficial ownership 
information. Alarmingly, these stories are part of a larger 
collection of threats that go beyond anecdotes. According to a 
2011 study by the Stolen Asset Recovery Initiative, anonymous 
companies were used to hide the proceeds of corruption in 70 
percent of grand corruption cases reviewed, with U.S. entities 
being the most common.
    To address these harms and many others, Congress 
appropriately included the CTA in the 2021 National Defense 
Authorization Act. There are several parts of the rulemakings 
to date that FinCEN produced in a way that captures both the 
plain text of the law and the purpose for which it was 
intended. We believe the definitions are true to the statute 
and consistent with emerging global norms. The exemptions were 
tailored to avoid unintended gaps or loopholes that bad actors 
might exploit. However, I will highlight at least five 
provisions in the proposed rules that raised substantial 
concerns.
    First, the proposed rule invents significant new barriers 
to access by State, local, and Tribal law enforcement that have 
no basis in the CTA. Such requirements were considered and 
rejected by congressional drafters, as the requirements would 
create new obstacles to investigations without any clear 
benefits.
    Second, FinCEN's additional requirements for foreign access 
also have no basis in the text of the CTA. It would create an 
unnecessary double standard and will result in significant 
practical barriers for trusted allies.
    Third, restrictions on the use of the information by 
financial institutions exclude them from using the information 
for the entire range of AML checks. Without fixing this, the 
database as a whole may prove simply nonfunctional to the 
thousands of financial institutions across the United States.
    Fourth, while thankfully withdrawn, a proposed reporting 
format included a checkbox for filers to include the 
information was unknown. Such a box would, at best, confuse 
reporting companies as to their obligations under the law, and 
at worst, provide opportunities for evasion.
    Fifth, the database will only be as useful as it is 
accurate. Automated, real-time verification of beneficial 
ownership information would provide a minimum level of 
assurance that the information is accurate and reliable. FinCEN 
must better communicate what it needs to adequately verify the 
information.
    We join in some of the frustration felt by many in this 
committee regarding the delays in the finalizing of CTA rules. 
However, myriad threats to national security and global 
security demand a strong, well-resourced U.S. financial 
intelligence unit. In a 2022 report, my organization found that 
FinCEN's budget and staffing levels were similar to that of its 
counterpart in Australia, a country with an economy one-
fifteenth the size of the United States. There is a powerful 
argument that additional funds are needed for FinCEN to fully 
and effectively do what we asked the bureau. If an increase in 
general funding for FinCEN is not possible at this time, 
perhaps agreement on targeted funding is achievable to address 
the mutually-agreed-upon frustrations discussed at this 
hearing. The importance of setting up the database, 
establishing proper verification systems, and education and 
outreach to key stakeholders are areas where members have found 
common ground.
    Thank you for the opportunity to share my views at this 
hearing, and I look forward to working with this committee to 
address these important issues.
    [The prepared statement of Mr. Kalman can be found on page 
36 of the appendix.]
    Chairman Luetkemeyer. Thank you, Mr. Kalman, and I thank 
all of the witnesses for their testimony. Excellent job. All of 
you finished within 5 minutes, so thank you for that.
    We will now turn to Member questions, and the Chair now 
recognizes himself for 5 minutes for questions.
    Mr. Selenke, welcome. I know you are the banker of the 
group, and you are the one who is going to have to implement 
these new rules from the FinCEN folks. How does it feel being 
an employee of FinCEN?
    Mr. Selenke. Mr. Chairman, I do appreciate this statement. 
As a bank representative, we want to do what we can to support, 
and it is a challenge right now. As you said, it is a challenge 
right now.
    Chairman Luetkemeyer. I know it is frustrating. You are 
basically deputized here to collect information for law 
enforcement purposes, and you are not a law enforcement 
officer. You are a banker. You are hoping to help people grow 
their personal finance or their businesses, in this situation 
businesses, and yet you are in the middle of this law 
enforcement situation, so it has to be frustrating. Has FinCEN 
talked to you at all with regards to how they are going to roll 
this out, what kind of rules and regulations, or are you still 
in the dark?
    Mr. Selenke. Chairman Luetkemeyer, we currently have not 
seen any information on how to roll it out and what information 
will be needed.
    Chairman Luetkemeyer. Less than 6 months to go, and we are 
still in the dark. Is that what you are saying?
    Mr. Selenke. That is correct.
    Chairman Luetkemeyer. Okay.
    Mr. Richards, you talked a lot about the goings on of 
FinCEN. Why are we less than 6 months from rolling this out and 
still not there? Is it that they want to minimize our ability 
to have oversight? Are they trying to delay it? Are they just 
incompetent? Are they just not capable of rolling these rules 
out, or what is the problem?
    Mr. Richards. Mr. Chairman, I don't know what the problem 
might be, and I said in my testimony that if it was a funding 
issue, they would be doing the opposite of what they are 
currently doing: simple rules, getting them out, communicating 
properly. It remains a black box and a mystery as to what they 
are doing and what they are not doing, and they are simply not 
communicating.
    Chairman Luetkemeyer. So, everybody is in the dark here in 
more ways than one. I'm very concerned about the compliance on 
this.
    Mr. Kuhlman, I think in your verbal testimony you made 
mention of the fact that we have over 32.6 million small 
businesses. The result of this regulation is staggering: $22.7 
billion the first year, $5.6 billion moving forward for 
compliance. That is staggering. Did FinCEN, or our 
Congressional Budget Office (CBO), or anybody do a cost-benefit 
analysis on this rule before it was issued, to your knowledge?
    Mr. Kevin. It is a whole new universe, right? We are using 
State definitions for Federal law, limited liability companies, 
corporations, or similar entities, which is pretty vague, and 
CBO estimated 25 to 30. FinCEN's estimates have increased every 
time they have put out an estimate. And it is just because it 
is a new world, nobody really knows, and until we either 
eliminate certain businesses, sole proprietors, or 
partnerships, or say that they are in, we are still in 
ambiguity at this point in time and uncertainty. There have 
been some estimates. They have been kind of all over the place, 
but they have only increased over time.
    Chairman Luetkemeyer. Okay. You are an advocate for small 
businesses. What is a better way to do this? If you were 
designing a program, how would you do it? Rather than have the 
banks be the collector of information, would it be simpler for 
FinCEN to come to the bank and say, we have a problem with a 
certain business, and right now, the process is we will get a 
warrant, go to the bank, and get the information? What is wrong 
with that process?
    Mr. Kevin. Right. Historically, it has been targeted at 
banks or real estate transactions, and it has had some sort of 
protection with a subpoena for an investigation, so there has 
been kind of this. The criticism, as I understand it from 
financial institutions, is you have a big haystack, and you are 
looking for needles, and it may not be impactful. My criticism 
of this regulation is you are just making that haystack even 
bigger and trying to find those same needles, so I have a more 
targeted approach. I think it would be better if you do 
something--I thought Congressman French Hill's idea of updating 
the employer identification number form, the Form SS-4, would 
have been better, a little bit more protected at the IRS, but 
we have what we have now.
    Chairman Luetkemeyer. To me, this is like, for instance, if 
FinCEN is going after somebody who is making bombs, and they 
use fertilizer to make the bombs, you go to the hardware store, 
and every time somebody buys fertilizer, you have to send the 
information to FinCEN. This is how over-the-top this situation 
is. People's private information, businesses' private 
information is going to be on a government server, and the 
government has proven over and over again that it cannot be a 
good steward of that information. This is nuts.
    I will yield back the balance of my time. The ranking 
member of the full Financial Services Committee, the gentlelady 
from California, Ms. Waters, is recognized for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman. I am 
directing this question to Mr. Kalman and Mr. Selenke. You have 
both described a number of serious deficiencies in the notices 
of proposed rulemakings related to the Corporate Transparency 
Act. Would these problems with the draft rulemaking text be 
solved by reducing FinCEN's budget from the $229 million 
requested by the Biden Administration for Fiscal Year 2024, to 
only $166 million, the astonishingly-low amount provided by 
House Republicans in their recently-marked-up Financial 
Services and General Government Appropriations bill, Mr. 
Kalman?
    Mr. Kalman. Thank you, Ranking Member Waters, for the 
question. I think we have seen that FinCEN--from the report 
that my organization did and some other places--is, in our 
mind, underfunded. I do think that the rulemaking process would 
certainly not be helped by a budget cut. I am not convinced 
that the rule writing's problems are necessarily funding-
related, although to the extent that they are also trying to 
build the database at the same time and make sure that the 
rules in the database and the filing systems are all working in 
sync, then that would be a funding issue, and to make sure that 
they are able to have the resources to build the database and 
make sure that it all matches and it will be a seamless 
implementation. I do believe that for the database and for very 
specific pieces of this rulemaking process, the funding is 
necessary.
    Ms. Waters. Mr. Selenke, the question is, what do you think 
about the fact that the Biden budget was $229 million 
requested, and the Republicans have marked up legislation that 
would only provide $166 million? That is an astonishingly-low 
amount that is provided by House Republicans in the recently-
marked-up Financial Services and Central Government 
Appropriations bill. What do you think about that cut?
    Mr. Selenke. Congresswoman Waters----
    Ms. Waters. I can't hear you.
    Mr. Selenke. I apologize. There we go. Congresswoman 
Waters, I apologize. From a banking perspective and my 
perspective as a BSA officer, I really don't have an opinion on 
that one because our experience with FinCEN has been very 
helpful for us, and I don't think I am in a position to really 
speak to that.
    Ms. Waters. I would not expect you to know about the exact 
amounts that would be needed, but the question becomes, do they 
need substantial, credible resources in order to take care of 
the problem of the deficiencies in the notices of proposed 
rulemaking related to the Corporate Transparency Act? Do they 
need personnel to do that? Do they need staff to do that? Do 
they need money to do that, and does it seem curious to you 
that the Administration would ask for $229 million, only to be 
responded to with $166 million? Do you have any thoughts about 
that?
    Mr. Selenke. Yes. Congresswoman Waters, I will say in 
concurring with Mr. Kalman, as he said earlier, I think there 
is room for discussion in where efficiencies can be found. As 
you said, the resources are needed, and that determination is 
to be made.
    Ms. Waters. Could I conclude this by saying that resources 
are important, and they are needed in order to do the job? Does 
that make good sense?
    Mr. Selenke. Congressman Waters, that would be an accurate 
statement.
    Ms. Waters. Would you agree with that, Mr. Kalman?
    Mr. Kalman. I certainly would.
    Ms. Waters. Thank you. I yield back.
    Chairman Luetkemeyer. The gentlelady yields back. The 
gentleman from the great State of Texas, Mr. Williams, who is 
also the Chair of the House Small Business Committee, is 
recognized for 5 minutes.
    Mr. Williams of Texas. Thank you, Mr. Chairman, and welcome 
to all of you. My main concern with FinCEN's additional 
beneficial ownership reporting requirements is the immense 
burden these increased requirements will have on small 
businesses, many small businesses, of which I am one in Texas. 
Owners are facing higher costs and possible penalties for this 
rule coming out of FinCEN, which is a bureau not all businesses 
are familiar with. There are over 32 million small businesses 
in the United States, yet FinCEN has not laid out a strategic 
plan to inform business owners of how they can be sure they are 
reporting all the correct information.
    I want to thank the chairman for attaching my bill to 
today's hearing, the Small Business Working Group Act, which 
will provide an opportunity for small businesses to learn about 
beneficial ownership and promote coordination between FinCEN 
and Main Street America. We need to give small businesses the 
opportunity to learn the rules of the road, and let them comply 
with what exactly all this information means and entails.
    Mr. Kuhlman, what conversations have you had with FinCEN 
regarding beneficial ownership reporting requirements, and do 
you feel as if their outreach to small business regarding this 
rule has been sufficient?
    Mr. Kuhlman. We had one conversation with FinCEN in the 
summer of 2021. I believe it was after they put out their 
advance notice of proposed rulemaking, but before they put out 
any of the first two proposed rules. We have filed comments at 
every opportunity we have had, but we have had no subsequent 
conversations. And I am afraid you are right, that many of the 
impacted businesses are unprepared or unaware of the 
requirements that are forthcoming.
    Mr. Williams of Texas. Yes, we need the rules to play by 
the rules.
    Mr. Kuhlman. Absolutely.
    Mr. Williams of Texas. Secondly, throughout 2022, more than 
2,000 people died from fentanyl in Texas alone, which is more 
than 5 people per day. Trafficking of fentanyl and its 
ingredients is conducted by a wide range of Chinese criminal 
actors. Organized crime networks, like those used by the 
Chinese, can operate outside of local jurisdictions through the 
establishment of shell companies, and these shell companies 
serve as a front for drug trafficking operations. The 
congressional intent for the CTA was to strengthen national 
security by providing tools to identify all shell companies 
used for money laundering, drug trafficking, and terrorist 
financing. I have some concerns about the direction the BOI 
rulemaking is taking and the impacts it will have on national 
security if it is not implemented correctly.
    Mr. Richards, given your impressive career in combating 
financial crimes, how can an effective BOI rulemaking help law 
enforcement stop money laundering, and how has FinCEN 
misinterpreted congressional intent in their current BOI 
rulemaking?
    Mr. Richards. To your first question, Congressman, nothing 
in the beneficial ownership rule is going to stop money 
laundering or fight financial crime unless the information gets 
into the hands of law enforcement, and then law enforcement can 
take action on it. That is the most critical thing. Again, 
there is nothing in the rulemaking that compels that 
information to be used. Now, there are provisions in the AML 
Act which require the Department of Justice and the Government 
Accountability Office (GAO) to do some studies on the 
effectiveness of the BSA reporting, but without that, we are 
not going to succeed.
    Your second question was around how far FinCEN strayed from 
congressional intent. I believe they did it in at least four 
ways. First, they created a regime where there are three rules 
instead of two. I think the plain reading of the AML Act and 
the Corporate Transparency Act calls for two rules, and three 
rules might be like, what is the difference at the end of the 
day? The difference is that three rules adds a level of 
complexity and time because of the rulemaking process that we 
don't really have. That is one of the resources FinCEN hasn't 
talked about is time, and they are running out of time.
    The three other areas where I believe FinCEN went beyond 
congressional intent is having multiple control persons. There 
is not a law enforcement officer in the world who has ever 
burst into a room and said, how many of you are in charge? They 
walk in and they say, who is in charge, and yet, that is what 
the CTA impliedly called for, and yet FinCEN has said, no, we 
can have multiple control persons. That is beyond congressional 
intent and adds a level of complexity that is not needed out of 
the gate.
    Third, is having the images of the identification 
documents. I think that is a stretch. It might be valuable 2 
years down the road once FinCEN has sort of tested and piloted 
this process. But doing it out of the gate, I think goes beyond 
congressional intent and adds a level of complexity that is not 
needed.
    And finally, and Mr. Selenke talked about it, is the 
limited use of the beneficial ownership information. I 
apologize for the long answer.
    Mr. Williams of Texas. Thank you. I yield back.
    Chairman Luetkemeyer. The gentleman yields back. I now 
recognize the ranking member of the subcommittee, the 
gentlelady from Ohio, Mrs. Beatty, for 5 minutes.
    Mrs. Beatty. Thank you, Mr. Chairman. Let me start with 
you, Mr. Kalman. We have been talking a lot about rulemaking, 
and I believe you were part of the bipartisan Corporate 
Transparency Act, which took over 10 years to pass. It is my 
understanding that you met with Members and staff frequently in 
support of that process to talk about the practicalities about 
how the law was ultimately shaped. Can you talk a little bit 
more about how important this legislation was, and the 
prevalence of the use of shell companies to laundering money, 
and how pivotal this legislation was to protect our national 
security?
    Mr. Kalman. Thank you for the question. It did take over 10 
years. I believe it was 12 years since Senator Carl Levin first 
introduced the bill. It was negotiated with numerous amendments 
and different versions of the bill through several 
Administrations. During those years, I think there was more and 
more evidence that came to light, that I think helped move the 
process forward, and that showed it was really, truly, a 
national security issue.
    Let me just give one example, and I don't want to take too 
much time, but I think one of the early examples that was 
pretty shocking to this committee and to others was when we 
discovered that the Iranian Government had bought an office 
tower on Fifth Avenue in Manhattan to evade our sanctions. And 
just think about that: The easiest way for Iran to evade our 
economic sanctions was to buy property in New York. I think 
that says a lot about the use of anonymous companies and how 
they can help to circumvent our efforts at national and global 
security.
    Mrs. Beatty. And even with that, Mr. Kalman, I think what 
is important for me, because we are in a new era of time with 
FinCEN, and we all have some questions about what is the intent 
of the Congress, but I think the operative thing for me, in 
addition to that case, was the bipartisanship and the broad 
coalition of stakeholders. Here we are again talking about 
FinCEN. Can you talk about that bipartisanship?
    Mr. Kalman. I think that was one of the things that helped 
move the legislation forward.
    Mrs. Beatty. Can you say that part again?
    Mr. Kalman. I think that the bipartisan, across-the-
political-spectrum support for the bill was what helped move it 
forward and helped Members to understand the value. We had 
think tanks on both the right and the left. We had, at the end, 
the Chamber of Commerce come aboard, as well as having a number 
of environmental groups. The banks were a good partner with 
consumer groups. We had law enforcement and civil rights 
organizations, a number of organizations that you don't 
normally see on legislation at the same time. I think that was 
a critical and, I hope, a good reminder to the committee about 
how this moved forward.
    Mrs. Beatty. Thank you. Our strength is certainly within 
our unity. Let me shift with the few minutes I have left. We 
have heard a lot about small businesses. I, too, for more than 
2 decades served as a small business in my district, and there 
are a lot of concerns about these reporting requirements. And I 
am sensitive to regulatory changes that will impose burdens and 
compliance costs on small businesses. Can you give us a sense 
of projected compliance costs for small businesses, or do you 
have any data on estimates for this, or does anyone else?
    Mr. Kalman. I will just offer, and then if others have--the 
only practical experience, I think, that was looked at, that we 
saw was in the United Kingdom after they passed their law, and 
they looked at various businesses and how much it costs. And I 
think the initial cost for average small businesses--they 
define those as businesses with less than 50 employees, and 
ours is less than 20 employees--was about, I believe, $150 the 
first year, and then the annual sort of upkeep cost self-
reported by businesses came out to be 2 pounds, which would be 
about $2.50 a year.
    While we do appreciate that this is something that 
businesses have to pay attention to, and it is another 
regulation in a lot of regulations, we don't think this 
particular regulation is actually going to cost a significant 
amount of money.
    Mrs. Beatty. Okay. I probably don't have enough time for 
you to answer, but my last question is going to be to everyone, 
if there is anything concrete that Congress can do to help 
FinCEN further ease business compliance, but you can send your 
responses in writing. Thank you.
    Chairman Luetkemeyer. The gentlelady's time has expired. 
With that, we go to the gentleman from Kentucky, Mr. Barr, who 
is also the Chair of our Subcommittee on Financial 
Institutions, for 5 minutes.
    Mr. Barr. Thank you very much, Mr. Chairman. This is an 
important hearing, and I really appreciate the witnesses' 
testimony about FinCEN's overreach here. I am worried about 
FinCEN's significant deviation from congressional intent. I 
just spoke to the Kentucky Bankers Association, and they are 
concerned that their customers don't understand what is coming. 
They don't understand Section 1071 on that data collection, and 
they don't understand what is about to hit the small businesses 
with this CTA, and, again, definite deviation from 
congressional intent when finalizing and implementing the BOI 
reporting rule, and that will mean trouble for small 
businesses' ability to comply.
    The CTA states that reporting from existing companies needs 
to be conducted no later than 2 years after enactment, yet the 
FinCEN final rule requires reporting 1 year from finalization 
of the rule. It is one thing that they have 50 questions and 8 
pages; it is another thing that when no small business knows 
this is coming, they have expedited the timeline.
    Mr. Kuhlman, what does this expedited timeline mean for 
small businesses, and will your members have time to comply?
    Mr. Kuhlman. For existing businesses that only have the one 
year to comply, most obviously, just half the time that they 
were permitted to do it. But it is also that those businesses 
don't know that it exists, so it is going to take them time to 
do it. When are they going to be able to meet with their tax 
professional or whatever is probably in the spring, right? 
There goes 3 months, and then to maybe go back and try to find 
out who are their beneficial owners if it is a multi-generation 
business or something like that.
    Fortunately, existing businesses don't have to go back and 
find the applicant, who may be long gone by that point in time, 
but that is a problem. I am even more concerned about the 
businesses formed after the effective date, because they only 
have 30 days to get all this information, and they are 
basically overwhelmed with starting up this business and being 
stressed at that point in time, and they are going to have to 
track this information down. They are going to have to get an 
employer identification number and taxpayer identified. They 
might not even have that information in time, but this is 
certainly the last thing on their mind.
    Mr. Barr. Yes, certainly, requirements to disclose things 
they don't have to in the statute, and I am worried that FinCEN 
will fail to roll out a final rule rescinding the CDD rule 
forcing a duplicative reporting regime upon the backs of small 
businesses.
    Mr. Richards, when Congress passed the Corporate 
Transparency Act, were there three separate bills or did we 
enact just one?
    Mr. Richards. It was the one bill but three separate rules, 
I think is what you are referring to.
    Mr. Barr. Yes. And I'm sorry about the queued question, but 
you anticipated my next question, which is, how did we end up 
with three separate rulemakings with only one statute?
    Mr. Richards. It was a surprise. The section that rolled 
out the Corporate Transparency Act was entitled, ``Beneficial 
Ownership Information Reporting Requirements.'' It included 
both reporting and access.
    Mr. Barr. Yes.
    Mr. Richards. Another section has GAO and Treasury doing 
studies on the beneficial ownership information reporting 
requirements. FinCEN's advance notice of proposed rulemaking 
was on beneficial ownership information reporting requirements, 
and it included both reporting and access. So when they came 
out with the three-rule approach instead of the two-rule 
approach, I think it took everybody by surprise
    Mr. Barr. And do three separate rules lend themselves to 
creating a simple, straightforward reporting regime?
    Mr. Richards. No, they add complexity and add time.
    Mr. Barr. I share our chairman's sentiment that Ms. Gacki 
will be a good addition to FinCEN, and we look forward to 
working with FinCEN and appreciate FinCEN's offer to come to 
our districts and help educate our small business community 
about these new requirements. But we look forward to working 
with FinCEN's new leadership and retooling what they have done 
here.
    Mr. Richards, final question in my remaining time. Fraud 
and other forms of criminal behavior are on the rise. Your bank 
customers have been educated, in part to be careful with whom 
they share their sensitive personal information, and in part to 
protect them against fraud and exploitation. Do you anticipate 
that the customers are going to require education from FinCEN 
to feel comfortable sharing the sensitive personally-
identifying information with FinCEN, in addition to giving your 
bank written consent in order to access the beneficial 
ownership registry?
    Mr. Richards. Absolutely, and that is the one thing that 
the businesses don't know is how to do this. They don't know 
how to do it. I am a small business. I know a little bit about 
this stuff. I know I am not going to be registering until about 
November because I want to make sure that this database is 
secure.
    Mr. Barr. Yes, and, Mr. Richards, excellent point about 
none of this is going to advance the cause of law enforcement, 
anti-money laundering, countering terror finance or national 
security. None of it is going to advance any of those things if 
it doesn't get into the hands of law enforcement. This is the 
frustration, frankly, with a lot of my small community banks 
related to Currency Transaction Reports (CTRs) and Suspicious 
Activity Reports (SARs) is that they never get any feedback. Is 
this helping or not? With that, I yield back.
    Chairman Luetkemeyer. The gentleman's time has expired. We 
will now go to the gentleman from North Carolina, Mr. Nickel, 
for 5 minutes.
    Mr. Nickel. Thank you, Chairman Luetkemeyer and Ranking 
Member Beatty, and thanks to our witnesses for being here. The 
Financial Crimes Enforcement Network, or FinCEN, is our 
country's financial intelligence unit, meaning it is providing 
intelligence that helps the U.S. to achieve its national 
security objectives. This includes intelligence used to track, 
seize, and freeze Russian oligarch funds that are fueling the 
war in Ukraine and funds used to traffic Chinese fentanyl.
    My colleagues across the aisle have proposed cutting 
FinCEN's budget, rolling back the Fiscal Year 2024 
appropriation to $166 million, which is $63 million below the 
Administration's budget request. With fewer resources, FinCEN 
will have a harder time supporting such national security and 
law enforcement inquiries while moving forward on structural 
reform to strengthen the U.S. financial system against illicit 
funds.
    Mr. Kalman, if we cut funding for FinCEN, what are the 
potential negative consequences to our ability to fight 
financial crime?
    Mr. Kalman. Thank you for the question. There are many 
impacts. Let me just say this one, which I think we all agree 
on this panel, is that one of the key things, one of the most 
important things about getting this right and making sure that 
it is effective, is if the data is verified, if we know that 
the information that is in the database is accurate. We have 
heard from Mr. Selenke that if it is not accurate, they won't 
find it useful and won't use it. Verification costs money. They 
need licenses to access other databases. They need to be able 
to make sure that their systems are compatible. That takes a 
lot of money, and that is not currently in FinCEN's budget. So, 
we think that in general, they need more money, but 
specifically, if this rule is going to work, they need to have 
that targeted funding.
    Mr. Nickel. Mr. Kalman, how would the Republicans' proposed 
budget cuts impact FinCEN's ability to engage with stakeholders 
of the Corporate Transparency Act to ensure that the small 
business community can more easily and accurately comply with 
these new rules?
    Mr. Kalman. FinCEN does need to be able to reach out to a 
number stakeholders. The small businesses have been mentioned 
before. That is critical, making sure that they can pick up the 
phone and answer questions from the banks once the financial 
institutions have to engage in this rule. They also have to 
deal with the Secretaries of State and others that have 
corporate formation at the State level to make sure that it is 
as seamless as possible when businesses do go to register a 
business. And that outreach is going to cost money and take 
additional personnel.
    Mr. Nickel. I have some more questions, but Ranking Member 
Beatty was on to something that I wanted to hear from everyone 
on the panel on; I thought it was a great question, so I want 
to just take her question and pose the question to all four of 
you. Is there anything concrete that Congress can do to help 
FinCEN to further ease business compliance?
    Mr. Selenke. Congressman Nickel and Congresswoman Betty, I 
think the original intent of this rule was to create something 
that was simple, accurate, and accessible, especially to law 
enforcement as well as to financial institutions. And I think 
ensuring that request or that expectation is completed is what 
Congress can assist in.
    Mr. Nickel. Mr. Richards?
    Mr. Richards. I will repeat that. Congress can help FinCEN 
help itself by keeping things simple, by easing the burden on 
financial institutions, particularly expanding their ability to 
use this information for all purposes, including investigating 
and reporting suspicious activity and encouraging law 
enforcement to use it. I think you just have to work with them, 
and under the new Director, I think that is very, very 
possible.
    Mr. Nickel. Mr. Kuhlman?
    Mr. Kuhlman. Yes. I think revisiting some of the 
definitions, as Mr. Richards mentioned, that substantial 
control was supposed to be one person. FinCEN, as an example, 
listed up to 8 people. So, looking at definitions, ``beneficial 
owner,'' ``substantial control''--perhaps limiting those, 
perhaps limiting or eliminating the, ``or similar entities,'' 
from LLC and corporation because that has kind of been wide 
open and expansive as well. And then, taking a look at the 
timeline--I believe Congressman Nunn has a bill that goes back 
to the original timeline.
    On the comment on the bipartisanship earlier, I tend to 
agree that the bipartisanship did give kind of those expanded 
timelines, and a lot of that bipartisanship was just 
eliminating the regulation when they were just limited to more 
restrictive than anything that was suggested in earlier pieces 
of legislation.
    Mr. Nickel. Thank you, and I yield back.
    Chairman Luetkemeyer. The gentleman's time has expired. The 
gentleman from Georgia, Mr. Loudermilk, is recognized for 5 
minutes.
    Mr. Loudermilk. Thank you, Mr. Chairman, and thank you all 
for being here today for this very important hearing. And 
before I start with my questions, I want to touch on something 
that Representative Barr actually touched on, with the current 
regulations dealing with the Bank Secrecy Act. Before I get 
into that, I think the big issue that most of us are looking at 
is that Congress was very intentional when we drafted 
legislation for FinCEN, and it seems like FinCEN has ignored 
most of those guidelines in the final product.
    Mr. Chairman, without objection, I would like to insert a 
letter from the National Association of Manufacturers, which 
highlights multiple areas where FinCEN has subverted or 
exceeded congressional intent and rulemaking, and has put 
thousands of small businesses at risk of incompliance.
    Chairman Luetkemeyer. Without objection, it is so ordered.
    Mr. Loudermilk. And with that--I wanted to make sure to get 
that out of the way--I want to go back to what Mr. Barr talked 
about with SARs and CTRs. Even though this is about beneficial 
ownership, I am working on legislation to modernize the 
Currency Transaction Reports and Suspicious Activity Reports.
    Mr. Selenke, I heard that you have a unique perspective on 
the issue, and I was hoping that you would maybe briefly share 
your thoughts on raising or simplifying the thresholds for 
those reports.
    I come from an intelligence background in the military, and 
there are a couple of issues I see with CTRs and SARs. One, the 
threshold is so low on CTRs that if we were to adjust it for 
inflation, we would go from the 1970s $10,000, to over $80,000 
today. But because we are overwhelming the system with 
information because of the CTR threshold being so low, and the 
lack of clear definition on what is a suspicious activity, we 
find that banks, to avoid making mistake or having someone come 
after them, will just report most anything. So, what happens to 
law enforcement is like looking for a needle in the haystack. I 
want to reduce the haystack so we get to the information.
    The second is the Federal Government becomes the biggest 
data risk of anybody in the United States. So, you have all of 
this financial data that is sitting in a database that most 
people are not using but becomes subject to disclosure, and so, 
again, if you could enlighten us with your ideas and thoughts 
on this?
    Mr. Selenke. I appreciate the question, Congressman 
Loudermilk. Two things. First, we will address CTRs. The dollar 
amount, I think, is a good question. I think when it first came 
out in the early 1970s--I remember my parents' first house was 
$13,000, so it gets a feel for the size and scope of that. But 
from a bank's perspective, the thing on the CTRs that would 
help most is to simplify the process.
    As a bank, we really do use exemption. If a customer 
regularly comes in, we will get it so that they are able to not 
have to fill out the paperwork. The challenge with that is, by 
regulation, for a number of those businesses, I cannot exempt 
them, so it is a very complex form. The CTR form has a lot of 
information. I have four people on my staff whose entire job is 
to take care of CTRs. If there was a way to simplify that 
process to get the information that they need for law 
enforcement, it would make a big difference to our banking 
institution and banks in general.
    The second part you asked about is SARs, and the challenge 
with SARs is if I was able to create the rules, I would somehow 
bifurcate those SAR filings. Some SAR filings may be for, I am 
getting ready to buy a boat. I heard somewhere in the 
background, my uncle said I can't take out more than $10,000, 
so I will take out $9,000 today, and $9,000 tomorrow. I look at 
it. I see the money came from a Fidelity account or an 
investment account, and they are taking the cash out, and they 
told the teller they are buying a boat. I have to fill a SAR 
out on that. It takes the same number of boxes, et cetera, and 
it piles onto that pile of SARs, whereas if there is something 
that is more serious, that same boat dealer who was structuring 
the conversations, that is information that I would want to put 
on a SAR.
    If there was a way to simplify the SAR so that information 
going to law enforcement wouldn't be, like you say, more 
haystacks and less needles to be able to have more needles and 
less of a haystack.
    Mr. Loudermilk. Thank you. And even though this is about 
beneficial ownership, I see that there is some connection 
there, and that was very beneficial to me in where we are 
going. I am running out of time, so I will submit the rest of 
my questions for the record regarding beneficial ownership.
    But I will close with this one thing that always strikes me 
with all the information that we are getting from CTRs and 
SARs. If my local sheriff wanted to get that information from a 
financial institution, he would have to have a search warrant. 
If the FBI wants to get it, they just go to FinCEN, and it is 
there. With that, I yield back.
    Chairman Luetkemeyer. The gentleman's time has expired. 
With that, we go to the gentlelady from Colorado, Ms. 
Pettersen, for 5 minutes.
    Ms. Pettersen. Thank you, Mr. Chairman. Mr. Kalman, in this 
committee and across Congress, we are very interested in the 
issue of fentanyl trafficking and how we can detect and deter 
these bad actors. Your organization, Transparency International 
U.S., developed a fact sheet that includes 10 examples of how 
traffickers of synthetic drugs have used shell companies to 
facilitate their operations and launder or hide their illicit 
proceeds.
    I would like to submit this document for the record.
    And 10 examples among probably hundreds or even thousands 
were given here. We can add to that the human traffickers using 
shell companies to harm men, women, and children, arms 
traffickers, sanctions evaders, and many others who abuse our 
financial system through these anonymous shell companies.
    So, Mr. Kalman, how would law enforcement use this database 
to better pursue these bad actors, and can you tell me how 
FinCEN can revise their proposed CTA access rule to better 
support such efforts?
    Mr. Kalman. Thank you for the question. There are two parts 
to the question. First, how does law enforcement use this 
information? Let me give you one specific example. There was a 
study done by the anti-human trafficking organization, the 
Polaris Project, a few years ago. They looked at 6,000 illicit 
massage businesses across the United States where they 
suspected women were being trafficked. They found in only 21 
percent of the cases was anyone listed on the form, which meant 
that you had almost 80 percent of these businesses having no 
ownership, so they could not arrest the people who were behind 
the trafficking. They could only arrest the women who were 
being trafficked, which seems backwards to us and imperfect 
justice, if you will.
    If there was beneficial ownership information and people 
were required to file, they could look at that information, and 
they could actually go back to the people who are behind the 
trafficking operations. We believe that the way in which FinCEN 
has created the access rules for State and local law 
enforcement creates unnecessary hurdles, is not in the text of 
the law and, in fact, goes beyond what was a very carefully-
negotiated compromise in making sure that there were security 
protections of the data but also allowing access to the data by 
law enforcement. So, we think that they need to update that 
rule. That is probably, for us, the most important piece of the 
problem.
    Ms. Pettersen. Great. Thank you so much. Another concern 
that we have heard is the cost to our businesses, the barriers 
and the burdens on businesses; 82 percent are nonemployer 
businesses, so this would really just be registering the 
information that they have readily available. For the remaining 
ones that are not just nonemployer, they have to collect the 
information. On average, we have seen in Britain that it costs, 
on average, $250 for companies like that, but for many, it is 
zero dollars, and for the next year, it is only around $2. It 
seems like this is a very important investment up front to make 
sure that we are going after these bad actors that are not 
utilizing our financial system.
    Is there anything, since Britain has gone years ahead of us 
on this, that you can point to on their success and why it is 
important to continue to move forward, making sure that it 
works for law enforcement?
    Mr. Kalman. My apologies. As you noted, the vast majority 
of businesses are small, single-owner, nonemployer firms. When 
we were talking to our U.K. colleagues, they noted that it is 
sort of an interesting statement to say that those who can 
create the complex structures, that can afford the lawyers and 
the service providers that can create a web of companies that 
makes it difficult to know who owns it, then don't have the 
same money to be able to hire those same lawyers to figure out 
who is on the top of the corporate food chain.
    We don't think that is actually true and we would challenge 
that, and during the entire debate, we have never actually 
heard anybody come up with an actual real-life example of that. 
We do think, again, it is a requirement for businesses, but we 
think that for the vast majority, it is a very simple thing, 
and for those that are more complex, they have proven that they 
can afford it.
    Ms. Pettersen. Thank you so much for being with us today. I 
yield back.
    Chairman Luetkemeyer. The gentlelady yields back. The 
gentleman from Pennsylvania, Mr. Meuser, is recognized for 5 
minutes.
    Mr. Meuser. Thank you very much, Mr. Chairman. And thank 
you to our witnesses as well. It does seem as if we, on this 
committee, are a broken record. We are meeting with those where 
rules from the Biden Administration agencies continue to go 
beyond congressional intent, are out of scope, and overburden 
businesses, particularly small businesses and the banks that 
serve them. Beneficial ownership rule from FinCEN is no 
exception.
    We expressed similar concerns with the Consumer Financial 
Protection Bureau's (CFPB's) Section 1071 small business data 
collection rule whereby they had to contract out reporting 
requirements, which required some very odd data at great cost 
to them. So, FinCEN should have considered ways to minimize 
reporting requirements for small businesses that are already 
strapped with so many other unfavorable factors. FinCEN also 
needs to take a step back, delay implementation of their rule, 
and think critically about ways to move forward with Anti-Money 
Laundering/Bank Secrecy Act compliance in a way that is truly 
beneficial to stakeholders.
    My line of question is going to focus initially on small 
businesses, which are often caught in the crossfire of such 
rulemakings, so, Mr. Kuhlman, I would like to just start with 
you. To your knowledge, did FinCEN reach out to small 
businesses regarding how beneficial ownership rulemaking should 
be done in a reasonable manner for small businesses?
    Mr. Kuhlman. There has been very little outreach thus far. 
I think this year, there has been a FAQ document that has been 
put on the website, and that is the only update that I have 
heard.
    Mr. Meuser. And how many members in NFIB exist that would 
fall under this mandate of rulemaking?
    Mr. Kuhlman. Eighty percent of our members, so about 
240,000 of the 300,000.
    Mr. Meuser. 240,000.
    Mr. Kuhlman. Our reach is only that far, and maybe not even 
that far, right? We got 32.6 million reports.
    Mr. Meuser. I think that maybe there would be a 
conversation to get a little bit of input, right?
    Mr. Kuhlman. Yes.
    Mr. Meuser. Does the information requested by the FinCEN 
reporting form, in your view, go beyond the original intent of 
Congress and the Corporate Transparency Act?
    Mr. Kuhlman. Yes, I think that the definitions are too 
broad. The fields are more expansive than whatever. As I said, 
if you copied and paste it from Regulations.gov, it is 8 pages, 
but I think AICPA or someone put together this form, which is 
on legal for columns. This is going to cost you more than $40 
or $250 to update every time. If a business owner sees this 
form, they are going to go to a CPA or an attorney to seek 
their advice.
    Mr. Meuser. And I imagine this is not your opinion. You are 
actually getting feedback from your members, and they are 
stating that this can be problematic for them?
    Mr. Kuhlman. Correct. The members as well as their advisors 
or tax professionals, and they all agree.
    Mr. Meuser. Okay. About how many of your members feel 
comfortable filing beneficial ownership paperwork before 
January 1, 2024?
    Mr. Kuhlman. I don't know. I don't know of any. But I guess 
my analogy is when the customer due diligence rule became 
effective on May 11, 2018, I did get an influx of members who 
said, what is this form? I am not comfortable filling this out. 
And that had a protection it had to stay on file at the 
financial institution and subpoena protection. This does not. 
It just goes into a giant database.
    Mr. Meuser. As we move forward, give us feedback, not just 
at this hearing, about what you are hearing as well from your 
members, if you can do that.
    Mr. Kuhlman. Yes, sir.
    Mr. Meuser. Mr. Selenke, I would like to move on to you, 
please, on how this ruling will affect banking. Why don't you 
just go ahead and give me some of your thoughts on what 
community banks, regional banks, super regionals, what their 
thoughts are on this rule?
    Mr. Selenke. Yes. Congressman Meuser, I appreciate the 
question. For the mid-sized banks like myself and larger, the 
rule, as it is currently put out there, will be additive to our 
process. As many regulations tend to be, it could be a 
distraction, and focusing on this particular form, we may lose 
focus otherwise. Where I am more concerned for the banks and 
for the small business customers is smaller community banks in 
the State of Missouri--according to the Missouri Bankers 
Association, many of those banks have 2 branches, 20 employees, 
and $200 million on deposit. Their ability for their BSA 
officer, who is also their compliance officer, worrying about, 
as you said, 1071 and other rules, is going to be very 
difficult. For us as a bank, I am worried that it is going to 
be additive and subtract from our ability to properly support 
FinCEN and BSA rules.
    Mr. Meuser. My guess is that you are contacting FinCEN 
saying, we need a delay, we need clarity, we need some input 
here.
    Mr. Selenke. I think the primary thing would be we need 
clarity and simplicity for our customers and for our banks.
    Mr. Meuser. Thank you very much. Mr. Chairman, I yield 
back.
    Chairman Luetkemeyer. The gentleman yields back. The 
gentleman from Illinois, Mr. Foster, who is also the ranking 
member of our Financial Institutions Subcommittee, is 
recognized for 5 minutes.
    Mr. Foster. Thank you, Mr. Chairman, and thank you to our 
witnesses. I will try again on something that I think could 
make all this stuff work a lot better, get better quality data 
into the database, and that is mobile ID or digital drivers' 
licenses. Are you all familiar with this? This is the ability 
to present a REAL ID-compliant driver's license, a document 
that already exists, that is issued by all the States, and 
present that in a pretty fraud-resistant way using your 
cellphone, and to take advantage of the fact that a modern 
cellphone can be used basically as a biometric security dongle.
    Mr. Selenke, when someone wants to come in and open a bank 
account, you have to do your Know Your Customer (KYC) on him. 
The customer gets out the cellphone, does the biometric login, 
then verifies that is the cellphone that was associated with 
the digital driver's license, which is a document that is 
pretty hard to fake. It is hard. A REAL ID-compliant driver's 
license is something where it is hard to get multiple licenses 
in multiple States, which is the root of a lot of identity 
fraud. So, if you can simply present that document that already 
exists in State databases with the biometrics, and if you can 
present that online or in person, it simplifies the heck out of 
this process.
    In countries that have this, when you want to register a 
company, one of those steps is to get out your cellphone and 
prove that you are who you say you are online. This is also 
something that is going to be absolutely crucial when you are 
looking at artificial intelligence deep fakes that we are going 
to have. Just there is going to be a wave of identity fraud 
coming at us, so this will be an essential tool for that.
    In the last session of Congress, we got within one Member 
of Congress in finally getting the government at least to 
accept this. But then, because our system allows one Member of 
Congress to throw a crowbar in the works, we were unable to get 
it in the omnibus at the end, but it is close, and the people 
of the United States, I think, are ready for this.
    The American Civil Liberties Union (ACLU) issued a report 
that, as you would expect, was full of real worries about 
privacy, but in the end, it concluded, if you read the last 
paragraph of the report on mobile ID, that if this is done 
right, it will be good for privacy and good for equity in our 
country. We made a major step forward in breaking the digital 
divide and within as part of the Infrastructure bill. Now, even 
someone with no assets has the right to a subsidized internet 
contract, which is the barrier for this. And I would venture to 
say that of the 35 million companies that you talk about, every 
one of them has a cellphone to a very good approximation.
    The technology for this was developed by the National 
Institute of Standards and Technology (NIST)in the Obama 
Administration, and it is deployed on every one of your 
cellphones today. We have the ability to do this, and if we 
actually simply allowed the Federal Government to set standards 
for interoperability and for digital presentation of this and 
issuing of these things, it would be a game-changer. Simply, if 
we had allowed it for government operations, if it had been in 
place at the start of COVID, we would have avoided more than 
$60 billion of identity fraud and taxpayer losses. So, this is 
huge. It is something that, frankly, almost the entire 
civilized world is ahead of us on--name a country, starting 
with Estonia and Korea, which I think lead the world, but in 
the European Union, almost every country is doing this.
    And when you want to open a company, you just simply say, 
okay, I want to open my company. You get out your cellphone, 
prove that everyone involved is who they say they are because 
that is a huge issue in getting high-quality data into this. I 
was wondering if any of you have reactions about that, how much 
simpler that could make things if there was a realistic 
expectation that U.S. citizens who wanted one could have access 
to a secure digital ID? Does anyone want to comment on that?
    Mr. Richards. That would be a leap forward because I think 
the biggest sticking point we are going to see practically are 
beneficial owners that are reluctant to provide copies, PDFs of 
their driver's license or, on the rare occasion, a passport. So 
if that replaces ID.me.gov or whatever it might be, that would 
be a step forward because, again, that is probably the biggest 
sand-in-the-gears aspect of the overreach in the rulemaking.
    Mr. Foster. Mr. Selenke?
    Mr. Selenke. Yes, Congressman. From a banking perspective, 
as they say, the devil is in the details, but from a banking 
perspective, if there is an ID that is acceptable and 
understandable and difficult to manipulate, it is something we 
would be interested in taking advantage of.
    Mr. Foster. Yes. No, it is a mobile ID. It is being 
deployed by lots of States. And we should just adopt it 
federally, and life would get easier for law enforcement, and 
for businesses, and for the average American. Thank you, and my 
time is up. I yield back.
    Chairman Luetkemeyer. The gentleman's time has expired. The 
gentleman from Iowa, Mr. Nunn, is recognized for 5 minutes.
    Mr. Nunn. Thank you very much, Mr. Chairman, and Ranking 
Member Beatty, for holding this hearing, and thank you very 
much to the panel for being here to discuss this. I want to 
begin, first of all, by thanking FinCEN for the wide range that 
it does. At the same time, I am going to speak to my small 
businesses today.
    [chart]
    Mr. Nunn. I am going to share with the committee this test 
delete page that was screen-captured. It is the exact page 
where our small businesses are supposed to be trusting their 
Federal Government is going to be protecting, preserving, and 
providing for the protection of the information that they are 
offering to FinCEN. But this was left live for 5 days, leading 
us to believe that the technology problems at the institution 
have been addressed, when clearly, they have not.
    I would like to submit the screenshot and the IRS news 
release for the record.
    Chairman Luetkemeyer. Without objection, it is so ordered.
    Mr. Nunn. The beneficial ownership database was crafted not 
to be public-facing. Unlike U.K. companies, for a reason, this 
information is highly-sensitive. A misstep could be disastrous 
for millions of Americans and slip-ups like the one I just 
showcased in here could hemorrhage this information, and the 
lack of a final access rule makes me extremely worried about 
FinCEN's ability to secure data properly, and I think millions 
of Americans feel the same way.
    Secondly, the IRS released a newsletter to warn taxpayers 
to be on the lookout for a new scam in mailings that tries to 
mislead people into believing that they are owed a refund. Much 
of the same data the scam letter asked for is what FinCEN will 
be requiring through their BOI rulemaking. FinCEN's lack of 
clarity around this proposal deeply worries me that they will 
not be able to ensure that similar gimmicks do not stand the 
test of time.
    That is one of the reasons why we are introducing a bill 
called the Protect Small Businesses and Prevent Illicit 
Financial Activity Act, which does two things I would like to 
share with the panel. First, it would force FinCEN to remove 
its escape hatch that allows companies to check if they are 
unable to identify or unable to attain determinations. This 
opt-out that FinCEN is creating will allow the very same 
foreign entities and terrorist organizations that we are trying 
to eliminate to go unchecked, the very reason a bipartisan 
Congress passed the Corporate Transparency Act in the first 
place.
    Second, it would force FinCEN to revert its beneficial 
ownership filing deadline to the agreed-upon deadline by the 
four corners of Congress. For existing small businesses, this 
would be a statutorily-mandated 2 years from the 1-year 
extension FinCEN established, and for newly-registered small 
businesses, this would be 90 days, which was shortened by 
FinCEN to only 30 days. I agree with Mrs. Beatty that there are 
a number of loopholes that need to be addressed. This is 
something that a bipartisan group on this committee believes is 
important.
    My bill came as I reached out to my Iowa State Small 
Business Development Center (SBDC), and the State director 
talked to me about the beneficial ownership rules, to which she 
responded that she had not heard anything from several 
businesses or FinCEN regarding the implementation of the 
rulemaking. Her response, ``SBDC being an outreach arm of the 
Small Business Administration, thus a partner with the 
government to assist businesses, one would think that we would 
have a great resource to assist them with such outreach 
efforts. If you have concerns with them, please encourage them 
to reach out to our nationwide assets so we can begin helping 
our business clients.'' That takes us to the task at hand.
    Mr. Richards, can you discuss the escape hatch that FinCEN 
would include for entities that may be unable to identify their 
Taxpayer Identification Number (TIN)?
    Mr. Richards. I cannot explain the escape hatch. It was an 
absolute surprise to everybody. I think Elise Bean, who used to 
be a, I think, general counsel on the Permanent Subcommittee on 
Investigations, called it the worst form she had seen in 40 
years of government service. But FinCEN has heard the feedback 
and has said, yes, we have pulled that form back. We are going 
to look at it again. I would expect that if clear heads 
prevail, there will be no ability for a reporting company to 
choose, ``I don't know,'' as an option on the form.
    Mr. Nunn. Or even a reporting company, a foreign entity 
having a shell company that doesn't want to disclose. Luckily, 
at this point, we are able to protect. Unfortunately, we have 
seen what has happened in the past here, and people have taken 
advantage of it.
    Mr. Kuhlman, what percentage of small businesses would be 
able to comply with this, in your estimation?
    Mr. Kuhlman. At this point in time, I don't know of any, 
because they don't know what the form is. There are still some 
unclear definitions and there is no guidance, but hopefully, by 
the end of the 6 months, there will be some guidance.
    Mr. Nunn. And hopefully, with some clarifying legislation, 
we will be able to do that. How many companies in America right 
now would be able to provide their TIN to the FinCEN team? 
Would you say that the overwhelming majority have a Taxpayer 
Identification Number?
    Mr. Kuhlman. Yes, but I would also caution that the 
Taxpayer Identification Number was not required as part of the 
law. I would recommend just sticking to the four required 
fields.
    Mr. Nunn. I understand.
    With that, very quickly, Mr. Selenke, what does CTA 
implementation look like for rural banks in places like Iowa 
and Missouri?
    Mr. Selenke. It will be very difficult. It is another 
additive requirement, and with the resources, it would be----
    Mr. Nunn. Thank you, Mr. Chairman. My time has expired, so 
I yield back.
    Chairman Luetkemeyer. The gentleman's time has expired. The 
gentleman from New Jersey, Mr. Gottheimer, is recognized for 5 
minutes.
    Mr. Gottheimer. Thank you, Mr. Chairman, and Madam Ranking 
Member. Mr. Kalman, while I am happy to see FinCEN make 
progress on rules to implement the Corporate Transparency Act, 
I am concerned by the barriers law enforcement could face, 
including a requirement to obtain a court order before 
accessing the beneficial ownership directory and reporting 
requirements after the fact. Can you describe how these 
additional barriers will affect law enforcement's 
investigations, please?
    Mr. Kalman. Thank you for the question. During the 
negotiations for the rule, this committee and others around 
Congress that were involved went through very, very specific 
negotiations, creating a series of protocols to ensure that 
there is security of the data. Obviously, nothing is perfect, 
but people felt, at the end of the day, that we had gotten to a 
place where there was some level of security.
    The problem with the additional hurdles for State and local 
law enforcement, which don't exist, by the way, for Federal law 
enforcement, is quite significant. The information we are 
talking about is often at the beginning of an investigation for 
law enforcement, and if they can't have access to this initial 
data, it is very difficult to move forward with an 
investigation. And these investigations can be complicated and 
costly, and they could just get dropped.
    Mr. Gottheimer. Thank you. In March 2022, I joined then-
Committee Chairwoman Waters and Representative Sherrod Brown in 
calling for GAO to conduct a review of the tools used by 
domestic violent extremists to finance their activities here in 
the United States. I am looking forward to seeing the results 
of GAO's review in the coming months, which I hope will shed 
light on the ways these groups fund themselves.
    Mr. Kalman, can you describe the ways in which domestic 
violent extremists, like the Oath Keepers and Proud Boys, could 
conceal their fundraising activities through the use of shell 
companies or other anonymous organizations? Would a strong 
beneficial ownership directory help law enforcement monitor the 
activities of these groups?
    Mr. Kalman. We have seen shell companies or anonymous 
companies, I should say, being used by any number of bad 
actors, whether it is terrorist organizations, human 
trafficking operations, drug cartels, or other organizations. I 
believe the Stolen Asset Recovery (StAR) Initiative said that 
it is--no, it was Global Witness that coined the phrase that 
the anonymous companies are the getaway car for criminals and 
the corrupt. So yes, I think that the idea behind the Corporate 
Transparency Act is, in fact, to require companies, shell 
companies, or those that would hide behind corporate 
structures, to come clean or not be able to register.
    Mr. Gottheimer. Yes, so you have seen evidence of anonymous 
companies flooding markets with counterfeit products at the 
expense of U.S. small businesses?
    Mr. Kalman. Yes. And in my written testimony, we submitted 
a report by David Luna, who is a former national security 
official. He did look at the impact on businesses and the use 
of anonymous companies both for counterfeited and pirated 
goods, but also companies that were scam artists for larger 
companies, so subcontractors of companies ripping off larger 
companies. It was used to defraud the business sector.
    Mr. Gottheimer. Thank you. Small business advocates, 
including NFIB, in their letter of comment, have raised 
concerns that some of FinCEN's BOI rules were not explicitly 
outlined in statute and create costly and complicated 
requirements for our nation's smallest businesses.
    Mr. Kuhlman, what revisions could be made to reduce the 
compliance burden for small businesses while still allowing law 
enforcement to identify bad actors?
    Mr. Kuhlman. I think fewer beneficial owners, less people 
having to be listed under substantial control, they expanded 
that definition. A little bit broader timelines for initial 
reports and updates, that would be where I would start, but I 
would be happy to follow up with other ideas. Thank you.
    Mr. Gottheimer. Thank you. And despite Congress' intent to 
keep the requirements for reporting companies limited to the 
most useful and important information, many small businesses 
still have questions about when and how to file. Just asking a 
further question, do you believe FinCEN should do more to help 
small businesses understand the rules and requirements of the 
CTA, and if so what should a FinCEN engagement plan look like?
    Mr. Kuhlman. Yes, Congressman Gottheimer, I think just 
getting some guidance out quickly, as kind of required by the 
Small Business Regulatory Flexibility Act, would be great. And 
then once that guidance is issued, making sure it is 
distributed broadly, whether it is through SBDCs, as Mr. Nunn 
suggested, or just basically using every tool in government, 
anyone who does interact with small businesses, would be a good 
start.
    Mr. Gottheimer. Thank you. Mr. Chairman, I yield back.
    Chairman Luetkemeyer. The gentleman yields back. The 
gentleman from Tennessee, Mr. Ogles, is recognized for 5 
minutes.
    Mr. Ogles. Thank you, Mr. Chairman, and to our panelists, 
we are getting close to the end, guys, but we thank you for 
being here, and we certainly appreciate you.
    I think we are concerned about the small businesses and the 
compliance costs and inadvertently kind of getting trapped in 
this rulemaking process.
    Mr. Selenke, kind of echoing Mr. Kuhlman's comments, and I 
understand this might require some guessing, but what 
percentage of the clients of your bank or similar institutions, 
who were newly designated as reporting companies, do you think 
actually know about the designation? We won't hold you to this 
number, by the way; we are having some fun here.
    Mr. Selenke. Yes, Congressman, the number would be zero or 
close to zero.
    Mr. Ogles. Okay, sir. How many would you guess are familiar 
with FinCEN at all?
    Mr. Selenke. For our customers, the only ones who would be 
aware of it are those who have interacted with it already, so 
many service businesses and individuals have to deal with large 
currency reporting.
    Mr. Ogles. Yes, sir. Thank you.
    Mr. Kuhlman, do the businesses you represent typically wake 
up in the morning with bated breath and excitement to follow 
the news of FinCEN?
    Mr. Kuhlman. No. No, sir, but we are asking our members in 
our recent banking service and would be able to follow up if 
they are familiar with this. It is just not ready yet, but it 
should be soon, so we will get you that.
    Mr. Ogles. Yes, sir. And again, I think that is the head 
right, is that we have an agency that is imposing on small 
businesses, many of whom are struggling to turn on the lights. 
They are busy running their businesses, and suddenly now you 
have this rulemaking authority that is essentially legislating 
authority. And it is time that we have clear communications 
with our businesses by letting Congress do its job, not some 
sort of alphabet agency. But we have already discussed the 
burden this rule places on small businesses, and on community 
banks, so we should consider whether it is worth it.
    Mr. Selenke, you have a wealth of experience in keeping 
crime out of financial systems. Do you believe this rule is the 
silver bullet that will finally stop the flow of cash to the 
drug cartels?
    Mr. Selenke. Congressman, no. There will be movement of 
funds to financial institutions, and it is very difficult to 
identify. I think this can help identify players, but it won't 
stop the flow of funds.
    Mr. Ogles. And do you think it has been refined to the 
point that it will help banks avoid exposure to criminal 
enterprises?
    Mr. Selenke. Currently, no. As it is written, it is focused 
only on the customer due diligence portion of the discussion. 
As a bank, to understand our customers and what is happening, 
we have the whole Know Your Customer (KYC) process from 
onboarding, to their ongoing activity, to sanction screening. 
And the way it is currently written, it only focuses on a very 
narrow point of that review, so it would not have much value to 
us at this point.
    Mr. Ogles. We have a rule that many of the reporting 
companies don't know exists, and, therefore, can't carry out, 
that could, therefore cause well-intentioned business owners 
legal trouble, that is designed in a way that makes compliance 
unnecessarily difficult in their own form, was criticized for 
being, let's face it, observed. I think it would be obvious at 
this point that FinCEN should pull back, that it is time to go 
back to the drawing board and perhaps talk to someone like you, 
Mr. Kuhlman, who represents businesses, who, businesses, I 
think, by and large, I would say 99.9 percent want to comply, 
want to have no contact with illicit businesses. And you all 
are perfect conduits for, how do we do this and do it in a 
responsible manner?
    Really quickly, China has engaged in unfair trade practices 
such as currency manipulation, along with the campaign of 
intellectual property theft and economic espionage targeting 
U.S. companies, in addition to human rights violations and 
facilitating the fentanyl crisis across our Southern border and 
to every small town in America. Considering the real threat 
that China poses to the United States of America on, quite 
frankly, many fronts, I would kind of posit that the real focus 
here should be China, the illicit actors that are using our 
Southern border and the cartels to move money in and out and, 
quite frankly, cargo in and out of this country, versus 
targeting hardworking Americans who are trying to run 
businesses and are trying to do the right thing.
    Mr. Chairman, I want to thank you for holding this hearing. 
I am out of time, so I yield back.
    Chairman Luetkemeyer. The gentleman yields back. With that, 
the gentlewoman from California, Mrs. Kim, who is also the Vice 
Chair of the subcommittee, is recognized for 5 minutes.
    Mrs. Kim. Thank you. Thank you, Mr. Chairman. I want to 
thank you and Ranking Member Beatty for holding this hearing.
    FinCEN finalized the first rule under the Corporate 
Transparency Act, the beneficial ownership information 
reporting requirements which we have been talking about all 
day, that was released on September 30, 2022, about 10 months 
ago, but the rules will be effective on January 1, 2024, in 
less than 6 months.
    Mr. Kuhlman, you represent an organization that advocates 
for the interests of small businesses, so I wanted to get your 
assessment of how well-informed your small businesses that you 
represent are about the BOI, and do you believe that beneficial 
ownership rules should be delayed, giving small businesses more 
time to learn about the law and get ready to comply?
    Mr. Kuhlman. I don't think there is much familiarity right 
now, and there is not clear guidance, and there is still some 
ambiguity on who must report. So, I would definitely support a 
delay, Congress allows for a delay, or for 2-year 
implementation, excuse me. That is consistent with how long the 
implementation of that customer due diligence rule is, so I 
think it makes a whole lot of sense. At a minimum, Chairman 
McHenry has a bill that says it should not become effective 
until all of these rules are finalized, and you should be able 
to comment concurrently on all three rules, I believe.
    Mrs. Kim. Thank you. Congress intended for the CTA to be 
very simple for most small business owners, and it was supposed 
to be a postcard-like form that would take a seamless amount of 
time to complete, but it seems that FinCEN has turned that into 
something else. I want to ask you, how much time do you 
anticipate it will take for small businesses to fill that out, 
and can you tell us and those who are watching, how long is the 
form, and how many questions are included in BOI?
    Mr. Kuhlman. The draft form had 50 questions. When you just 
copied and pasted from Regulations.gov, it is 8 pages. Now, I 
am sure the government form will be smaller print, wider 
margins, so it will look different, but still, it is a pretty 
intimidating form with a lot of dropdowns and sub-questions 
based on it.
    Mrs. Kim. Do you anticipate that small businesses will need 
to hire external vendors or outside third parties to submit the 
form appropriately, because we are hearing very low numbers 
from the U.K. database, but we are expecting the cost to be 
much higher than the U.K. numbers. Can you dig into that a 
little more?
    Mr. Kuhlman. Yes. An analogy is that for tax compliance, 
you have your CPA; 90 percent of NFIB members utilize a CPA. I 
do anticipate they will at least go to them to ask, is this 
legitimate, and can you help me do it, and I think it is going 
to depend on State to State, whether the State Bar Associations 
might view those experts as unauthorized practicers of law. I 
know for some of the larger firms, they have already said we 
are not going to help with this compliance. It is my 
understanding that might be because the liability is too much 
for them, but I am afraid that trickles down to some of the 
smaller ones and there might not be an avenue to go, or you 
might have to go find an attorney who may be even higher cost. 
So, I believe there will be a substantial cost to comply.
    Mrs. Kim. We have to make it easier for small businesses to 
comply, and this is making it very difficult for sure. FinCEN 
has yet to finalize rule number two that will lay out how 
highly-sensitive beneficial ownership is maintained, protected, 
and accessed by law enforcement and financial institutions. 
Given this lack of clarity, how will the ineffective access 
rule impact your ability to carry out your ongoing CDD 
obligations?
    Mr. Kuhlman. I would be interested in----
    Mrs. Kim. Mr. Selenke, can you answer that?
    Mr. Selenke. Yes, thanks. Thank you, Congresswoman Kim. 
Without clear access, we need to understand that. At this 
point, we have no idea how we would access it, what that access 
would look like, and who would be authorized to access it. And 
for a larger company, that is going to be difficult, because we 
will have a large number of needs to occasionally reference 
that information.
    Mrs. Kim. So every time a new one comes out, we expect the 
businesses to comply. I am asking these further follow-up 
questions in general. Mr. Kuhlman, you can probably answer 
this: Do you believe that FinCEN has done its due diligence, 
educating, informing, and going through their active outreach 
program to inform the small businesses about this new BOI 
coming down? You probably had this conversation before, but I 
wanted to ask.
    Mr. Kuhlman. At this point, I do not believe it has been 
sufficient. I will just say that.
    Mrs. Kim. With that, I yield back. Thank you.
    Chairman Luetkemeyer. The gentlelady's time has expired. 
All questioners are out of time. I would like to thank our 
witnesses for being with us today. You all did a great job. 
Thank you so much.
    I just have one thought--I have several thoughts jotted 
down here but I will just expound on one. Throughout this 
hearing, it has been mentioned many times that FinCEN is going 
beyond the intent of the law in their rulemaking and their 
proposals. The Supreme Court had just, within the last 13 
months, struck down three different major decisions by the 
Administration and its agencies that went beyond the law, and 
it is what they were doing, what they were opposing.
    A number of you represent associations, and I hope that you 
are looking at the possibility of taking FinCEN to court. When 
they go beyond the letter of the law, they have to be reined 
in. And this, to me, when you are talking about a $32 billion 
original cost, Mr. Kuhlman's figures are, and $5.6 billion per 
year to comply, that is a huge issue, a huge burden on our 
small businesses that had better be done right and better be 
done according to the way Congress intended. If not, I think 
you have a legitimate reason to go after them. I am hopeful 
that FinCEN will hear what we are talking about here today, 
stop the nonsense, and get back in its lane with this 
rulemaking, and hopefully, we can get this done in a better 
way.
    Mrs. Beatty, would you like to ask a few questions or make 
a comment?
    Mrs. Beatty. Thank you. Thank you so much for that. Again, 
let me just thank the witnesses for being here and certainly 
shedding light on this. Also, thank you for the financial 
information, that was helpful, from another country, the U.K., 
to see that small amount. And lastly, Mr. Chairman, I want to 
thank Congressman Nunn, who referenced the bipartisanship.
    Taking a look at what we can do, and hopefully we can take 
some of the information from here because I think the objective 
is, as we move into this new era of finance that we are going 
to be into, it is going to be very much like it was decades ago 
when we worked on CTA. So it is here, and I think we have an 
obligation on both ends to figure out why or how it doesn't go 
beyond the intent of Congress, but also, how we figure out what 
is best for small businesses, bankers and FinCEN. Thank you, 
Mr. Chairman.
    Chairman Luetkemeyer. The Chair notes that some Members may 
have additional questions for this panel, which they may wish 
to submit in writing. Without objection, the hearing record 
will remain open for 5 legislative days for Members to submit 
written questions to these witnesses and to place their 
responses in the record. Also, without objection, Members will 
have 5 legislative days to submit extraneous materials to the 
Chair for inclusion in the record.
    With that, this hearing is adjourned.
    [Whereupon, at 3:49 p.m., the hearing was adjourned.]
    
    
    
    
    
    
    
    

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                             July 18, 2023

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