About the Author: John Arensmeyer is the Founder and CEO of Majority of small businesses.
The pandemic emergency loan program has been a lifeline for millions of small businesses. For others, the loan amounts were not enough, if at all.
The impact of limited (or stolen) assistance is tragic and, at this point, well known. Federal Reserve Economists valued that hundreds of thousands of small businesses closed in the first year of the pandemic, numbers that would have been higher without the federal bailouts. Every dollar counted.
One can only imagine the anger that small business owners feel when they hear about loans stolen by fraudsters. A U.S. Small Business Administration study As of April, an estimated $ 84 billion has been lost due to fraud. There have been so many cases, a law firm even created a Covid fraud tracker. Experiences like these are among the reasons small business owners have supported a landmark anti-corruption measure known as the Corporate Transparency Act that will require companies to list the true owners of their businesses when establishing the business. ‘business.
Some who may not fully understand how business owners deal with the costly threats of fraud say the new law is too heavy a burden. But legitimate business owners have no problem putting their name on their company papers. It’s time to put the brakes on the bad actors.
Fair transparency rules will be especially important as small businesses attempt to recover or start afresh after the economic blow caused by the pandemic.
Congress passed the Corporate Transparency Act on January 1 of this year, and the US Treasury Department is currently developing rules to implement the law. How these rules are written really matters.
There are two aspects of rule making in particular that small business owners will be watching. The first is whether the rules will open loopholes that will cause honest businesses to dutifully file their ownership information, while giving fraudsters an easy way to escape. There are a handful of specific exemptions in the law for companies that already provide this information in other government documents (so they don’t have to provide it a second time), but if those exemptions are defined too broadly , this will open the door for bad actors to escape responsibility. These exemptions should be worded restrictively. The overwhelming majority of business owners are more concerned about losing to scammers than about disclosing who owns their business: in a 2018 report investigation of small business owners, we found that over 76% believed that listing their true identities would be a benefit rather than a burden.
The second aspect, and perhaps even more important, is whether the rules will put in place basic protections against bogus deposits. While fraudsters and other criminals can easily enter false data, the law will not protect honest small businesses. To this end, the rules should require real-time verification of the property information provided and should automatically reject illegitimate entries, in the same way that online retailers automatically reject inaccurate or illegitimate credit card information before a purchase can be made.
Real-time verification would protect small business owners. If legitimate business owners type a name or address wrong, instant verification means they could just fix the mistake right away. This saves both time and the potential embarrassment in the event of unintentional mistakes, which could delay a business’s ability to open a bank account or obtain credit. US banks will have access to the new property database, but the general public will not. By denying bogus listings, real-time verification would also make it harder for criminals to access our financial system. This, in turn, reduces the chances for legitimate small businesses to lose loans or contracts that go to illegitimate businesses, among others. night.
The Business Transparency Act includes an explicit provision requiring rule-makers to do everything possible to minimize compliance costs for small businesses. Real-time verification would be one of the most important ways to achieve this for the vast majority of small businesses.
None of these aspects is difficult to incorporate into the new rules. They shouldn’t be controversial either. Exemptions should be available for those who meet the criteria. Real-time verification technology has been around for many years and will reduce the potential costs of compliance.
The new law is the most significant update to our country’s anti-money laundering laws in a generation. The Treasury Department must ensure that it benefits all stakeholders, including small business owners.
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