Weekly Legislative Update - February 5, 2018

TITLE Act
 
On Tuesday, the Senate Judiciary Committee will be holding a hearing on the True Incorporation Transparency for Law Enforcement (TITLE) Act. While the goal of the bill is to prevent terrorists and criminals from accessing capital, the bill, if passed, would also impose serious and extremely burdensome reporting requirements on small businesses.
 
TIA has joined a coalition that will be sending the attached letter to Senators Grassley and Feinstein in advance of the hearing. See the letter below. 
 
Letter to Grassley, Feinstein
 
The Honorable Chuck Grassley                     The Honorable Dianne Feinstein
Chairman,                                                   Ranking Member,
Committee on the Judiciary                         Committee on the Judiciary
United States Senate                                   United States Senate
Washington, DC  20510                                Washington, DC  20510
 
Dear Chairman Grassley and Senator Feinstein:
 
While the undersigned organizations support the overarching goal of preventing terrorists and criminals from accessing capital, we write to express our strong opposition to the True Incorporation Transparency for Law Enforcement (TITLE) Act because of the unprecedented burdens and complexities that the legislation would impose on millions of law-abiding small businesses in America.  If enacted into law, the TITLE Act will actually do more to hobble capital formation in our economy, undermine the privacy rights of law-abiding citizens, and endanger free speech rights than it will to hamper bad actors.
 
Under the TITLE Act, anyone who forms (or has already formed) a legal entity will have to retain an attorney on a recurring basis to help them determine how far the definition of beneficial owner extends.  Such "owners" may include trusts, corporations, partnerships, venture capital firms, lenders, creditors, contractors, and lien holders.  The potential labyrinth of direct and indirect "beneficial owners" under the TITLE Act could also change daily as loans are sold, interests in closely held entities are encumbered, new lines of credit or financing are accepted, or heirs and trustees are changed in estate plans. 
 
This task is made exponentially more difficult when coupled with the bill's "look-through" requirement.  Ownership of an entity by one or more other corporations or LLCs is common with small business.  The legislation imposes a duty on business owners to look through every layer of corporate and LLC affiliates to identify if any individuals associated with any such entities are qualifying beneficial owners, and to report the personal information of those individuals.  In other words, the TITLE Act compels disclosure of information that business owners have no legal means to obtain - much less on a timely basis.
 
These burdens are further compounded because after initial disclosure, beneficial ownership information must be updated with 60 days of any changes and verified in annual filings.  Situations may arise where a business may not be aware of a change in beneficial ownership and would be subjected to civil and possible criminal prosecution under the TITLE Act.  For example, if a divorce settlement involving a business partner resulted in the ex-spouse of that individual becoming a "beneficial owner" and the business is not aware of the change, the business could face federal civil or criminal penalties for failing to update the government within the required 60-day period.
 
Moreover, to the extent the legislation permits States to collect and disclose the required information, it fails to ensure any privacy protections against the public disclosure of this information.  According to the National Association of Secretaries of States, entity information filed with the state business registry as envisioned by the TITLE Act is public information "thus beneficial ownership information filed with the state would be public information".  That is because approximately 40 States have "right to know" laws requiring business filings to be made public.  This lack of privacy protections could harm individuals' privacy and may jeopardize early stage investments in many start-up businesses.  Venture capital firms and other early investors in innovative start-up enterprises realize value by performing careful analysis and identifying promising ideas and business models before they are widely recognized. The TITLE Act will endanger this important vehicle of capital formation for start-up companies in States that exercise their discretion to collect and disseminate this information without significant changes to their State public information regimes. 
This letter is not exhaustive, but meant to illustrate just some of the many systemic problems the TITLE Act will create for millions of small businesses in America.  We are committed to routing out terrorism financing and money laundering, but do not think this legislation properly achieves that goal.  We are willing to work with you and the rest of Congress on legislation that addresses these critical national security issues without imposing unprecedented burdens and risks on the law-abiding job creators we represent.   
 
Sincerely,

Small Business Legislative Council (SBLC)