Business owners should not forget anti-money laundering rule currently in legal limbo

By MAE ANDERSON The Associated Press

FILE - U.S. Treasury Secretary Janet Yellen speaks during a visit to the Financial Crimes Enforcement Network (FinCEN) in Vienna, Va., on Jan. 8, 2024. (AP Photo/Susan Walsh, File)[ASSOCIATED PRESS/Susan Walsh]

Small business owners should not forget about a rule — currently in legal limbo — that would require them to register with an agency called the Financial Crimes Enforcement Network, or FinCEN, by Jan. 1.

The registration is part of the Corporate Transparency Act, an anti-money laundering statue passed in 2021. Under the CTA, the owners and part-owners of an estimated 32.6 million small businesses must register personal information with FinCEN, such as a photo ID and home address.

Registering isn’t difficult, but if a small business owner is unaware of the requirement, they could be slapped with penalties of up to $10,000. Businesses with more than 20 employees and more than $5 million in sales can qualify for exemptions.

For now, the rule is on hold. On Dec. 3 a federal court in Texas issued a preliminary injunction prohibiting enforcement of the rule. FinCen has said registering is voluntary. But the injunction could be overturned on appeal, so small business owners should keep an eye on the case.

The act was intended to get a look inside shell companies and crack down on attempts by “criminals, organized crime rings, and other illicit actors to hide their identities and launder their money through the financial system,” Treasury Secretary Janet Yellen said in 2022.

Originally, the rules became effective in 2024 and gave existing businesses until Jan. 1, 2025, to register. However, businesses that started in 2024 were given 90 days to register.

Doris Dike, a principal at Dike Law Group in Frisco, Texas, that works with small business healthcare clients, said she is concerned about the rule going into effect in 2025.

“FinCEN is intrusive, and I’m relieved that it’s temporarily on hold. I’m not convinced it would combat money-laundering,” she said. “There’s already laws in place for recording business ownership. FINCEN is burdensome and would create fear among small businesses.”

Jennifer Barnes, owner and CEO of San Diego-based accounting firm Optima Office, with 97 employees, said she might register even though the rule is temporarily on hold.

“A recent stay regarding FinCen’s Beneficial Ownership Information Reporting is just that – a stay. It is not a definitive determination on the merits of the requirement,” she said in an email. “Therefore, the prudent course of action is to file before the previously determined deadline on Jan. 1 as there is no guarantee of a deadline extension if the stay is overturned.”