A few days ago, the federal government finally killed one of the dumbest reporting requirements I’ve seen in a long time.
And if you’ve ever owned an LLC, or set up a trust, you should care about this.
It’s called the Corporate Transparency Act.
More specifically, the Beneficial Ownership Information reporting requirements administered by FinCEN…the Financial Crimes Enforcement Network.
Sounds scary and official, doesn’t it?
Money laundering. Shell companies. Drug dealers. Terrorist financing.
Bad guys hiding behind anonymous corporations.
Who could possibly be against stopping that?
Well…me.
At least when the solution is requiring millions of ordinary, law-abiding Americans to report personal, private information to a massive federal database because they happen to own a small business.
And they didn’t stop with simple LLC ownership.
A lot of real estate investors use trusts every single day. (If you don’t…you need to look in the mirror and fix it!)
There are plenty of legitimate reasons for using trusts… estate planning, asset management, privacy, and simply how we structure the ownership of our properties and businesses.
Under FinCEN’s rules, putting an ownership interest into a trust didn’t necessarily end the government’s inquiry.
They could essentially look through the trust to determine which actual human beings were considered beneficial owners of the company.
Depending on how the trust was structured and who had certain rights, that could mean identifying a trustee, beneficiary, grantor or settlor.
Think about how far we’ve traveled at that point.
You’re not under investigation.
Nobody has accused you of laundering money.
Nobody has accused you of fraud.
You’re an ordinary investor using an ordinary legal tool that Americans have used for generations.
And now you’re figuring out which people connected to your TRUST have to be identified to a federal financial-crimes database because the trust happens to own an interest in your company.
Again…
What crime did you commit?
None.
You simply structured your business in the way that, in your opinion, benefited you most.
Last week, on August 11, the Treasury Department announced a final rule permanently eliminating the BOI reporting requirement for U.S. companies and U.S. persons.
Even better, FinCEN says it will delete information previously reported by U.S. persons from its database.
Good…if they actually do it. Delete it.
The original rules would have required millions of small businesses…including countless little real estate LLCs like the ones investors use every day…to tell FinCEN who actually owned and controlled them.
And this wasn’t just:
“Hi, I’m William and I own this company.”
The reporting regime required identifying information about beneficial owners.
The stated purpose was to make it harder for criminals to hide behind shell companies.
That’s a legitimate goal.
But here’s where government and I tend to part company:
I don’t think every citizen should be treated as a potential criminal just because some are criminals.
And whenever you object to something like this, somebody inevitably says:
“What’s the big deal? If you aren’t doing anything wrong, you have nothing to hide.”
I even had someone make that statement in response to one of my Facebook posts about this.
I hate that argument.
Because privacy and secrecy aren’t the same thing.
I close the bathroom door. I’m not doing anything illegal in there.
I don’t publish my bank statements on Facebook. Nothing illegal about my bank account.
I don’t give strangers access to my email. I’m not running a drug cartel through Gmail.
We all have information we keep private.
Privacy isn’t something you earn by proving you’re innocent.
Think about the logic behind “nothing to hide.”
If you aren’t doing anything wrong, why shouldn’t the government know who is behind every LLC you control?
Why shouldn’t they know what’s in your bank account?
Why shouldn’t they know every website you visit?
Why shouldn’t they know everywhere you go?
Why shouldn’t they read your emails?
After all…
You’ve got nothing to hide, right?
That is pure, 100% bullshit.
That’s completely backwards.
In America, the government is supposed to have a reason to investigate YOU.
You shouldn’t have to continually prove to the government that you’re not doing anything wrong.
And there was another problem with FinCEN reporting that didn’t get nearly enough attention.
The burden.
Government loves paperwork.
Because the people writing the rules aren’t the people sitting at a desk trying to comply with them.
One more form. One more deadline. One more database.
One more set of instructions.
One more thing your attorney or accountant has to explain AND charge you for doing it.
One more potential penalty if you screw it up.
Multiply that by millions of American businesses and suddenly “just fill out this little form” isn’t so little anymore.
And real estate investors were right in the middle of it.
We use LLCs. Sometimes lots of them.
Not because we’re laundering Colombian drug money.
Because there are perfectly legitimate business, liability, and organizational reasons to own real estate through entities, LLCs & trusts.
Yet simply using those entities was enough to put ordinary business owners into a federal reporting system designed to combat financial crime.
That’s what bothered me from the beginning.
Now, to be fair, there is another side to this.
Anonymous entities CAN be used to hide criminal proceeds.
Money laundering is real. Fraud is real. Sanctions evasion is real.
And law enforcement absolutely should have tools to investigate those crimes.
But there’s a huge difference between:
“We have reason to believe this person committed a crime, so let’s investigate him.”
and:
“Let’s collect information on millions of people who haven’t done anything wrong in case we need it someday.”
Those are two VERY different philosophies of government.
I know which one I prefer.
And apparently the current Treasury Department agrees.
This week, FinCEN made the exemption for American companies permanent.
American companies no longer have to file these beneficial ownership reports.
U.S. persons are exempt.
And FinCEN says it will delete previously reported information that it reasonably believes belongs to U.S. persons.
That’s a win.
Not because I’m trying to hide anything.
Not because I think criminals deserve anonymity.
And certainly not because I think real estate investors should be able to break the law behind an LLC or trust.
It’s a win because privacy matters even when you’re doing absolutely nothing wrong.
Maybe especially then.
Because once we accept the idea that only people with “something to hide” care about privacy, we’ve already surrendered the argument.
The burden should not be on you to explain why the government shouldn’t collect your information.
The burden should be on the government to prove it should have MY information.
That’s a distinction worth protecting.