The U.S. House of Representatives on Tuesday passed Representative Zach Nunn’s (IA-03) bipartisan bill by a vote of 420 to 1 to crack down on Chinese Communist Party shell companies in the United States and support real American small businesses. The Protect Small Businesses and Prevent Illicit Financial Activity Act will close loopholes allowing China’s shell companies to conceal their ownership while easing the burden of regulations on real American businesses.
“The Chinese Communist Party has more than 40,000 shell companies currently operating in the United States that jeopardize our national security, steal our intellectual property, and undermine our economy,” Rep. Nunn said. “By passing this legislation, we’re fighting back against the Chinese Communist Party’s aggressive maneuvers to harm our national security while, at the same time, reducing the burden of red tape on Iowa’s small businesses.”
In 2020, Congress passed the Corporate Transparency Act to root out these shell companies by establishing new reporting requirements for businesses; however, during implementation by the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), several changes were made that deviated significantly from the bill passed by Congress. Most notably, companies were given an option to state that they were “unable to obtain” or “unable to identify” their true ownership. The inclusion of these options undermines the effectiveness of the law by allowing bad actors to obscure the identity of nefarious owners.
Rep. Nunn’s bill, the Protect Small Businesses and Prevent Illicit Financial Activity Act, will fix this fatal flaw and make it easier for real American businesses to comply with the law by:
- Closing the loophole allowing reporting companies to omit information by selecting “unable to obtain” or “unable to identify”
- Requiring new entities to file a report within 90 days of formation or registration
- Extending the filing deadline for American businesses by 12 months while the Treasury Department fixes their flawed implementation of this new law to ensure small businesses are not overburdened with unclear and unnecessarily complicated new regulations
The legislation now awaits consideration in the Senate. Text of the bill—which is co-led by Financial Services Subcommittee on National Security, Illicit Finance, and International Financial Institutions Ranking Member Joyce Beatty (OH-03)—is available here.
