Ensign Fights For Nevada Small Businesses

Press Release

Senator John Ensign today served as the lead Republican on the Homeland Security hearing regarding Senate bill 569, the Incorporation Transparency and Law Enforcement Assistance Act.

The bill would have major implications on states' laws regarding business incorporation rules and could make it more difficult for entrepreneurs to start small businesses in Nevada if the rules are allowed to become more complicated.

His opening statement follows:

"Thank you, Mr. Chairman. I am pleased to join you here today to discuss S. 569, the Incorporation Transparency and Law Enforcement Assistance Act.

"This is a very important piece of legislation because it affects a number of different issues, not the least of which is its impact on the small business community, which serves as the backbone of our economy. Corporate law has long been within a state's domain.

"By forcing states to amend their individual laws on corporate formation, Congress is effectively imposing a federal standard on business creation, ignoring the particularities of each state's business culture. With such a new federal standard, there is no incentive to choose one state over another when deciding where to form a business. This will hurt many business-friendly states such as Nevada.

"Businesses choose Nevada as their state of incorporation because of our state regulatory climate, tax situation and flexibility for companies to run their businesses as they like. This week, I received comments from the Nevada Secretary of State for this hearing that I would like to submit for the record.

"If enacted, S.569 would require my state to add additional staff, undertake an extensive rewrite of the e-Secretary of State processing system and deploy a new system, maintain a separate nonpublic database, and deal with other operational infrastructure needs. According to their office, the estimated cost for initial implementation could reach as high as $10 million, with ongoing costs of approximately $1 million annually.

"These are costs that Nevada simply cannot afford.

"As a former small business owner, I know firsthand how difficult it is to start and grow a business. It is certainly more difficult in today's economic environment. Every dollar spent on the burdensome requirements under this bill is one less that can be reinvested in the business.

"Too often in Washington, we see unintended consequences of bills that, while they have a valuable purpose, turn out to be overreaching in their application. I fear that is the case with this bill. It will result in significant regulatory and compliance costs that may have a chilling effect on the creation of new business and new jobs at a time when our economy can least afford it.

"The term "beneficial ownership" as defined in the bill is simply too broad. Rather than qualifying it by some clear cut standard, the language in the bill is borrowed from the Treasury Department's use of the term to determine the proper taxpayer on a bank account. Because of the number of different entities involved, this is not a workable comparison for corporations and LLCs. It leaves open the possibility to interpret the definition differently.

"Rather than risk the harsh penalties associated with noncompliance, entrepreneurs will be encouraged to register their businesses only after consulting with certain professionals, such as attorneys or accountants. The expense associated with the new registration process will simply be too great for many smaller start-up businesses to bear, resulting in less business activity and less job creation.

"Mr. Chairman, we are not the first economic power to consider the regulatory system proposed under this bill. In fact, efforts to enact a similar regulatory scheme have failed in other jurisdictions, most notably in the U.K. I understand that one of the witnesses in the Committee's last hearing on the topic mentioned this. The U.K. considered a system requiring up-front disclosure of beneficial ownership, as defined in a manner consistent with the definition in S.569. The U.K. authorities rejected this approach, concluding that ‘there were significant disadvantages and no clear benefits, particularly when taking into account the costs of introducing such measures.'

"As a basis for their conclusion, these authorities noted that ‘those engaged in criminal activities would not provide true information about the beneficial owners' and that ‘disclosure would result in misleading information being included on the register.' According to these authorities, requiring further details of beneficial ownership ‘would be harmful to investigations through the resulting misleading information provided by both criminal and innocent shareholders.'

"Mr. Chairman, it is my hope that we can continue to work together on this very important issue to ensure that the needs of law enforcement are adequately met, while not overburdening our states or business communities. Thank you."

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