Fraud has become an increasingly significant threat, especially in the realm of investment scams and other fraudulent schemes. Despite efforts to address the issue, much of this fraud goes underreported, leading to a financial burden in the hundreds of billions of dollars. At a recent Capitol Hill hearing on fraud, it was revealed that fraud, the cost of fraud, and the need for AML reform continue to be growing problems. Witnesses from both the banking sector and small businesses voiced concerns about the inadequate response to rising criminal activity and the regulatory challenges in combating fraud.

The House Financial Services Subcommittee on National Security, Illicit Finance, and International Financial Institutions convened on April 1, 2025, for a hearing titled “Following the Money: Tools and Techniques to Combat Fraud.” The meeting focused on the growing threat of financial fraud and how both criminals and financial institutions are using advanced technologies in their battle. Unfortunately, many witnesses expressed that existing regulations, such as the Bank Secrecy Act (BSA), have not kept up with the surge in criminal activity and that the regulatory burden continues to rise, particularly for small businesses.

FINCEN’s New Approach: No Enforcement of the Corporate Transparency Act

A significant shift in the regulatory landscape occurred last week when the Financial Crimes Enforcement Network (FINCEN) announced it would not enforce the Corporate Transparency Act (CTA), which had previously been a source of concern for many small businesses. The CTA, which requires businesses to report their beneficial ownership information to the government, had raised privacy and data security concerns. Small business owners feared their sensitive information would be exposed in the event of a data breach, while also facing an increase in compliance costs.

Despite its well-meaning intent to increase transparency, critics of the CTA, such as Jeff Brabant from the National Federation of Independent Business, have long argued that the law places small businesses at risk. Brabant emphasized that businesses are now exposed to cyberattacks, with fraudsters exploiting the CTA’s requirements for phishing scams. Additionally, he noted that the burden on small businesses to report information, particularly in cases where the definition of “substantial control” is ambiguous, has made it more difficult for businesses to comply.

With FINCEN’s announcement that they will not enforce the CTA, small businesses may now find relief from these burdens. However, the decision has also raised questions about the future of transparency initiatives and how lawmakers will address the issue moving forward.

The Strain on Small Businesses and the Regulatory Burden

Small businesses have faced increasing pressures as they struggle to comply with AML regulations. These regulations, designed to fight fraud and money laundering, often come with significant costs, particularly in terms of legal counsel and accounting services needed for compliance. The complexity of these regulations, such as the CTA, has created confusion among small business owners, many of whom are unsure about how to accurately report ownership information or what qualifies as “substantial control.”

For example, businesses like restaurants are required to disclose ownership information for managers who may not even hold any ownership stakes, leading to concerns about over-reporting and non-compliance. This uncertainty adds to the already heavy burden placed on small business owners who are now expected to protect sensitive information while navigating complex regulatory environments.

Even without enforcement of the CTA, small businesses remain vulnerable to fraud. The issue is compounded by the increasing use of technology by criminals to target businesses and individuals alike. As the methods used to perpetrate fraud evolve, businesses continue to face mounting challenges in preventing and responding to these threats.

Technology and Data Sharing: Key Components of the Fight Against Fraud

While technological advancements have provided financial institutions with tools to detect and mitigate fraud, gaps remain in how data is shared between private sector entities and government agencies. Experts, including Jacqueline Burns Koven from blockchain data platform Chainalysis, have highlighted the need for better information sharing. Currently, state, local, and federal agencies lack effective channels for sharing critical information with each other or with private sector actors.

Darrin McLaughlin, executive vice president and chief anti-money laundering officer for Flagstar Bank, emphasized the importance of a more strategic, risk-based approach to combating fraud. Banks, he explained, are investing in advanced technologies to monitor customer behavior and identify fraudulent activities before transactions are made. However, McLaughlin also stressed that much of the data generated by financial institutions is not easily accessible to law enforcement, limiting its potential impact on fraud prevention.

“A better, more streamlined system for sharing data would allow both government agencies and financial institutions to act more effectively and in a more timely manner,” McLaughlin explained. “Fraud can often be stopped before it happens if we can catch it early enough.”

Reforming the Bank Secrecy Act and AML Practices

The Bank Secrecy Act (BSA) is another area where reform is needed to improve the effectiveness of anti-money laundering efforts. Rep. Warren Davidson, who chairs the subcommittee, pointed out that the thresholds for reporting suspicious activity, such as suspicious activity reports (SARs) and currency transaction reports (CTRs), have not been updated to reflect the reality of modern financial transactions. As a result, financial institutions are burdened with a growing number of reports that may not be relevant or helpful in preventing fraud.

“The current system is not only inefficient but also burdensome for financial institutions,” Davidson noted. “We need to reassess the reporting thresholds and adjust them for inflation, as well as modernize the system to ensure that resources are being allocated to higher-risk activities.”

Davidson’s call for reform reflects broader concerns about the effectiveness of current AML regulations, including the need for a more targeted approach that focuses on high-risk customers and activities. By aligning resources with the most significant threats, banks and financial institutions could increase their effectiveness in detecting and preventing fraud.

Conclusion: A New Path for AML Reform and Fraud Prevention

As fraud continues to escalate, it is clear that current regulations are not enough to address the changing nature of financial crimes. The shift in FINCEN’s stance on the Corporate Transparency Act marks a potential turning point in the regulatory landscape for small businesses. However, the focus must now shift to modernizing the entire anti-money laundering framework to better address the challenges posed by sophisticated fraud schemes.

Reform in areas such as SARs and CTRs reporting, as well as improved data sharing between government agencies and private sector entities, is critical to enhancing the effectiveness of anti-fraud measures. By adopting a more strategic, risk-based approach, lawmakers and financial institutions can better focus resources on high-risk activities, ultimately reducing the burden on businesses and improving the overall fight against fraud.

Related Links

• Financial Crimes Enforcement Network (FINCEN) – Official Website
• National Federation of Independent Business (NFIB)
• ACAMS – Anti-Money Laundering Resources
• American Bankers Association (ABA)
• U.S. Small Business Administration (SBA)

Other FinCrime Central News Reports About Transparency and Beneficial Ownership

• FinCEN Won’t Issue Fines for Corporate Transparency Act Deadline
• Treasury’s Move to Limit Anti-Money Laundering Law: Implications and Reactions
• US Beneficial Ownership Reporting 2025 Deadline Extended Amid Legal Battle

Source: PYMNTS