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PaperclipPerfector  7mo ago (text post)   28026 thread views

Culture War Roundup for the week of September 11, 2023

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Inching closer to the eradication of financial privacy

FinCEN has new rules taking effect over the next year and a half that require basically all companies to disclose the "beneficial owners".

The rule will require most corporations, limited liability companies, and other entities created in or registered to do business in the United States to report information about their beneficial owners—the persons who ultimately own or control the company, to FinCEN. Designed to protect U.S. national security and strengthen the integrity and transparency of the U.S. financial system, the rule will help to stop criminal actors, including oligarchs, kleptocrats, drug traffickers, human traffickers, and those who would use anonymous shell companies to hide their illicit proceeds.

I won't quote the whole thing but it's a short and easy read.

This statement is a bit disturbing:

FinCEN will engage in additional rulemakings to: (1) establish rules for who may access beneficial ownership information, for what purposes, and what safeguards will be required to ensure that the information is secured and protected [...]

This provides another avenue for rogue members of institutions to leak private information to hurt people they don't like. Depending on the rules that ultimately come out, this avenue could be very wide, especially since there is often discretion over when to enforce the rules.

My revulsion to these rules goes beyond the erosion of privacy, though. It should be possible to be a citizen of a place without exposing your entire life to the mercy of its government. You can't avoid being at its physical mercy when you're within its territory, but you can leave now and then. The way financial rules work in the U.S., you have to report and pay taxes on all finances, even work and investments in other countries. You also have to pay taxes on income that doesn't affect anybody else (income you haven't spent). With these new rules, you might have to pay a reputational tax when wealth you were keeping private gets exposed. I would much prefer citizenship or investment in a place to be like membership in a club - you're judged by your behavior at club events, not by your life outside it.

That's not exactly new. KYC rules already demand that companies have to disclose their beneficiary structure if they want to open a bank account. That's what nominal owners are for.

This provides another avenue for rogue members of institutions to leak private information to hurt people they don't like. Depending on the rules that ultimately come out, this avenue could be very wide, especially since there is often discretion over when to enforce the rules.

As usual, the motte assumes this will be used for the culture war. Realistically, it’s going to be used for dividing assets up in divorce and assessing child support. Maybe some other financial applications.

That is an interesting example of a slippery slope. Divorce has been legal in Christian countries for what? Around a hundred years? Longer in some places (America), a more recent development in others (Southern Ireland).

I think it came in on the basis that maybe 1% of marriages were wretchedly bad. Let them be dissolved and the sum of human happiness would rise, with no unexpected consequences to follow. But divorce became more common. Rich middle aged men took to trading in their middle aged wife that they had married when young, and starting a second family with a new, younger wife. That was understood as an abuse, and was tackled with alimony laws that were generous to the old wife. Those generous payments encouraged wives to divorce their boring middle-aged husbands, in the hope of a more exciting sex life, as an independently wealthy women. Divorce rates soared towards 50%. That in turn soured men on marriage. Men are reluctant to marry, and some countries (Canada?) have tackled this problem with marriages of adhesion (usually called common law marriages). Live too long with your girlfriend and bam, married.

Slipping further down the slippery slope, we are eradicating financial privacy to tackle the problem of men hiding their assets from ex-wives. Ponder how strange that would have seemed in the early days of divorce, when the idea was that the husband was perhaps an abusive drunk, probably unable to hold a job. Of course we want the woman to be able to escape and start a family with a hard working, good provider husband. Imagine if the early divorce law reforms had including the full range of legal changes. People who doubted that permitting divorce at all was wise, would have been confronted with the idea that the husband might be rich, and financial secrecy would have to go so that the ex-wife could be guaranteed her big share of the dosh. I think that people would never have started down the road of permitting divorce.

Rich middle aged men took to trading in their middle aged wife that they had married when young, and starting a second family with a new, younger wife

If we assume the role of a designer, or at least guide, of social norms, is there anything wrong with this specifically? Assume the children of the first marriage are already 18+, so it doesn't materially disadvantage the children so much. Society ends up with marginally more children, with marginally better genes (due to being rich).

Divorce rates soared towards 50%. That in turn soured men on marriage

I don't think this happened?

Slipping further down the slippery slope, we are eradicating financial privacy to tackle the problem of men hiding their assets from ex-wives

Financial privacy is being eradicated because it's universally useful the state, and large companies, to know your financial history. Useful both to the state, for taxation, incentive schemes, and enforcing the law. But also useful to you! You can pay taxes more efficiently, participate in government programs with less hassle, and e.g. get better terms on loans because the bank knows you better. I don't think men hiding their assets is a central reason for this.

I think that people would never have started down the road of permitting divorce.

If early Christian reformers had known that they were part of a long trend towards atheism, they might not have started down the road. Atheism is still correct though.

I think it came in on the basis that maybe 1% of marriages were wretchedly bad.

I wonder how much of that was also due to decreasing prevalence of disease death and maternal mortality. In 1820 a drunkard or shit tier husband might be convinced to shape up by the woman's male relatives, or by community pressure, or something like that. If he didn't, he might or might not meet an unfortunate accident or get sick, and healthy men got sick from disease a lot. Or the woman just died in childbirth. In 1920, disease and childbirth death weren't as common and so covert homicide was a bit more difficult. Also people were a little bit more atomized especially in large cities.

Well yeah, but I'm assuming that tax evasion cases already have access to this kind of information.

I've heard of South Dakota trusts spoken of in similar tones.

Do you have statistics how often motte is wrong on those assumptions? So far we have seen bank accounts closed, paypal and similar frozen and payment processors dropping people and businesses over culture war issues. The more financial regulation there is the easier it is to weaponise and unfortunately right now it seems my adversaries control the institutions.

Just to let you know, banks and other financial institutions are already required to obtain beneficial ownership information from their business clients. This rule by FinCEN merely places the government responsible for maintaining a centralized database of this information, and to relieve banks of the duty to collect the information themselves. (Although, the final rule TBD is a little murky on whether banks still have to collect the info as well).

The FinCen summary kinda glosses over how broadly applicable this rule will be. It requires reporting within 30 days for identifying information related to any beneficial owner, where one category considered "beneficial owners" are anyone with "substantial control" over the company, which in turn is defined as :

Proposed 31 CFR 1010.380(d)(1) set forth three specific indicators of ‘‘substantial control’’: service as a senior officer of a reporting company; authority over the appointment or removal of any senior officer or a majority or dominant minority of the board of directors (or similar body) of a reporting company; and direction, determination, or decision of, or substantial influence over, important matters affecting a reporting company. The proposed rule also included a catch-all provision to ensure consideration of any other forms that substantial control might take beyond the criteria specifically listed.

Emphasis added. In theory this is just one prong of the calculation, but it's also explicitly meant to cover anything that FinCen wants. I'd expect that it doesn't get applied at a broad scale by its strict terms, but it's the sorta thing that makes an excellent 'throw the book at them' tool, or to motivate on unrelated matters.

At least in the immediate term, in addition to the privacy concerns there are some serious criminal penalties attached to potentially trivial faults.

Does this apply to citizens themselves, or just owners/investors in companies? Frankly I don't give a shit about the privacy of the extremely wealthy financial class. They deserve to have far less privacy.

I'm much more concerned about the average joe being manipulated by psychologically invasive advertising that uses personal data to become extremely effective.

Income tax was originally only created for the ultra wealthy. It probably doesn't matter who the rule is targeted at right now, you can be pretty sure that it will apply to everyone within a decade.

And the ultra wealthy can afford to hire accountants and legal advisors to deal with the reporting rules. For everyone else it will be an additional burden to entry that makes business ownership and self employment more difficult.

And the ultra wealthy can afford to hire accountants and legal advisors to deal with the reporting rules. For everyone else it will be an additional burden to entry that makes business ownership and self employment more difficult.

This will cease to be an issue relatively soon, with GPT-4 likely being competent enough and future models even better at helping out an unsophisticated consumer who can't afford an accountant.

I'm not well versed with any licensing restrictions that may or may not be in place in the US, but an educated, well-versed entitity to advise you is now cheap and available via a phone.

I presume if the company is big enough that they're running into context window issues and such with a modern ML model, they can afford said human accountant!

Ooh that'll be nice! Not having to have an accountant. I can hardly wait.

I already use GPT for quite a few things, but I feel like I need to be using it more. Soon it'll be incorporated into the majority of online tools I'd imagine.

This rule could only plausibly apply to the ultra wealthy. Non-ultra-wealthy people don't own nominee shell companies.

The rule does not impact just conventional "shell" companies, by its plain text: the definition of 'substantial control' is broad enough to plausibly cover a lot of managers and administrators in small businesses. It might not get enforced that way immediately, and maybe (if not plausibly) even without a ton of middle management getting voluntarily identified to the federal government, but it's definitely nowhere near as clear as you're claiming.

Unfortunately, that "senior officer" is category is far less restrictive than it sounds from the name:

The term “senior officer” means any individual holding the position or exercising the authority of a president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer, regardless of official title, who performs a similar function.

And the rule makes clear that this is intentional:

The final rule adopts the proposed 31 CFR 1010.380(d)(4)(iii) with minor clarifications to minimize the potential confusion noted by commenters. The CTA makes clear that individuals who benefit from this exception must be acting “solely as an employee” and derive control or economic benefits “solely from the[ir] employment status.”

And :

FinCEN notes that the title of the officer ultimately is not dispositive, as the definition of “senior officer” and other indicators of substantial control make clear. Rather, the underlying question is whether the individual is exercising the authority or performing the functions of a senior officer, or otherwise has authority indicative of substantial control.

This is not something limited to just the ultra-wealthy or clear shell corporations; there are absolutely a number of small businesses where the capabilities attached to these titles in larger corporations instead are devolved to individual employees (some, like accountants and chief marketing staff, not even full-time!). There's a fair argument that FinCen won't enforce the rule this way, but it's ironed out in the rule.

It seems fine to me. If you want to enjoy the legal benefits of limited liability or operating as a corporation rather than a natural person the government wants to know to whom those benefits are actually accruing. Incorporation and limited liability are ultimately creations of the government. What's the counter argument? That there's a natural right to be able to operate a legally distinct entity in a way that shields you from liability of that entity's operations? I'm skeptical.

It’s not. It’s an assault on privacy. I shouldn’t have to tell the government everything about my finances. It simply opens the door to all kinds of things that end up giving the government yet more power to direct the lives if it’s serfs. It can shut down and seize the assets of the investors of a business it decides aren’t good for the country. It can go after the personal assets of people who invest in businesses involved in crime-think. It can, as Canada has actually done, seize the assets of people who protest the wrong causes.

You already have to tell the government everything about your finances.

But this rule doesn't require you to "tell the government everything about [your] finances." It just requires companies to tell the government what natural persons ultimately own and operate them. Why shouldn't the government be able to get this information?

It’s not. It’s an assault on privacy. I shouldn’t have to tell the government everything about my finances.

This ship sailed long ago.

Thank people who began war on drugs 100+ years ago and pushed it into overdrive 50 years ago. It was all for your own good.

This reminds me of the “you didn’t build that” argument. Yes, government built roads but it doesn’t imply that because of that whatever the government wants the government can take.

Likewise, the grant of limited liability (premised on the idea that small investors wouldn’t want to expose their entire wealth to liability based on a small investment in Corp x) doesn’t mean it is reasonable for the government to do whatever it wants.

Why not? Where does the right to form a limited liability legally distinct entity come from?

That logic excuses totalitarianism. That government's reach and rights are limited even by the goverment it self as representative of society is a key element of civil and human rights where the idea is that they should constrain both the goverment and non governmental behavior.

If someone is going to throw that down the drain, then you can justify anything including actions that go against what a goverment says including of course any form of criminality. The logic that the goverment can do anything it wants its both wrong and incredibly unethical and is what brought to us Stalinism.

Huh? I'm lost here.

The legal protection from liability of forming a corporation is 100% a creation of government. I'm really not sure how you even conceptualize it absent a government that, you know, registers corporations and enforces concepts of liability to begin with.

Its the right of the goverment to do what it wants part that I object to here. Your "why not" seemed to support that. If not there is some misunderstanding.

I am not pushing a libertarian argument although I do favor a constrained goverment even when the goverment does enforce rights. Unironically society should force the goverment to restrain itself and have the controls and balances that leads to such situation.

If a limit to goverment power comes from the goverment that still distinguishes such goverment from one that does not accept such limits.

Its the right of the government to do what it wants part that I object to here. Your "why not" seemed to support that. If not there is some misunderstanding.

Yes there is a severe misunderstanding.

My position is that limited liability and fictitious entities are entirely a creature of governmental systems. In a government-free stateless system of contractual ethics, things would go quite differently, there would be no concept of limited liability.

Consider the following scenario, which I and my family and friends of mine have all faced many times:

X is a rich real estate investor. X forms ABC property corp, with X as primary shareholder and head honcho. X hires a number of contractors to build buildings for ABC Property corp, excavation to electrical. ABC Property corp fails before completion of the building due to economic circumstances, declares bankruptcy. The contractors are unable to collect money from ABC property corp beyond a possible subordinate lien on the half-finished building. X still has his non-ABC property, his house and his nice cars and his investment portfolio of other investments in stocks etc.

Under a stateless system, I see no ethical reason why the contractors wouldn't get together (along with their friends, patrons, hired thugs etc.) and go to X and say: You owe us money, you signed the contract, sell your house sell your Mercedes sell your stocks and pay us. Certainly historically, it wouldn't be uncommon for the contractors or their patrons to collect his violently, even selling X and his family! The only thing that would keep X free from liability would be his own capacity for violence, his own patrons and hired collections of thugs.

Under a state system, we shrug and say well actually your debt was owed by ABC not by X, X can't be held liable, no matter how rich he is or how much you need the money, he said the magic words and maintained the sacred rituals so his liability is limited. Occasionally insult is added to injury: X forms DEF corp and buys the ABC corp assets at a cut-rate price. That can only occur as a result of legal fictions, as a result of the state and the state's monopoly on violence. Primarily on utilitarian rather than ethical grounds: it is good for investors to be able to protect their assets from liability as it encourages investment. But without a state the idea of "X hired me and signed the papers, but when he did that he was the agent of ABC not X, he didn't sign the papers as X."

One comment brought up "You Didn't Build That!"; to me the argument that government's can't change the rules of LLCs rings of "Keep your Government Hands off my Medicare!"

The original limited liability corporations were private.

As long as government is enforcing contracts limited liability corps could exist anyways. Dutch merchants joined together to form expeditions to the East. Not all expeditions returned, but those that did made a ton of money.

Ok, why is it unreasonable for the government to want to know what natural persons are benefiting from their grant of limited liability?

It is unreasonable because it doesn’t stop with them “just knowing.” It is sorta like guns. Step 1 is figure out who has them. Who can object to that? Step 2 is more malicious but once you give up Step 1 then Step 2 becomes easier to implement.

So it sounds like your objection is to some hypothetical Step 2, rather than this actual policy.

Yes because I understand that by doing Step 1 you make Step 2 much more likely to occur.

I don’t see much of a benefit to Step 1 but see a big downside to Step 2.

What is the objectionable Step 2 that this regulation makes much more likely to occur?

My concern is that government will use this info to freeze assets of the Goldstein of the day.

I much more prefer some guaranteed sort of right of participation in the financial system then the ability to be opaque. LLC goal is to limit the downside risk of starting and running a business. Not to hide assets.

Not saying it is. But the current system isn’t broken. Why fix it?

Recall the government claims FATCA would collect untold billions. To date, the only people who’ve collected material money from it are the Big 4.

This is probably similar but more sinister.

It seems fine to me. If you want to enjoy the legal benefits of limited liability or operating as a corporation rather than a natural person the government wants to know to whom those benefits are actually accruing.

Step 1. Make it virtually impossible to operate a business without a limited-liability corporate structure

How is it virtually impossible to operate a business without a limited liability corporate structure? Many businesses in the United States are sole proprietorships which do not have limited liability.

How is it virtually impossible to operate a business without a limited liability corporate structure?

Very loose liability law meaning it's very easy to be sued into bankruptcy. Survivable if only the businesses go under, but if that can bankrupt the investors as well, you're not going to have any.

Yes, but that's because liability in the US is fundamentally rotten. Many countries have extremely strict caps on liability for a vast catalogue of different things, 'unlimited liability' is bullshit.

I don't disagree, but the bad reasons don't change the consequences.

For one, all your competitors are limited-liability.

"Many" is a weasel-word here. "Many" could be 5 businesses in the whole country. While there are some some sole proprietorships, you would be a fool to own one. Serious businesses are not run that way. Sole proprietorships are for hobbyists and the naive.

In the time it took you to write this comment you could have looked it up and found that most businesses in the US are sole proprietorships.

I did look it up and that information tells you nothing. Most of these "businesses" are a single person. How many have 10 employees? How many have 100?

So you knew it wasn't five businesses in the whole country?

Businesses that aren’t selling Etsy art are very likely to be incorporated via a single member LLC (unless the owner is a complete idiot).

Yes, you got me. You are technically correct (the best kind of correct). There are millions of businesses in the U.S. the vast majority of which have little revenue and no employees. These tend to be sole proprietorships.

If you want to sell Beanie babies on Ebay, the government is not standing in your way. Go for it. You're very unlikely to be sued and lose your house.

The second you hire employees, that goes out the window.

I retreat to my motte.

This data indicates otherwise.

A post long on assertion and short on reason or evidence.

It is a way to increase the aristocracy of pull. Why do they need to know who owns investment X? Well if we don’t like Y we can freeze that asset (as with what grossly happened with the oligarchs). It is an attack on private property.

You don't need to know who is behind the company to freeze a company's assets.

Exactly. It isn’t about the company; it is about the owner.

Not backing up his general claim, but I think the point is that you won't think of freezing a particular company's assets until you know that it is owned by Y.

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