The ease with which Americans form businesses and partnerships is a factor in the dynamic economy of the U.S. Small businesses should be focused on growing and creating jobs, not filling out forms for their state and federal governments. However, a new bill put forward by Senators Levin, Coleman and Obama proposes several new requirements including precise disclosure of both U.S.-based and non-U.S.-based beneficial owners. Such a law is just complex enough that it might put the brakes on such growth at a time when the economy most needs it even as it rightly cracks down on some of the loopholes that enable money-laundering by way of incorporating small businesses.

The global effort to control money laundering and terrorist financing is built on consensus and cooperation. The U.S., in the past, has pressured other countries to comply with this consensus as part of the price of participating in the global economy. The U.S. now finds itself outside the established global opinion as demonstrated by the Financial Action Task Force’s 40 Recommendations and the E.U.’s 3rd Directive on Money Laundering. The U.S. certainly should find the least obtrusive way to join that consensus. But Senator Levin’s proposal may not be that way.

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In an article titled “Law Blog Lawyer of the Day: David Laufman, Friend of the Mini-Dulcimer” from the Wall Street Journal, an Office of Foreign Assets Control (OFAC) issue about the importation of certain goods from Iran was sarcastically examined. In this case, the goods were musical instruments made in Iran and shipped to the United States for a very prominent musician. The shipments from Iran were seized and held beginning in the summer of 2007 in compliance with OFAC regulations.

The article quips that these musical instruments, although from a sanctioned country, do not represent a threat to homeland security. What the article misses is that OFAC sanctions are economic in nature — their goals are to cut-off or restrict the flow of money into countries that the U.S. deems as threats to national security. A musical instrument is not a weapon of mass destruction, true, but who can say how the proceeds from the sale might have been used once received in Iran? As the article states, “the rules are the rules”. Each exception, no matter how innocent the circumstances behind it might seem, needs to be handled with care.