The White House constantly trumpets its deregulatory agenda. The administration has also criticized China for constructing “a 21st century surveillance state with unprecedented abilities to censor speech and infringe upon basic human rights.” How strange, therefore, that Treasury has joined the effort to saddle small businesses with new regulations, thereby expanding a regime that has all but eliminated financial privacy in the U.S.

Specifically, the administration is backing two new bills: the House’s Corporate Transparency Act and the Senate’s ILLICIT CASH Act. As my colleague David Burton argues, the policies in these bills “would create a large compliance burden on 11 million businesses with 20 or fewer employees and do little to aid law enforcement.”

Granted, the ILLICIT CASH Act would implement some positive reforms to the U.S. anti-money laundering (AML) framework. Yet it presents the same major problem posed by the House bill: both proposals would foist a new burdensome beneficial ownership reporting requirement on the nation’s smallest businesses, while exempting those most able to abuse the financial system. Sadly, this approach is not entirely new.

For decades, the U.S. government has expanded the regulatory burden under the AML regime, requiring financial companies to file millions of reports. Never, however, has Washington produced any evidence that these policies actually work.

It’s not that lawmakers haven’t asked for proof. Rep. Patrick McHenry (R-N.C.), ranking member of the House Financial Services Committee, has repeatedly asked the Treasury Department and the Financial Crimes Enforcement Network (FinCEN) for such evidence. According to McHenry:

During our May 22 hearing with Secretary (Steven) Mnuchin, I once again requested non-anecdotal data from the Treasury Department. FinCEN has provided us with some data but has yet to answer specific questions I laid out. The information received does not justify the burden placed on small businesses.

How big is that burden? Burton and I have demonstrated that the existing AML framework now costs Americans billions of dollars per year—more than $7 million for every conviction obtained. Moreover, it appears that the bulk of these AML convictions are simply add-ons, applied only after an arrest for some other crime, such as selling illegal drugs.

Nonetheless, elected officials are once again set to expand this framework.

The main point of these new beneficial ownership requirements is to force any “applicant” who wishes to form a corporation or limited liability company to file a report (with FinCEN) that contains a list of the company’s beneficial owners. The ILLICIT CASH Act would also apply to partnerships, trusts, and other legal entities.

The applicant, as well as each beneficial owner, would have to provide his name, address, date of birth, and either a passport or driver’s license number, as well as a copy of the photo on the passport or driver’s license. The applicant would also have to file beneficial ownership reports annually, and file any changes to the company’s beneficial ownership. Failure to comply would result in fines of up to $10,000 and/or imprisonment for up to 3 years.

One of the problems is that the definition of beneficial ownership is not consistent with an ordinary understanding of ownership or the concept of ownership under state corporate or LLC laws. Essentially, anyone with an unspecified “understanding” or “relationship” who is deemed to “exercise substantial control” or “receive substantial economic benefits” from the company could be considered a beneficial owner.

As it stands, nobody would really know what “understanding,” “relationship,” “substantial control,” or “substantial economic benefits” actually mean until years of litigation and the associated court rulings have provided guidance. Although legislation, if properly and clearly drafted, could rectify these issues, previous versions of the bills have failed to do so. And, of course, Congress has demonstrated a fondness for leaving such details undefined.

While these requirements may not seem overly burdensome for a company owned and operated by a single person, many small companies do not fit such a structure. Many people form separate business entities to invest in other companies, and the current legislation contains no mechanism for a firm to obtain information about an investing entity’s beneficial ownership.

In many cases, that investing entity (possibly a venture-capital fund or business development company) will be exempt from the reporting requirements. In such cases, the reporting company may have no means of obtaining the required information. Either way, firms with multiple investors—many of whom alter their stake over time—would be tasked with an undue reporting burden that provides little additional benefit to anyone.

The legislation is unnecessary in the sense that most of this information is already collected as required by law. It simply is not true that someone can legally open a bank account for a dummy corporation (one with no owners), and then escape paying taxes while enjoying a life of crime with impunity. That proposition is simply ludicrous.

Aside from existing IRS rules, the AML regime, with origins in 1970, outlawed such behavior in the financial sector long ago. A 2002 guidance from the Comptroller, for example, states:

In addition to verifying the legal status of businesses opening accounts, bankers should determine the source of funds and the beneficial owners of all accounts. The existence of most businesses can be verified through an information-reporting agency, banking references, or by visiting the customer’s business.

On May 11, 2018, a new FinCEN “Customer Due Diligence” rule took effect that substantially ramped up these requirements. If bankers are having trouble completing these tasks, perhaps the real problem is that Congress should never have treated them as if they were law enforcement officials. Of course, that’s the way that Washington works—this legislation is moving toward passage because large financial institutions are pushing for it.

It makes sense that banks would support anything that lowers their exposure and regulatory costs, but Congress should address these problems directly, not by passing the costs on to others. Moreover, the bills could create new problems.

Aside from shifting the reporting burden from banks to small businesses, the legislation would create a national corporate ownership database to “facilitate financial institutions’ customer due diligence efforts to confirm information currently obtained during the customer onboarding process.”

This feature raises all kinds of privacy concerns, and it spurred McHenry to point out:

We are creating a new federal government database that tracks all the ownership structures of small businesses in this country. It is not a question of if this government database will be breached, but when, and we do all this on the backs of small businesses and the small-business community. I would suggest we should examine every possible avenue to reduce the burden on the nearly 4 million small businesses that will be impacted. I’d also want to take steps to ensure that information collected and maintained by FinCEN is protected.

Again, none of this is necessary because the information is already collected. A simple alternative to the new framework would be to allow FinCEN to look at information already provided to the IRS—something that is already permitted for certain law enforcement purposes. Essentially, all that would be necessary is for Congress to force two government agencies—both bureaus of the Treasury Department—to share information with each other.

Given the amount of time that the AML rules have been in place, it should be very easy for supporters of these new bills to demonstrate that the benefits of the AML regime outweigh the costs. If they cannot do so, then Congress should lessen the burden on ordinary law-abiding Americans instead of making it even worse.