More Unintended Consequences

Simple-sounding regulations have interesting ramifications. The regulations attempts to force corporations to disclose their beneficial ownership, which sounds like a completely reasonable regulation and a big help to law enforcement. But when you consider that even small, private corporations may have large numbers of stockholders, you've got yet another expensive task for a small company to do annually. Furthermore, the law won't work, because you can still have opaque overseas trusts acting as beneficial owners.

One of the things we’ve learned from Sarbanes-Oxley is that we have to start considering the cumulative effect of regulations. When viewed in isolation, a particular regulation may not seem terribly burdensome. When we assess the marginal additional burden contributed by the regulation to the overall regulatory burden on US companies, however, the effect may be quite significant. We’ve seen this in the post-SOX environment, as small firms found the cumulative burden too much to bear. As a result, many domestic companies went dark and many foreign companies stopped raising capital in the US. Indeed, as the Paulson Committee, the US Chamber of Commerce, and the Bloomberg-Schumer study all found, the new regulatory drag on our economy is having a serious impact on the competitiveness of US capital markets.Laws such as this one whose costs seem likely to exceed their benefits are therefore highly suspect.