US: Treasury Department won’t enforce beneficial ownership rule under the Corporate Transparency Act

The Treasury Department announced it would not enforce part of a groundbreaking transparency law aimed at curbing money laundering and tax fraud, a move critics say will weaken national security and create new pathways for illicit financial activity.

Enacted in 2021 with the support of the first Trump administration, the Corporate Transparency Act is aimed at curbing the use of anonymous shell companies to conduct illegal financial activity in part by recording and maintaining a list of the true owners of certain U.S. businesses.

The law’s reporting requirements went into effect on January 1, 2024, and businesses had a year to file a beneficial ownership information report with the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN. Small business groups and other opponents of the rule across the country sued to block it.

ICIJ previously reported on a Supreme Court decision in late January to lift an injunction on the implementation of the law, but the high court’s decision did not apply to a second, separate injunction halting the agency from creating the ownership database.

In that case, a federal judge in Texas in January issued a stay on FinCEN’s implementation of the reporting requirements, questioning the Corporate Transparency Act’s constitutionality. In February, the Department of Justice appealed, and requested a stay of that order during the appeal. The judge lifted the injunction and allowed the beneficial ownership information reporting requirements to take effect. Businesses then had until March 21 to file with FinCEN.

FinCEN announced Feb. 27 that it would not levy any fines or penalties against companies that failed to meet the filing deadline, pending an interim rule that would extend the deadline further.

Then, the Treasury Department reversed its position Sunday, saying it would not impose fines or penalties against U.S. citizens and domestic reporting companies or their beneficial owners if they did not comply with the reporting requirement. Treasury Secretary Scott Bessent said the shift was “part of President Trump’s bold agenda to unleash American prosperity by reining in burdensome regulations.” Instead, the department announced, it will issue a proposed rule that will limit enforcement to foreign companies.

The timing of this move by the Trump administration could not be worse,

— Ian Gary, executive director of the Financial Accountability and Corporate Transparency Coalition

Ian Gary, executive director of the Financial Accountability and Corporate Transparency Coalition, said the consequences of Treasury’s decision would be “dire and severe” for the United States’ national security interests. “Opening the U.S. up to dirty money, whether it’s from Chinese fentanyl traffickers or countries that threaten the U.S. like Iran or China make all Americans less safe,” he said. “It’s hard to understand why this move happened.”

The Treasury Department and FinCEN did not respond to ICIJ’s request for comment.

“This decision threatens to make the United States a magnet for foreign criminals, from drug cartels to fraudsters to terrorist organizations,” said Scott Greytak, Director of Advocacy for Transparency International U.S., the U.S. branch of the world’s oldest and largest anticorruption organization, in a statement. “Inexplicably, it tells foreign criminals … that they can evade the most powerful anti-money laundering law passed since the Patriot Act by choosing to set up their criminal operations inside the United States.”

The potential consequences for failing to report beneficial ownership information or providing false information about owners to FinCEN laid out in the Corporate Transparency Act include a $500 daily civil penalty and up to $10,000 in fines and up to two years in prison. The civil penalty, subject to an annual inflation adjustment, had risen to $606 per day as of early February.

FinCEN can grant regulatory and law enforcement bodies access to beneficial ownership information, but the information is exempt from disclosure under the Freedom of Information Act. By contrast, in the U.K., the public can access that information. Other countries that maintain public beneficial ownership registries include Armenia, Indonesia, Nigeria, Denmark and Portugal.

Just days before the Treasury Department’s announcement, Elon Musk, who in recent weeks has been at the forefront of an aggressive federal cost-cutting campaign and the termination of thousands of federal employees, posted on X that he would “look into” the beneficial ownership information reporting requirement. Sunday evening President Trump in a post on Truth Social called the rule “an absolute disaster for Small Businesses Nationwide” and that the “economic menace” of beneficial owner reporting “will soon be no more.”

The decision to drop enforcement of the transparency rule comes as the Financial Actions Task Force, or FATF, an inter-governmental watchdog that sets the standards for nations’ anti-money laundering laws, is set to evaluate the United States’ protections against money laundering and the financing of terrorism next year.

“The timing of this move by the Trump administration could not be worse,” Gary said.

In its annual report cards, the FATF has long dinged the U.S. over its lack of beneficial ownership reporting. The 2016 FATF report on the U.S. found that the absence of such reporting requirements was “one of the fundamental gaps” in its efforts to curb money laundering. Last year, FATF upgraded its rating of the U.S. from non compliant to largely compliant largely because of the introduction of the Corporate Transparency Act.

The first Trump administration lauded Congress’ bipartisan efforts to enact the law when the House passed it in October 2019, calling the legislation, “a measure that will “help prevent malign actors from leveraging anonymity to exploit these entities for criminal gain.” The administration said at the time that certain steps needed to be taken to improve the bill as it moved forward, like shielding small businesses from “unduly burdensome disclosure requirements” and ensuring information access to information “gathered under this bill’s new disclosure regime” was secure.

Critics of the beneficial ownership disclosure requirements, like the National Federation of Independent Businesses, a plaintiff in one of the lawsuits that sought to stop the Act from being enforced, have also argued that creating a database of owners constitutes an invasion of privacy and is a strain on small business owners.Transparency advocates have dismissed such concerns and cited research that showed it takes “more information to get a library card from a public library in all 50 states than it does to set up an anonymous shell company,” Gary said. “So the idea that this is unduly complicated or burdensome just doesn’t hold up to scrutiny.”