The U.S. Treasury Department recently decided to eliminate a requirement for small American businesses to report owner information to the federal government, marking the latest development in a complex, ongoing narrative surrounding this new rule.
Initially, the Corporate Transparency Act, which became law in 2021, obliged numerous businesses to disclose basic details about their “beneficial owners.” The driving force behind this act was to crack down on illegal activities and financial crimes often concealed by complex shell companies. The implementation of this rule was slated for March 21 after being postponed several times in court, with potential financial penalties in the thousands for failing to comply.
However, FinCEN (Financial Crimes Enforcement Network), a division of the Treasury, issued an interim final rule on March 21 that exempts all U.S. citizens and U.S. businesses from this reporting requirement. The public now has the opportunity to comment on this rule, with a final version anticipated later this year.
Legal experts have voiced concerns that if the FinCEN rule remains as is, it could significantly deviate from the Corporate Transparency Act’s intention, creating opportunities for criminals to continue money laundering through U.S. entities. Erin Bryan, a partner at the law firm Dorsey & Whitney, remarked, “This absolutely waters down the rule,” noting that many shell companies will no longer be required to report.
While some foreign companies operating in the U.S. will still be mandated to submit reports, FinCEN projects that only about 20,000 entities will be affected in the first year. Previously, it was estimated that 32.6 million entities, including corporations and limited liability companies, would need to comply initially. Bryan added that most Western countries already have these kinds of reporting requirements in place. FinCEN chose not to provide a comment on the matter.
Andrea Gacki, director of FinCEN since 2023, wrote in the interim final rule that the move aligns with former President Donald Trump’s deregulatory goals. The Trump administration had already halted enforcing the requirement earlier in the month. Without the suspension, civil penalties could have reached $591 per day, with criminal fines and potential prison time added to the mix.
In Gacki’s words, the Treasury “reassessed the balance between the usefulness of collecting [beneficial ownership information] and the regulatory burdens imposed by the scope of the Reporting Rule.” The decision considered factors like risks of illicit finance, alternative information sources, data collection burdens, and public interest.
Certain foreign companies registered to do business in the U.S. still face reporting obligations, but those with U.S.-based beneficial owners are no longer required to disclose their identities, Bryan explained. She emphasized, “In the world of potential shell companies, this is a small subset that we’re dealing with” who must still report on beneficial owners.
Critics argue that this interim rule might make it easier for criminals to go undetected. Scott Greytak, director of advocacy for Transparency International U.S., highlighted in a statement that this change allows those looking to dodge the law to simply create and operate front companies within the U.S. moving forward.
