In a move that has drawn widespread criticism from transparency advocates and financial watchdogs, the US Treasury Department has announced that it will not enforce a crucial provision of the Corporate Transparency Act (CTA). This provision, which requires both domestic and foreign companies to disclose their true owners, was designed to curb money laundering, tax evasion, and illicit financial activities. The decision to drop enforcement has alarmed critics, who argue that it will weaken national security and create new avenues for financial crime.

The Corporate Transparency Act was enacted in 2021 under the first Trump administration as part of a broader initiative to enhance financial transparency and prevent bad actors from exploiting anonymous shell companies. The law mandates that certain businesses provide a beneficial ownership information (BOI) report to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). This measure was seen as a groundbreaking step in the US’s efforts to combat money laundering and illicit financial flows.

The reporting requirements officially took effect on January 1, 2024, giving businesses a year to file their BOI reports. However, opposition from small business groups and legal challenges stalled the law’s implementation. A Supreme Court ruling in late January briefly allowed the requirements to proceed, but a separate federal injunction halted the creation of the ownership database, raising constitutional questions about the Act.

A federal judge in Texas issued a stay on FinCEN’s implementation of the reporting rules in January, citing concerns over the law’s constitutionality. The Department of Justice appealed the ruling and initially succeeded in having the injunction lifted, allowing the reporting requirements to take effect. However, on February 27, FinCEN announced that it would not impose penalties or fines on businesses that missed the March 21 deadline, suggesting an extension was imminent.

Earlier this month, the Treasury Department took an even more drastic step, announcing that it would not enforce the rule for US citizens and domestic reporting companies. Treasury Secretary Scott Bessent framed the decision as part of “President Trump’s bold agenda to unleash American prosperity by reining in burdensome regulations.” Instead, the department stated that enforcement would be limited to foreign companies, a move that critics argue significantly weakens the law’s intended impact.

The Treasury’s decision has sparked outrage among transparency advocates and financial crime experts. Ian Gary, executive director of the Financial Accountability and Corporate Transparency (FACT) Coalition, warned that this reversal would have “dire and severe” consequences for national security. “Opening the US up to dirty money, whether it’s from Chinese fentanyl traffickers or adversarial nations like Iran and China, makes all Americans less safe,” he said.

Scott Greytak, Director of Advocacy for Transparency International US, echoed these concerns, stating, “This decision threatens to make the United States a magnet for foreign criminals, from drug cartels to fraudsters to terrorist organizations.” He added that the move sends a dangerous message to financial criminals worldwide, assuring them that they can evade anti-money laundering laws simply by setting up operations inside the United States.

The timing of this policy shift has raised additional concerns, particularly in light of the upcoming evaluation of the US’s anti-money laundering measures by the Financial Action Task Force (FATF) in 2025. FATF, an intergovernmental body that sets global standards for combatting money laundering and terrorist financing, has historically criticized the US for its lax beneficial ownership transparency.

In 2016, FATF identified the absence of such reporting requirements as “one of the fundamental gaps” in US efforts to combat financial crime. The passage of the Corporate Transparency Act led to an upgrade in the US’s FATF rating from non-compliant to largely compliant. However, the recent decision to halt enforcement of the BOI reporting rule could put that progress in jeopardy, potentially leading to reputational damage and increased scrutiny from global financial regulators.

Opponents of the beneficial ownership disclosure requirements, including the National Federation of Independent Businesses (NFIB), argue that the rule represents government overreach and poses privacy concerns for small business owners. They claim that maintaining a government database of business owners could lead to misuse or breaches of sensitive personal information.

However, transparency advocates dismiss these concerns, citing studies that show it requires more personal information to obtain a library card in all 50 states than it does to establish an anonymous shell company. “The idea that this is unduly complicated or burdensome just doesn’t hold up to scrutiny,” said Ian Gary.

Many countries, including the UK, Denmark, Nigeria, and Indonesia, maintain public beneficial ownership registries that are accessible to the general public. In contrast, the US’s database would have been restricted to regulatory and law enforcement agencies, and information gathered under the CTA would have been exempt from Freedom of Information Act (FOIA) disclosures.

The reversal of the Treasury’s position has also drawn speculation about political influence. Just days before the announcement, billionaire Elon Musk, a vocal critic of government regulations, took to X (formerly Twitter) to express concerns about the BOI reporting requirement. “Will look into this,” Musk wrote in response to a post highlighting the issue.

President Trump followed up with a statement on Truth Social, calling the rule “an absolute disaster for small businesses nationwide” and pledging that the “economic menace” of beneficial ownership reporting “will soon be no more.” The administration’s emphasis on deregulation suggests that the move aligns with broader efforts to reduce perceived bureaucratic burdens on businesses, even at the expense of financial transparency.

The Treasury Department’s decision to halt enforcement of the beneficial ownership rule raises significant questions about the future of corporate transparency in the US While the law remains in effect, the lack of penalties for noncompliance effectively renders it toothless, at least for domestic businesses. Transparency advocates worry that this will erode the progress made in fighting financial crime and make the US a haven for illicit financial activity.

With FATF’s evaluation on the horizon and growing international pressure for stronger anti-money laundering measures, it remains to be seen whether the administration will face pushback from global financial regulators. Meanwhile, legal challenges to the Corporate Transparency Act’s constitutionality are still ongoing, further complicating the future of the legislation.

As the debate continues, one thing is clear: the Treasury Department’s decision has reignited concerns about the role of the US in global financial transparency. Whether the government will reconsider its position in the face of mounting criticism remains to be seen, but for now, the rollback of enforcement has set off alarm bells among those fighting financial crime both domestically and abroad.

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Source: Weekly Blitz :: Writings