Kent Nishimura | Los Angeles Times | Getty Images
The US Treasury Department has repealed the requirement that US small businesses report information about their owners to the federal government. This is the only offensive saga’s latest twist for fledgling rules.
The Corporate Transparency Act, passed in 2021, called for millions of companies to report basic information about “beneficial owners.” By identifying who owns a particular entity, lawmakers sought to curb criminal activity and illegal finances committed through opaque shell companies.
The rule was set to take effect on March 21, following a few months’ delay in court. It imposed a potentially thousands of dollars of financial penalties for non-compliance violations.
However, the Financial Crime Enforcement Network, also known as Fincen, which is part of the Treasury Department, issued an interim final rule on March 21, waives all US citizens and US businesses from reporting requirements.
The rules accept public comments and are expected to be completed later this year.
“This will definitely go down to the rules.”
If it stands, the Fincen rules, according to legal experts, are a significant deviation from the purposes of the Corporate Transparency Act, providing a loophole for criminals to continue washing their money through US entities.
“This is definitely down the rules,” said Erin Bryan, partner and co-chair of Dorsey & Whitney’s Consumer Financial Services Group. “Many shell companies will be exempt from reporting now,” she added.
Some foreign companies operating in the US are required to submit reports, Fincen said.
Fincen estimates that this revised reporting requirement will apply to approximately 20,000 entities in the first year. This has been significantly reduced from certain companies, limited liability companies and 32.6 million entities previously estimated to be subject to first-year reporting requirements.
Most of the Western world has already implemented such requirements, Brian said.
Fincen declined to comment on the story.
Deregulation push
The policy changes coincided with President Donald Trump’s deregulation directive written in 2023 by Andrea Gakki, director of Finsen, in the interim final rules, which envisaged her position.
The Trump administration had already stopped enforcing requirements earlier this month. Civil penalties could have reached $591 per day, plus criminal fines of up to $10,000 and a prison of up to two years.
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The Ministry of Finance reassessed the balance of collection utility [beneficial ownership information] And the regulatory burden imposed by the scope of reporting rules,” Gacki wrote.
Authorities took into account illegal financial risks, alternative sources, the “burden” of data collection, and the public interest, she wrote.
Potential loopholes
The reporting requirements remain valid for certain foreign companies formed in other countries and registered to do business in the US, Brian said.
However, if such an entity had US-based beneficiaries, they are no longer obligated to report information about that person, Brian added.
“In the world of potential shell companies, this is a small subset we are dealing with,” she said, he still has to provide reporting to beneficial owners.
Some observers believe that the interim rules allow criminals to easily detect skirts.
“From this day on, criminals can circumvent this national security law simply by starting and operating these front companies in the United States,” Scott Graytuck, director of advocacy for the Transparent International US, a coalition with Corruption, said in a statement.
