Treasury Regulation Undermines Congressional Intent for Corporate Transparency

The current administration continues expanding its powers, now altering the Corporate Transparency Act through an agency regulation. This move contradicts the Trump-friendly Supreme Court’s stance, which typically opposes such actions. On August 14, the Financial Crimes Enforcement Network, part of the U.S. Treasury Department, enacted a final rule that essentially nullifies most reporting requirements set by Congress under the Corporate Transparency Act.

The act, passed by Congress in 2021, aims to assist law enforcement in penetrating LLC structures to identify those funding criminal enterprises. This statute mandates that all corporations, LLCs, and similar entities file reports containing beneficial ownership information. It applies to both domestic and foreign LLCs. Congress deemed the collection of this data crucial for combating money laundering and other criminal activities.

However, on a broader scale, the Treasury’s new regulation exempts all domestic LLCs from the requirement. This limits the law’s scope almost entirely to foreign-formed entities registered in the U.S., focusing only on foreign beneficial owners. The law was designed to include small domestic corporations and LLCs, which accounted for the majority of the initial 32.6 million entities covered. By exempting domestic entities wholesale, the rule undermines the statute’s primary target.

Senator Ron Wyden had introduced the Corporate Transparency Act, warning that anonymous shell companies facilitate money laundering, terrorism, sex trafficking, and tax evasion. He cited examples such as Viktor Bout, who used U.S. shell corporations to sell weapons to the Taliban, and a company involved with an Iranian bank financing Iran’s nuclear and missile programs.

The Financial Crimes Enforcement Network’s decision runs counter to the Supreme Court’s 2021 ruling in West Virginia v. EPA. The court’s major questions doctrine dictates that expansive regulatory actions require clear congressional authorization. The rulemaking by the Financial Crimes Enforcement Network eliminated the beneficial ownership reporting requirement for the main entities Congress aimed to monitor, with the justification being that compliance costs were prohibitive.

This regulatory change also mandates deleting information previously collected on domestic entities. Critics argue this decision disregards the threat posed by illicit actors using anonymous LLCs, including fentanyl traffickers, which places a heavier burden on society. The author of this analysis, Kimberly Wehle, is a law professor and the creator of various guides and books on constitutional and legal literacy.