Maintaining US corporate ownership transparency
The Supreme Court’s decision last month to stay an injunction by a Texas federal judge preventing national enforcement of the Corporate Transparency Act (CTA) was a win for transparency and tackling illicit finance but far from the end of the war. Arguably the most significant update to anti-money laundering (AML) laws in the United States (US) in decades, the CTA was passed with bipartisan support during the first Trump Administration. Its requirement that companies identify their true human owners—or beneficial owners—keeps the US from falling behind 85% of the world’s jurisdictions which have laws to crack down on anonymous shell companies.
That data must be stored at a secure directory housed at the Financial Crimes Enforcement Network (FinCEN), where it will be accessible to law enforcement, national security officials, relevant federal regulators, and financial institutions with “know your customer” obligations. The lawsuit against the CTA, filed by a group including the National Federation of Independent Businesses, challenges the constitutionality of the beneficial ownership reporting regime. Protecting the CTA is likely to be one of the key early battles in the second Trump Administration. The courtroom battle appears to have emboldened Congressional Republicans to delay and potentially unpick the new corporate transparency requirements. House Financial Services Committee Chair Patrick McHenry and Senate Banking Committee Ranking Member Tim Scott are leading a group of Republican lawmakers pushing for delays to the CTA’s implementation. The longer that a bill - for which the main rules and guidelines were set out in 2022 – remains in storage, the less likely it is to ever be enforced.
Even if the bill is left untouched its effectiveness will depend on whether it is implemented in a robust and timely manner. For this to happen, FinCEN needs to receive sufficient funding and produce clear guidance to ensure compliance.
In a new era of restructured spending from Washington—this could be an easy tactic to undermine the effectiveness of any law, including this one. The suggestion that the CTA reporting standards represent a major burden on small businesses is not backed up by evidence. On the contrary, we know that criminals move billions of dollars through our economy using opaque shell corporations, propping up kleptocratic regimes, enabling all types of crime, and undermining democracy. Robust beneficial ownership rules are a national security priority that give law enforcement the tools to protect Americans, including the US financial system from dirty money. In the meantime, the lawfare over the CTA is causing delays and confusion.
Businesses have already begun reporting their beneficial ownership information to FinCEN—including mine—and we hear that lawyers were encouraging their clients to prepare their documentation even after the Texas injunction. The delays have prevented FinCEN from amending its Customer Due Diligence Rule to update the definition of “beneficial owner” to match the definitions in the CTA. Getting this change, which should have been in place by 1 January, is one of the first steps toward giving the CTA the teeth it needs.