Treasury Declares New Ownership Reporting Law Will Only Apply To Foreign Companies

Summary of the Corporate Transparency Act and Recent Policy Changes

1. Policy Shift: Ending Enforcement of the Corporate Transparency Act

The U.S. Treasury Department has ceased enforcing the beneficial ownership information (BOI) reporting requirements under the Corporate Transparency Act (CTA), marking a significant policy shift. Announced through social media and a press release, the decision was celebrated by former President Donald Trump, who termed the requirement "outrageous and invasive." This change means that U.S. businesses will no longer face penalties for not complying with BOI reporting deadlines set by the Biden administration, with future rules applying primarily to foreign companies. Secretary of the Treasury Scott Bessent lauded the move as a victory for small businesses, aligning with Trump’s agenda to reduce regulatory burdens.

2. Background: The Corporate Transparency Act

Enacted as part of the National Defense Authorization Act (NDAA) for Fiscal Year 2021, the CTA aimed to combat anonymous shell companies involved in criminal activities like money laundering and drug trafficking. Reporting companies were required to submit beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), accessible to law enforcement but not the public. Despite Trump’s veto, Congress overrode it, and the Treasury began accepting BOI reports in January 2024, impacting approximately 32 million companies. The CTA exempted entities like publicly traded companies and nonprofits, with harsh penalties for non-compliance.

3. Court Rulings: Challenges to the CTA’s Constitutionality

The CTA’s enforcement has faced legal challenges, with a federal court deeming it unconstitutional in March 2024. Subsequent rulings, including a Texas court decision, led FinCEN to extend reporting deadlines. Despite these challenges, the CTA remains law, with ongoing cases in multiple appellate courts. The Treasury’s recent announcement has left the status of collected data and pending legal cases uncertain, creating a complex legal landscape.

4. What Now: Implications of the Policy Change

The sudden policy shift has left businesses questioning the fate of already submitted data and the impact on ongoing legal cases. With the CTA still in effect, future enforcement by a new administration remains possible, mirroring the cannabis policy precedent. This creates uncertainty and potential complications for businesses and legal challenges, highlighting the executive branch’s enforcement discretion.

5. Reactions: Diverse Opinions on the Policy Change

Reactions to the policy change have been mixed. The National Small Business Association (NSBA) and U.S. Secretary of the Treasury Scott Bessent praised the decision as a relief for small businesses. Conversely, Senator Ron Wyden and organizations like the FACT Coalition criticized it as a gift to criminals and a threat to national security, undermining bipartisan efforts against financial crime. Advocacy groups like Main Street Alliance and Hudson Institute’s Kleptocracy Initiative expressed concerns about increased corruption and threats to U.S. security.

6. Conclusion: The Ongoing Debate and Future Implications

The Treasury’s decision to halt CTA enforcement has sparked debate over its implications for national security, crime prevention, and business regulation. While supporters view it as a reduction in bureaucracy, critics argue it undermines efforts against financial crime. The outcome of ongoing legal cases and future administration policies will shape the CTA’s trajectory, leaving businesses and policymakers in a state of flux. As this situation evolves, the balance between regulatory relief and combating illicit financial activities remains a critical issue.