The Trump administration is moving forward with a plan to scale back scrutiny of the shadowy shell companies that criminals use to launder money and traffic drugs.
The initiative follows a yearslong campaign by lobbying groups, which contended that new financial reporting requirements were too onerous for businesses.
The Treasury Department said late on Tuesday that it was permanently halting the collection of data about the ownership of private American companies that was required as part of the 2021 Corporate Transparency Act. The law, which passed with bipartisan support, was intended to prevent the illicit use of shell companies by giving law enforcement agencies access to information about their ownership structures.
“Treasury is eliminating a burdensome reporting requirement for millions of law-abiding business owners without compromising our national security,” Treasury Secretary Scott Bessent said in a post on social media.
The law applied to a broad swath of private American businesses; however, there has been particular concern in the United States about shell companies. These are legal entities that do not usually have physical operations or assets and can be used for holding — and often hiding — financial assets in anonymous accounts.
The announcement finalized a temporary halt to collection of the data about “beneficial owners” that the Treasury Department put in place last year. Foreign companies are still required to report information about foreign owners to the department’s Financial Crimes Enforcement Network, also known as FinCEN.
The decision raised questions about whether the Trump administration was essentially declining to carry out a law passed by Congress. It also appeared to undercut President Trump’s publicly stated ambitions of cracking down on financial crime, money laundering and drug trafficking.
“This is a gift to cartels, criminals and U.S. adversaries that exploit shell companies to move millions through our financial system,” said Senator Elizabeth Warren of Massachusetts, the top Democrat on the Senate Banking Committee. “The Trump administration has dismissed law enforcement warnings, ignored the role that shell companies play in crimes ranging from drug trafficking to fraud to sanctions evasion.”
The legislation was enacted in 2021 as part of a military spending bill. The backing of the bill, which was co-sponsored by Marco Rubio, then a Republican senator from Florida, was so strong that lawmakers overrode a presidential veto toward the end of Mr. Trump’s first term.
At the time, Mr. Rubio, who is now Mr. Trump’s secretary of state, called the legislation the “most significant anti-corruption and money laundering law in decades.”
Under the Corporate Transparency Act, beneficial owners are defined as shareholders who own 25 percent or more of a reporting company. They are also defined as individuals with “substantial control,” such as decision-making power, over a business.
According to the law, beneficial owners were supposed to submit their names, addresses, birth dates and up-to-date identification records — like a passport or a driver’s license — as part of their filing. Their information would later be shared with banks and law enforcement.
Small-business groups led a lobbying effort to compel the Treasury Department to water down and delay implementation of the law during the Biden administration. They maintained that the rules would be an expensive compliance burden.
“FinCEN’s final rule is a major victory for American small-business owners and financial privacy,” said Representative Warren Davidson, Republican of Ohio. “The Corporate Transparency Act buried millions of small-business owners, sole proprietors and even volunteer HOA leaders in costly reporting requirements while doing little to catch the criminals it was supposed to target.” Mr. Davidson was referring to homeowners associations.
The weakening of the law comes as the Trump administration has prioritized domestic investigations into money laundering, particularly in states led by Democrats. Earlier this year, Mr. Bessent unveiled an initiative to root out fraud and the misuse and potential laundering of federal funds in Minnesota. The Treasury Department has also expressed concern about the use of shell companies around the world as tools for evading sanctions.
Andrea Gacki, who resigned last month after serving for three years as director of FinCEN, had been a major proponent of the merits of the Corporate Transparency Act.
In a 2024 speech, she pointed to shell companies that were involved in crimes, including a Chicago flooring contractor that rigged bids and fixed prices, as well as the Sinaloa drug cartel’s $16.5 million transnational money laundering operation. She also made the case that beneficial ownership information could have made it easier for Treasury Department investigators to track the funds of Russian oligarchs who use shell companies to illegally hide assets in the United States.
“Beneficial ownership information reporting can make these types of investigations more efficient by providing a direct resource for law enforcement, national security and intelligence officials,” Ms. Gacki said. “It can give law enforcement an advantage over illicit actors, diminish the head start that corporate anonymity provides and ultimately level the playing field for legitimate American businesses.”
It is not clear that Mr. Bessent needed to curtail the law so dramatically to make it workable for businesses.
Alex Zerden, the founder of the risk advisory firm Capitol Peak Strategies and a former official in the Treasury Department’s Office of Terrorism and Financial Intelligence, said the law provided leeway for the department to create exemptions to make compliance easier for small businesses.
“This is an example of throwing the baby out with the bath water,” Mr. Zerden said.
