The U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) issued a final rule on August 14 deactivating reporting requirements for domestic limited liability companies (LLCs). The decision removes mandates previously established by Congress under the Corporate Transparency Act, which were intended to help law enforcement identify the individuals behind corporate entities.
The Corporate Transparency Act was passed in 2021 to assist in the detection and prosecution of money laundering, terrorism financing, and other crimes. The statute required domestic and foreign LLCs to file reports containing beneficial ownership information. Congress included 23 specific exemptions for regulated entities, such as banks, but granted the Treasury Secretary the authority to add further exemptions if reporting would not serve the public interest or be useful to national security and law enforcement.
Under the new regulation, FinCEN has exempted all domestic LLCs from these reporting obligations, shifting the focus of the law primarily to foreign-formed entities registered in the U.S. and their foreign beneficial owners. The Trump administration justified the change by stating the costs of reporting were too high for the covered entities. Additionally, the new rule requires FinCEN to delete beneficial ownership information already collected from domestic firms.
For individual business owners, the change means they will no longer face the administrative costs or legal requirements associated with filing beneficial ownership information. A person who owns a small domestic LLC would notice the removal of this compliance step from their business operations. However, critics of the rule, including legal experts like Kim Wehle, argue that the wholesale exemption of domestic entities contravenes congressional intent and could make it easier for criminal organizations to use anonymous shell companies for money laundering and other illegal activities within the U.S.
The new rule sets a precedent regarding the "major questions doctrine," a legal principle from the 2021 Supreme Court case West Virginia v. EPA, which requires clear congressional authorization for agencies to enact sweeping regulations. While the administration points to its statutory discretion to add exemptions, legal analysts suggest the move may face challenges for bypassing the policy decisions made by Congress. The rule is currently in effect following its August 14 issuance, though the source does not specify a deadline for the deletion of existing records.