The U.S. Treasury Department recently announced that a law aimed at increasing corporate transparency and reducing money laundering will not be enforced.
The Corporate Transparency Act (CTA) is a federal law passed in 2022 and enacted in January 2024. The law was passed with bipartisan effort aimed at reducing the opacity of shell companies operating in the United States (U.S.), often under anonymous circumstances. The U.S. is a longtime purveyor of domestic and foreign shell companies. In 2022, the Tax Justice Network ranked the U.S. as number one on its Financial Secrecy Index. The CTA was intended to curb U.S. appeal as a secrecy jurisdiction and the offshore tax evasion that often ensues.
The Beneficial Ownership Information Report (BOI)
A key component of the CTA is the Beneficial Ownership Information Report (BOI), which was filed through the Financial Crimes Enforcement Network (FinCen) platform by U.S. companies with fewer than 20 employees. Companies with fewer than 20 workers can be suspect because they may operate as a shell for the transfer and holding of illegal assets. The BOI was intended to remove the veil of ownership secrecy by requiring corporate information, including name, physical U.S. address, Tax Identification Number (TIN), and contact information for owners, including legal name, driver’s license, DOB, and passport image. The information is not available to the public, but can be used by state, federal, and other agencies.
Frustrated about the reporting requirement, small businesses across the country were concerned by the law. In June of last year, a federal judge ruled in favor of the National Small Business Association on allegations that the CTA, specifically the BOI requirement, is an overreach by Congress. As a result, FinCen did not enforce the CTA against those particular plaintiffs as the case worked its way through the courts.
Owners of shell companies can remain hidden
Fast forward one year, and the Treasury Department essentially announced that rules and penalties related to the CTA will not be enforced for domestic companies or U.S. citizens. The Treasury intends to propose rules that limit the reach of the CTA on foreign businesses. Secretary of the Treasury, Scott Bessent notes the pullback will, “unleash American prosperity by reining in burdensome regulations.”
Ian Gary, currently executive director of the Financial Accountability and Corporate Transparency Coalition (FACT), notes, “Opening the U.S. up to dirty money, whether it’s from Chinese fentanyl traffickers or countries that threaten the U.S. like Iran or China make all Americans less safe.” The organization cites the likelihood of attracting criminal tax enterprise, boosting money laundering, condoning illegal competition for legitimate small businesses, and the weakening of U.S. security as primary outcomes of the pullback. FACT is nonpartisan organization founded in 2011. The alliance is composed of international, national and state groups.
The move by the Treasury renders moot regulation crafted and enacted by the CTA. Depending on your view, that may be a good—or a bad thing.
Seasoned legal guidance on questions concerning domestic or offshore tax accounts
As addressed by the Corporate Transparency Act, compliance around domestic or foreign bank accounts can be complicated. If you are concerned about tax structures or reporting, the tax attorneys at Robert J. Fedor, Esq., L.L.C. can help. Contact us at 440-250-9709 or set up a consultation for reliable counsel. We offer services to clients in Northeast Ohio, Chicago, New York, and internationally.
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