Treasury Suspends Enforcement of the Corporate Transparency Act

The Treasury Department announced that it has suspended enforcement of the Corporate Transparency Act (CTA) against domestic businesses and American citizens. As a result of this announcement, the Treasury will not issue fines or penalties to those who violate the CTA’s reporting requirements.

The CTA was developed in 2021 as a way to restrict the use of shell companies to conceal flows of illicit money. Under the law, eligible businesses were initially required to file beneficial ownership information (BOI) which consisted of any owner who either has a major influence on the reporting company’s decisions or operations, owns at least 25% of the company’s shares, or has a similar level of control over the company’s equity.

With the Treasury’s announcement, domestic reporting companies are now relieved from compliance obligations under the CTA. As a result, such companies are no longer required to file BOI reports.

This announcement comes shortly after the Financial Crimes Enforcement Network notice to companies that it would not issue fines or penalties for noncompliance of the March 21^st deadline to file beneficial ownership reports. FinCEN specifically said that it intends to issue a temporary rule that extends BOI reporting deadlines, “recognizing the need to provide new guidance and clarity as quickly as possible, while ensuring that BOI that is highly useful to important national security, intelligence, and law enforcement activities is reported.”

Treasury Announces that the Modified CTA will Only Apply to Foreign Businesses

Although the announcement suspends enforcement of the CTA, the Treasury emphasized that it will issue a proposed modification to the CTA so that the reporting requirements would solely apply to foreign companies. “The Treasury Department will further be issuing a proposed rulemaking that will narrow the scope of the rule to foreign reporting companies only,” according to the Department. “Treasury takes this step in the interest of supporting hard-working American taxpayers and small businesses and ensuring that the rule is appropriately tailored to advance the public interest.”

The Treasury’s announcement comes at a time in which President Donald Trump expressively seeks to rid the country of “burdensome regulations.” Shortly before the Treasury’s statement, the President said that the Treasury would soon be suspending the CTA and the “economic menace of BOI reporting will soon be no more.”

While some view this suspension as a positive step toward supporting the economy, others see it as an opportunity for foreign criminals to operate within the United States. “This decision threatens to make the United States a magnet for foreign criminals, from drug cartels to fraudsters to terrorist organizations,” according to Scott Greytak, director of advocacy for anticorruption organization Transparency International U.S. “Inexplicably, it tells foreign criminals–fentanyl traffickers, illegal arms dealers, corrupt foreign officials—that they can evade the most powerful anti-money laundering law passed since the PATRIOT Act by choosing to set up their criminal operations inside the United States.”

The enforcement of the CTA has been subject to ongoing uncertainty. While opinions remain divided, only time will tell whether the Treasury and FinCEN have the authority to implement such regulations, as these actions are certain to face legal challenges.