The federal regulatory landscape for corporate ownership disclosure in the United States is undergoing a significant transformation, leaving many businesses uncertain about how to respond. Under the Corporate Transparency Act (CTA), a law designed to combat money laundering by requiring companies to disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a major policy change has recently been introduced. This policy shift, effective in March 2025, narrows the scope of the CTA’s reach, raising important questions for corporate counsel and compliance officers.
Previously, the CTA mandated that both domestic and foreign entities conducting business in the U.S. provide detailed reports on their beneficial owners. The idea behind this requirement was to enhance transparency, prevent financial crimes, and ensure that illicit actors could not hide behind anonymous corporate structures. However, under the new rule, the scope has been significantly narrowed. Now, domestic U.S. entities, which would have previously been required to submit ownership reports, are exempt from this requirement. Only non-exempt foreign-formed entities operating in the U.S. or on tribal lands remain subject to these reporting obligations.
This shift in policy represents a major change in the regulatory landscape for U.S. businesses. For many domestic companies, it means that the compliance burden they once faced will be reduced, potentially leading to lower administrative costs and fewer regulatory hurdles. While this can be viewed as a relief for businesses that have had to allocate significant resources to filing ownership reports, the change also brings about new challenges and concerns, particularly regarding transparency.
One of the main consequences of this policy shift is that it could erode the transparency that the CTA was originally designed to foster. Critics of the change argue that exempting domestic U.S. entities from the requirement to disclose their beneficial owners could reignite concerns about corporate anonymity. The original goal of the CTA was to prevent financial crimes such as money laundering and tax evasion by ensuring that the true owners of companies were identifiable. By narrowing the scope of the law, there are worries that the transparency efforts may be undermined, potentially enabling illicit financial activities to continue unchecked.
The change has also sparked concern among regulatory agencies, advocacy groups, and lawmakers who were focused on combating financial crime. These stakeholders argue that reducing the number of entities required to report ownership information could allow individuals involved in illicit activities to hide behind corporate structures, making it harder for law enforcement to trace illegal financial flows. There are also fears that the shift could make it more difficult to track the movement of illicit funds across borders, thereby undermining efforts to curb international money laundering.
As a result of the new policy, many businesses are now reevaluating their internal due diligence and ownership tracking practices. While some companies will benefit from the reduced compliance requirements, others may need to adjust their approach to ensure that they continue to meet the broader goals of financial crime prevention. Businesses that are no longer required to file ownership reports under the CTA will need to consider whether they should maintain or enhance their internal practices to track ownership information in case they are subject to investigation. In some cases, companies may even choose to voluntarily disclose ownership details to maintain a higher level of transparency and reduce the risk of regulatory scrutiny.
For corporate counsel and compliance officers, the evolving rules present both opportunities and risks. On the one hand, reduced reporting obligations can reduce administrative burdens and cut costs, which could be particularly beneficial for small and mid-sized businesses that may have struggled with the compliance process. On the other hand, businesses will need to navigate the complexities of the changing regulatory landscape and ensure that they do not inadvertently expose themselves to new compliance risks. The balance between minimizing compliance costs and maintaining transparency will be a key issue for businesses as they adjust to the new rules.
In conclusion, while the narrowing of the CTA’s scope might be viewed as a win for businesses seeking to reduce their compliance burden, it has sparked concerns about the potential erosion of transparency in corporate ownership. For businesses, the key will be to stay vigilant and adapt their internal practices to ensure they can meet financial-crime prevention goals while complying with the new regulatory environment. This shift in the regulatory framework raises important questions about the future of corporate transparency, and how businesses will navigate the evolving landscape of ownership disclosure.
