by Elias Aidun, Associate Member, University of Cincinnati Law Review Vol. 93
I. Introduction
For years anonymous shell companies have served as a critical loophole for criminals seeking to launder money, evade taxes, and finance illicit activities.[1] Without transparency into who actually owns and controls businesses, bad actors have been able to move billions of dollars through the financial system undetected.[2] One of the most significant examples of this occurred in 2016 when the Panama Papers leak exposed how politicians, business leaders, and criminals worldwide used offshore accounts and shell companies to hide wealth and avoid taxes.[3] The 11.5 million leaked documents (2.6 terabytes of data) from the law firm Mossack Fonseca revealed how billions of dollars flowed through anonymous entities, underscoring the widespread abuse of corporate secrecy and the challenges in combating financial crime.[4]
Money laundering is not just an international problem; it is a major issue within the U.S. financial system. The U.S. has a significant money laundering problem largely due to a lack of funding from the Treasury Department to enforce anti-money laundering laws.[5] According to Tax Justice Network’s Financial Secrecy Index, the U.S. ranked above traditional tax havens such as Singapore, Switzerland, and Luxembourg, as the U.S. laws make it easier for criminals to hide and launder money.[6] Financial secrecy enables criminals to move illicit funds through the financial system undetected, using shell companies to hide assets, evade taxes, and launder money through fraudulent business transactions.[7] Unlike many countries that have adopted stricter beneficial ownership disclosure requirements, the U.S. has lagged behind, making it a top destination for illicit financial activity.[8] Without stronger regulations to identify the true owners behind corporate entities, bad actors will continue to exploit these loopholes to conceal and legitimize dirty money.
In response to these concerns, the U.S. government enacted the Corporate Transparency Act (“CTA”) in 2021 to combat financial crime by increasing corporate ownership transparency.[9] The CTA requires certain businesses to report their beneficial owners—those who ultimately control an entity—to the Financial Crimes Enforcement Network (“FinCEN”), including their names, date of birth, addresses, and a unique identifier number from a recognized issuing jurisdiction.[10] By targeting shell companies and other anonymous entities, the CTA aims to curb money laundering, tax evasion, and fraud.[11] However, concerns remain over its effectiveness and potential burden on small businesses, with critics questioning whether it goes far enough in preventing illicit financial activity.
This article takes a closer look at the CTA and explores how it works, whether it will be effective to combat financial crimes, and how it can be refined to be more effective. Part II breaks down the key requirements, who must comply, and recent updates to the law. Part III evaluates the CTA’s recent updates and its implications and provides possible reforms to make the CTA more effective. Finally, Part IV considers the future of the CTA and additional reforms to strike the right balance between combating financial crime and avoiding excessive regulatory burdens.
II. Background
The CTA, enacted in 2021, requires U.S. businesses to report their beneficial owners to the FinCEN to help combat financial crimes such as money laundering, tax evasion, and fraud.[12] A beneficial owner is defined as any individual who directly or indirectly owns or controls a company.[13] Specifically, this includes those who own or control at least 25% of a company’s equity interests or those who exercise substantial control over the entity.[14] The CTA mandates that businesses provide key information about these owners, including their names, birthdates, addresses, and a unique identifying number from a valid government-issued document, such as a passport or driver’s license.[15]
Companies required to report beneficial ownership information (“BOI”) are called reporting companies, and there are two types of reporting companies—domestic and foreign.[16] Domestic reporting companies are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the U.S.[17] Foreign reporting companies are entities, including corporations and limited liability companies, formed under the law of a foreign country that has registered to do business in the U.S. by filing a document with a secretary of state or any similar office.[18] However, certain entities are exempt from reporting. These include publicly traded companies and large operating companies with more than 20 employees, over $5 million in revenue, and a physical presence in the U.S.[19] In addition, regulated entities, such as banks and credit unions, are exempt because they are already subject to stringent regulatory requirements.[20]
A. What is the Filing Requirement? Developing Updates.
The CTA initially required existing companies to submit their BOI to FinCEN by January 1, 2025, while newly formed entities had ninety days from their creation to comply.[21] However, in a significant policy shift, the U.S. Department of the Treasury announced on March 3, 2025, that it will limit the enforcement of the CTA to foreign reporting companies, effectively exempting domestic entities from BOI reporting requirements.[22] This decision aligns with the Trump administration’s efforts to cut regulation for small businesses.[23] Thus, the Treasury will not impose penalties on U.S. citizens or domestic companies under this act.[24] Instead, the focus will shift toward foreign reporting companies.
The Treasury Department justified this policy change by emphasizing the need to concentrate enforcement efforts on foreign entities that pose a higher risk of illicit financial activity, rather than imposing broad reporting burdens on domestic businesses.[25] As a result of these developments, domestic businesses are no longer required to take any action regarding BOI reporting.[26] However, foreign companies registered to do business in the U.S. must continue to monitor FinCEN’s rulemaking process to ensure compliance with the updated requirements. These recent changes signal a shift in regulatory focus, reinforcing efforts to combat international financial crime while reducing unnecessary burdens on domestic enterprises.
III. Discussion
The CTA was initially hailed as a landmark step toward combating financial crime by increasing transparency in corporate ownership. However, the recent update limiting enforcement to foreign companies has significantly undermined its effectiveness. This revision has created substantial gaps in the law’s coverage, weakened its ability to combat illicit financial activities, and shifted the burden disproportionately onto small foreign businesses. While the CTA was designed to address the misuse of shell companies for money laundering and tax evasion, the recent changes have raised serious concerns about its ability to achieve its intended goals.
A. Empowering Businesses: The Argument for Less Government Intervention
The recent decision to limit the CTA’s enforcement to foreign companies reflects a small government approach, prioritizing reduced regulatory burdens and greater freedom for domestic businesses. By exempting domestic companies from reporting requirements, the CTA’s update reduces compliance costs and administrative hurdles, particularly for small businesses that lack the resources to navigate complex federal regulations.[27] This approach fosters entrepreneurship and economic growth, allowing businesses to focus on innovation rather than burdensome regulatory requirements.[28] A small government approach also prioritizes corporate freedom, arguing that excessive federal oversight stifles economic activity by costing businesses billions of dollars in labor costs and report updates.[29]
Limiting enforcement to foreign companies, reduces the federal government’s role, potentially giving states and private organizations more freedom to tackle financial crime in ways that work best for their communities. Advocates of small government often argue that issues like corporate transparency are better addressed at the state level, where policies can be shaped to reflect local conditions.[30] This approach aligns with the initial intent of the CTA and allows states to take the lead in addressing local issues while keeping the federal government’s role in check.[31] While these arguments highlight the benefits of reducing regulatory burdens, they overlook the systemic risks posed by weak oversight and the historical use of anonymous shell companies for illicit activities.
B. The Need for Stronger Oversight: Closing Loopholes in the CTA
Critics of the CTA’s recent update argue that stronger federal oversight is necessary to address the issue of financial crime and ensure a transparent financial system.[32] Anonymous domestic shell companies have long been used to facilitate money laundering, tax evasion, and other financial crimes. The Panama Papers and other investigations have exposed how these entities enable criminal activities on a global scale.[33] By exempting domestic companies, the CTA’s updates create a significant loophole, allowing bad actors to shift their activities to unregulated domestic entities. Financial crime is a complex, cross-border issue that cannot be effectively addressed through fragmented state-level regulations.
A unified federal approach is necessary to close loopholes and ensure consistent enforcement. The CTA’s original intent was to create a comprehensive framework for corporate transparency, but the recent update has weakened its ability to achieve this goal.[34] Critics of government oversight often frame it as an excessive burden, but the CTA’s reporting requirements are a proportionate response to a well-documented problem.[35] By collecting BOI and implementing a stricter verification process, the government can deter financial crime without imposing undue burdens on legitimate businesses.
C. Disproportionate Burden on Small Foreign Businesses
The recent update has also shifted the CTA’s regulatory burden disproportionately onto small foreign businesses, further undermining the law’s effectiveness.[36] While domestic companies are exempt from reporting requirements, foreign businesses—particularly smaller ones—face significant challenges in complying with the CTA’s complex and evolving regulations.[37] Small foreign businesses often lack the resources and expertise to navigate U.S. regulatory frameworks, making compliance costly and time-consuming. This imbalance places an unfair burden on foreign entities while allowing domestic companies to operate without similar scrutiny.
By focusing enforcement solely on foreign entities, the U.S. risks discouraging legitimate foreign investment and straining international business relationships. Critics argue that the CTA should adopt a more targeted approach, exempting low-risk entities or simplifying reporting processes for small businesses.[38] While these concerns highlight the need for a balanced approach, they do not justify exempting domestic companies, which remain a pathway for illicit financial activities.
D. Finding the Right Balance
A middle-ground perspective acknowledges that the CTA could be a crucial tool in combating financial crime but requires refinements to ensure it is both effective and practical.
One key reform policymakers could introduce is tiered reporting requirements, where businesses deemed high risk—such as those engaging in large international transactions—face stricter disclosure obligations.[39] Smaller low-risk entities, on the other hand, could benefit from simplified reporting processes, reducing the regulatory burden on legitimate businesses while ensuring that high-risk entities are subject to stronger oversight. This risk-based approach aligns with recommendations from transparency advocates, who emphasize the need to focus resources where they are more needed.[40]
To further ease compliance, the government could provide clearer guidance and technical support, particularly for small foreign businesses that may lack the resources to navigate complex regulatory frameworks. For example, regulators could develop user-friendly online platforms, offer training programs, or establish dedicated support channels to help businesses understand and meet their reporting obligations. Such measures would not only improve compliance rates but also foster a more cooperative relationship between regulators and the private sector.
Policymakers must also balance the need for transparency with privacy concerns. While public access to BOI is often advocated to enhance accountability, it may not be necessary for all stakeholders.[41] Instead, BOI could be made accessible only to law enforcement, regulatory agencies, and authorized entities conducting due diligence. This targeted access would protect sensitive information while still enabling effective oversight and investigation of financial crimes. Additionally, the CTA could benefit from stronger verification mechanisms to ensure the accuracy and reliability of the data collected. Currently, the law does not require FinCEN to verify the accuracy of submitted BOI, creating opportunities for bad actors to submit false or incomplete information.[42] Implementing automated verification systems and cross-referencing data with other government databases could help address this gap and strengthen the integrity of the beneficial ownership registry.
By adopting these targeted reforms, policymakers can strike a balance between preventing financial crime and minimizing unnecessary regulatory burdens. Such an approach would not only strengthen the CTA’s effectiveness but also create a more efficient regulatory environment. These efforts would ensure that the U.S. remains a leader in the fight against illicit financial activities.
IV. Conclusion
When originally introduced, the CTA represented a major step toward combating financial crime by increasing corporate ownership transparency. While the law aimed to close loopholes that have long enabled money laundering and tax evasion, its implementation presented both opportunities and challenges. However, the recent limitation of enforcement to foreign companies significantly weakens its impact, as domestic entities can still be used to facilitate illicit financial activity without disclosure requirements.[43] By exempting U.S. based businesses, the law leaves a critical gap that bad actors may exploit, undermining its original purpose of creating a more transparent financial system.[44]
Proponents argue that stronger enforcement measures, such as tiered reporting requirements and stricter verification, are necessary to ensure effectiveness.[45] However, critics caution that excessive regulation could disproportionately burden businesses, potentially stifling international trade and economic growth.[46] These competing concerns highlight the difficulty of crafting legislation that effectively combats illicit financial activity while remaining practical for businesses to comply with.
Moving forward, refining the CTA to balance transparency and efficiency will be critical to its long-term success. Policymakers should consider targeted reforms, such as tiered reporting requirements or enhanced compliance assistance for foreign companies, while also reassessing the exclusion of domestic entities to prevent new loopholes.[47] Additionally, as regulatory agencies like FinCEN continue to shape the enforcement landscape, businesses must remain informed and adaptable to evolving compliance obligations.
Ultimately, the success of the CTA will depend on its ability to close financial crime loopholes without imposing undue burdens. While limiting enforcement to foreign entities reduces compliance costs for U.S. businesses, it also creates vulnerabilities that could be exploited.[48] Addressing this imbalance will be essential to ensuring that corporate transparency strengthens the U.S. financial system without undermining its integrity.
[1] Unmasking the Culprits: Unveiling the Nexus Between Money Laundering and Shell Companies, Fin. Crime Acad. (Dec. 5, 2024), https://financialcrimeacademy.org/shell-companies-and-money-laundering/.
[2] Unmasking Shell Companies: The Hidden Tools of Financial Crime, Complif (Aug. 6, 2024), https://www.complif.com/us/blog/unmasking-shell-companies-the-hidden-tools-of-financial-crime.
[3] Unmasking the Culprits: Unveiling the Nexus Between Money Laundering and Shell Companies , supra note 1.
[4] Elizabeth Teague, Panama Papers, Britannica Money (Apr. 9, 2025), https://www.britannica.com/money/Panama-Papers.
[5] Khristopher J. Brooks, The U.S. is now the best country for illegally hiding money, report finds, CBS News (May 23, 2022), https://www.cbsnews.com/news/fact-coalition-report-us-money-laundering/.
[6] Financial Secrecy Index 2022, Tax Just. Network, https://fsi.taxjustice.net (last visited Mar. 28, 2025).
[7] Id.
[8] Id.
[9] Corporate Transparency Act FAQs, Thomson Reuters (Oct. 31, 2024), https://tax.thomsonreuters.com/blog/corporate-transparency-act-faqs/#what-is-the-corporate-transparency-act.
[10] Id.
[11] Id.
[12] Id.
[13] Corporate Transparency Act, H.R. 6395, 116th Cong. (2021) (codified at 31 U.S.C. §§ 5336, et seq.).
[14] Id.
[15] Beneficial Ownership Information Frequently Asked Questions, Fin. Crimes Enf’t Network, https://www.fincen.gov/boi-faqs (last visited Apr. 14, 2025).
[16] Id.
[17] Id.
[18] Id.
[19] Corporate Transparency Act FAQs , supra note 9.
[20] Id.
[21] Beneficial Ownership Information Frequently Asked Questions, supra note 15.
[22] Kathleen Hamann, Out With a Bang: Treasury Restricts Corporate Transparency Act to Foreign Reporting Companies, Nat’l L. Rev. (Mar. 3, 2025), https://natlawreview.com/article/out-bang-treasury-restricts-corporate-transparency-act-foreign-reporting-companies#google_vignette.
[23] Mengqi Sun, Trump Administration Curbs Enforcement of the Corporate Transparency Act, The Wall Street Journal (Mar. 3, 2025), https://www.wsj.com/articles/trump-administration-curbs-enforcement-of-the-corporate-transparency-act-4ea50e81.
[24] Id.
[25] Treasury Department Announces Suspension of Enforcement of Corporate Transparency Act Against U.S. Citizens and Domestic Reporting Companies, U.S. Dep’t of the Treasury (Mar. 2, 2025), https://home.treasury.gov/news/press-releases/sb0038.
[26] Id.
[27] Matthew F. Erskine, All That For Nothing? FinCEN Exempts U.S. Businesses From CTA Reporting, Forbes (Mar. 24, 2025), https://www.forbes.com/sites/matthewerskine/2025/03/24/all-that-for-nothing-fincen-exempts-us-businesses-from-cta-reporting/
[28] Id.
[29] Id.
[30] Elisa Jean-Newman, State-Level BOI Requirements Reinforce the Corporate Transparency Act (CTA), Harbor Compliance (Oct. 17, 2024), https://www.harborcompliance.com/blog/state-level-boi-requirements-reinforce-the-corporate-transparency-act-cta/
[31] Id.
[32] Andres Knobel, New report on how to fix beneficial ownership frameworks, so they actually work, Tax Just. Network (Dec. 20, 2023), https://taxjustice.net/2023/12/20/new-report-on-how-to-fix-beneficial-ownership-frameworks-so-they-actually-work/.
[33] Unmasking the Culprits: Unveiling the Nexus Between Money Laundering and Shell Companies, supra note 1.
[34] Erin Schilling, New Treasury Beneficial Ownership Rule Defangs Transparency Law, Bloomberg Law (Mar. 25, 2025), https://www.bloomberglaw.com/product/blaw/bloomberglawnews/bloomberg-law-news/XF88LQGK000000?bc=W1siU2VhcmNoICYgQnJvd3NlIiwiaHR0cHM6Ly93d3cuYmxvb21iZXJnbGF3LmNvbS9wcm9kdWN0L2JsYXcvc2VhcmNoL3Jlc3VsdHMvODZlMzYyNWY3ZTliZWUwMTAxMzdmOWNkOGI4ZWRhYjEiXV0–16b21715f9430d0c73eb31c92846ddf82d1a1b90&bna_news_filter=bloomberg-law-news&criteria_id=86e3625f7e9bee010137f9cd8b8edab1&search32=85ftDPDOOGPUScJ30eGzPw%3D%3DMYGNhd7zTMN2BYvqoiFsK2ar9lhFrM0Z6m8NphbFa_j6G4aNc-IbguEGzJAjbtRf.
[35] Erskine, supra note 27.
[36] Treasury Department Announces Suspension of Enforcement of Corporate Transparency Act Against U.S. Citizens and Domestic Reporting Companies , supra note 25.
[37] Corporate Transparency Act: Reporting Challenges for Foreign-Owned Companies, Varnum (Jan. 23, 2024), https://www.varnumlaw.com/insights/corporate-transparency-act-reporting-challenges-for-foreign-owned-companies.
[38] Collen Cosgrove, Small Businesses Push Back Against the Corporate Transparency Act, Bench (May 10, 2024), https://www.bench.co/blog/tax-tips/corporate-transparency-act-legal-action.
[39] Knobel, supra note 32.
[40] Id.
[41] Id.
[42] Beneficial Ownership Information Frequently Asked Questions, supra note 15.
[43] Schilling, supra note 34.
[44] Id.
[45] Knobel, supra note 32.
[46] Cosgrove, supra note 38.
[47] Knobel, supra note 32.
[48] Erskine, supra note 27.
Cover Photo by Charles Forerunner on Unsplash.
