The rollback of corporate transparency requirements in the US, a move welcomed by some for easing regulatory burdens, may ultimately hinder those who rely on clarity most: law enforcement.

In times of uncertainty, it’s natural for various players to retreat into self-preservation. But short-term fixes often sow the seeds of long-term harm. The recent exemption of most US companies from the Corporate Transparency Act (CTA) has prompted a wave of concern from local and federal investigators who see anonymity in business ownership as a shield for bad actors.

What was meant to reduce bureaucratic friction is now drawing a backlash from prosecutors and watchdogs alike. Despite the Trump administration’s decision to dramatically scale back CTA reporting obligations, law enforcement coalitions are urging the White House to reconsider.

They argue that a robust national database of beneficial ownership could be indispensable in tracking shell companies used for money laundering, fraud schemes, and the financing of organized crime.

District attorneys across the country, faced with opaque corporate structures that slow investigations, are exploring their own workaround: building state-level databases to fill the federal void. Financial institutions, too, have voiced frustration, warning that a diluted registry won’t aid their compliance efforts or help root out illicit finance.

The debate now centers not on whether transparency matters, but on who will take responsibility for providing it.

The original CTA framework aimed to close loopholes that allowed anonymous shell companies to facilitate money laundering and other illicit activity.

In a marked departure from earlier transparency mandates by the US Department of the Treasury, FinCEN announced in March 2025 that domestic companies will no longer be required to report beneficial ownership information (BOI) under the Corporate Transparency Act (CTA).

This policy reversal, finalized through an interim rule, exempts all entities formed under the US law from federal BOI disclosure obligations. Instead, only foreign companies operating in the United States and formed under foreign jurisdictions must now comply with BOI reporting requirements.

The original CTA framework, a rare bipartisan initiative, had aimed to close loopholes that allowed anonymous shell companies to facilitate money laundering and other illicit activity. It mandated that FinCEN maintain a secure registry of company ownership to support law enforcement and financial oversight. The new rule significantly narrows this scope, following a legal challenge in Texas that temporarily blocked the law’s enforcement.

Though this injunction was lifted in February, FinCEN’s subsequent decision to halt enforcement and revise the CTA’s reach signals a strategic pivot.

Beneficial ownership

The US Treasury’s decision to limit beneficial ownership reporting requirements to foreign companies has triggered strong reactions across the political spectrum. From anti-corruption watchdogs to conservative advocacy groups, a chorus of voices now warns that the policy shift threatens to unravel one of the most ambitious transparency reforms in decades.

The FACT Coalition estimates that as many as 99.8% of previously covered entities, primarily domestic companies, will no longer be subject to the Corporate Transparency Act, a law originally designed to unmask anonymous shell companies.

While Treasury insists the change eases burdens on small firms, its critics argue that exempting millions of US-based entities will render the legislation ineffective.

During a March briefing, groups focused on financial crimes as well as the Main Street Alliance, and the Conservative Political Action Conference (CPAC) presented a rare, unified front. Their message: law enforcement can’t adequately track the financial architecture of crime without knowing who owns what.

As they see it, carving out domestic firms from the registry ignores the fact that illicit actors rarely respect jurisdictional boundaries.

Frank Russo of CPAC’s Center for Combating Human Trafficking, called the CTA “the financial equivalent of installing street lights in a neighborhood,” adding that “taking a small amount of time to fill out a form may be the difference.”

Facing this federal retreat, some prosecutors and policy advocates are now looking to state-level solutions as a way to fill the regulatory vacuum.

State momentum

New York has taken the lead with its own Limited Liability Company Transparency Act (NYLTA), now amended to address privacy concerns and implementation timelines. Signed by Governor Kathy Hochul on March 1, 2024, the law imposes beneficial ownership reporting obligations exclusively on LLCs, unlike the federal CTA, which also covers corporations.

Starting January 1, 2026, all LLCs formed or operating in New York must disclose their beneficial owners to the Department of State or file an exemption attestation.

While the law mirrors many of the federal requirements, it diverges in critical ways: it mandates annual reporting, requires applicant disclosures for legacy entities, and empowers the state attorney general to penalize or even dissolve noncompliant LLCs.

The database will remain non-public but accessible to government agencies under certain conditions.

The nation’s capital has long had beneficial ownership requirements embedded in its business regulations. Under Sections 29–102.01 and 29–102.11 of the D.C. Code, both corporations and LLCs must report individuals who own more than 10% or exercise substantial control over operations.

While federal enforcement may have stalled, states are positioning themselves as the new front lines in the battle for corporate transparency.

Though distinct from the CTA’s 25% threshold, D.C.’s tighter standard reflects an effort to maintain continuous transparency in governance and ownership.

California is weighing Senate Bill 1201, which would introduce BOI disclosure obligations for LLCs and corporations beginning January 1, 2026. The bill mimics the CTA’s definition of a beneficial owner, someone who controls 25% or more or exercises substantial control, and would require both initial and annual filings.

While still under legislative review, the proposal reflects California’s broader trend of aligning with federal norms while expanding the scope of oversight to support enforcement at the state level.

Several US states impose sector-specific beneficial ownership reporting requirements in regulated industries such as cannabis, gaming, and real estate, mandating disclosure of owners with significant control or financial interest as a condition for licensing or transactional approval.

A few states and cities (New York City, California, Florida) have been exploring or piloting real estate transparency rules requiring true owner disclosure during property transactions. Together, these state efforts reveal a growing trend: while federal enforcement may have stalled, states are positioning themselves as the new front lines in the battle for corporate transparency.

Closing the gaps

Beneficial ownership information (BOI) was introduced with a simple aim: to pierce the corporate veil where it shields criminal activity. Under the Corporate Transparency Act (CTA), BOI reporting requires businesses to disclose the individuals who ultimately own or control them, those who exercise “substantial control” or own at least 25% of the entity.

This initiative was born out of concern for the misuse of anonymous shell companies in schemes involving tax evasion, money laundering, and fraud. And with good reason.

In early 2024, the Federal Trade Commission reported that Americans lost $10 billion to scams in 2023 alone, $752m of which stemmed from impersonators posing as legitimate businesses. Beneficial ownership transparency is seen as a core instrument to reduce such fraud, especially for banks and firms engaging in customer due diligence.

Yet BOI compliance poses challenges, especially for small businesses. Recognizing this, FinCEN rolled out a Small Entity Compliance Guide, complete with plain-language instructions, infographics, and checklists to help smaller firms understand their obligations.

These tools were designed to balance the burden of compliance with the public good of corporate accountability. When implemented effectively, these disclosures don’t just assist regulators; they also help honest businesses avoid risky partnerships, enhancing integrity across the marketplace.

But as the federal government now retreats from enforcing domestic BOI requirements, exempting over 99% of previously covered entities, two uncomfortable questions remain.

First, will the shift truly alleviate burdens on small businesses, or will it instead saddle them with a fragmented patchwork of state laws, each with different thresholds, timelines, and enforcement mechanisms?

Second, does narrowing the reporting scope to foreign entities meaningfully improve protection against crimes perpetrated through US-based shell companies?

Without a national standard, America risks trading clarity for confusion, and enforcement muscle for a hollowed-out reform.