Treasury Required to Maintain Business Owner Information
TL/DR –
The US Treasury Department has finalized a rule exempting US companies from reporting certain business ownership information to the Financial Crimes Enforcement Network (FinCEN), in an effort to reduce paperwork for small businesses. The rule will also see previously reported ownership information about US residents deleted from records. Critics say the move could hinder federal law-enforcement agencies, including IRS investigators, from tracking criminal activities, as they often rely on such information to trace financial trails of criminals.
US Treasury’s Decision Could Weaken Law Enforcement’s Ability to Combat Financial Crimes
The US Treasury Department has decided to reduce paperwork for small businesses, a move that might inadvertently expose law-abiding citizens to potential security threats. The decision, which involves eliminating a critical source of information, potentially hampers federal law enforcement agencies, including the IRS, in tracking down criminal activities.
On August 11, the Trump administration finalized a rule which exempts US businesses and individuals from reporting specific business ownership details to the Financial Crimes Enforcement Network (FinCEN). Such reports often provide insights into the actual owners or controllers of a business, enabling investigators to penetrate shell companies used as fronts to hide illicit activities.
The aim of reducing bureaucratic red tape for businesses, especially small ones, is commendable. However, the Treasury’s decision to erase previously filed ownership information contradicts this intent. The removal of this information does not reduce the compliance cost or paperwork load for any business owner since the data has already been submitted.
The Role of Money in Crime Networks
Regardless of their form or function, criminal syndicates share a common requirement: money. It’s the trail of money that often leads to breakthroughs in investigations. This understanding was the driving force behind the Corporate Transparency Act of 2021, which received strong bipartisan support. The Act mandated beneficial ownership reporting, requiring millions of businesses to disclose the actual people in control.
The legislation aimed to prevent criminals such as drug traffickers, terrorists, and fraudsters from using shell companies to obscure their money trails. However, the need to provide protection from criminal exploitation comes with its drawbacks. These include the administrative burden placed on honest business owners, who are required to submit detailed paperwork. Still, as I have written before, these preventive measures serve as necessary tradeoffs in fraud detection.
The Impact of Beneficial Ownership Reporting: An Inside Look
During my tenure as the IRS commissioner, I witnessed firsthand the value of such meticulous record-keeping. In a 2024 case, IRS investigators aided in tracking down a fentanyl trafficker attempting to launder proceeds into the banking system. Currently, the IRS Criminal Investigation arm works with agencies like the FBI and the Drug Enforcement Administration to dismantle criminal networks by tracing the money trail.
The positive effects of this collaborative work cannot solely be determined by the number of convicted criminals. They also extend to crimes prevented and potential victims safeguarded. These include families affected by drug-related issues, human trafficking victims, small businesses targeted by organized crime, retirees falling prey to scams, or ordinary citizens threatened by terrorism.
Maintaining Balance Between Business Interests and National Security
So, how should we approach this situation? The solution is not a stark choice between protecting small businesses from excessive paperwork and safeguarding citizens from potential crimes. Congress needs to revisit the Corporate Transparency Act and adjust the balance it initially intended. There are ways to streamline the reporting system, make data collection methods more efficient, and leverage risk-based reporting requirements.
As a fallback, state governments can step in to fill the void left by federal agencies by integrating new reporting requirements into their corporate registration processes. However, a national resolution would undoubtedly be more effective than an inconsistent, state-level approach.
At the very least, the Treasury Department should reconsider its decision to delete already collected data. Senators Chuck Grassley (R-Iowa) and Sheldon Whitehouse (D-R.I.), both prominent advocates for beneficial ownership transparency, have jointly criticized the Treasury’s move as undermining the intentions of the existing law. They emphasized the need to prevent criminals and foreign opponents from concealing assets from law enforcement, national security agencies, and tax authorities.
In conclusion, small business owners deserve a government that not only strives to lessen unnecessary paperwork but also one that is capable of unmasking the criminals hiding within the system. The elimination of vital paperwork cannot be justified if it increases the risk of criminal exploitation. The scales of justice demand a balance, and in this case, the scales tip in favor of maintaining transparency to uphold national security.
Danny Werfel served as IRS commissioner twice, most recently from 2023 to 2025. He is now a senior fellow at the Johns Hopkins School of Government and Policy, and a distinguished fellow at the Polis Center for Politics at Duke University, where he writes about the intersection of tax and policy.
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