Here is the State of Play
Treasury Exempts 99 Percent of Entities from Ownership Reporting, Gutting Landmark Anti-Money Laundering Law
On Sunday, the Department of Treasury announced via social media that it no longer intends to enforce the landmark Corporate Transparency Act (CTA) – the 2021 law that, for the first time, requires disclosure of information on the true owners of anonymous shell companies – against domestic entities and persons. This dramatic reversal of Treasury’s previous commitment to full implementation and enforcement of the CTA would, if sustained, remove reporting obligations from as many as 99.8 percent of all covered entities, effectively gutting the most significant anti-money laundering law in a generation.
As noted by FACT executive director Ian Gary in a statement following Treasury’s announcement, anonymous shell companies have long been “a favorite tool of our nation’s global adversaries and criminals including fentanyl traffickers, money launderers, and tax cheats.” This fact was well recognized by the first Trump Administration, who, prior to the CTA’s passage, endorsed the legislation as representing “important progress in strengthening national security, supporting law enforcement, and clarifying regulatory requirements.”
Beneficial Ownership Information “Incredibly Important” to Countering China
Only two weeks ago, during a House Financial Services Committee hearing on strategies to counter China, lawmakers were reminded directly by experts of the importance of beneficial ownership reporting to the Administration’s national security and trade objectives.
In response to a question about the relevance of the CTA to countering Chinese fentanyl trafficking, former CIA intelligence officer and Treasury Special Agent John Cassara noted that “once the money is layered and integrated into the economy, we don’t know who owns that shopping center, who owns that yacht, who owns that property. We need beneficial ownership information.”
Dr. Rush Doshi, Director of the Council on Foreign Relations’ China Strategy Initiative, concurred: “Every step that we want to take, whether on law enforcement with anti-money laundering, or with export controls, or with investment restrictions, all of those steps are going to require knowing the beneficial owner. If we don’t have that, then the PRC can always set up shell companies and get around our restrictions, and they’ve been doing that. So I think it’s indispensable to our competitiveness agenda.”
Against Backdrop of Treasury Action, Legal Proceedings Continue
Just one day after Treasury’s announcement that it would be suspending reporting requirements for most entities, a federal district court in Michigan held that the CTA was unconstitutional. As FACT and other experts – including lawmakers, tax policy experts, and national security professionals – have long argued, the CTA represents a standard exercise of Congress’ lawmaking authority, and this decision should be overturned on appeal.
Unlike other court decisions which considered Congress’ power to enact the law, the Michigan decision turned on a different legal question relating to plaintiffs’ privacy rights. The relief provided pursuant to the Michigan ruling is limited to named plaintiffs and their members.
The decision is in tension with long-standing U.S. Supreme Court precedent that upheld a similar challenge to certain provisions of the Bank Secrecy Act applicable to banks. If allowed to stand, the logic of the Michigan decision would bring into question the constitutionality of other federal reporting regimes, including the federal income tax system which relies on self-assessment and disclosure by taxpayers, immigration enforcement through employer verification, and political spending and lobbying disclosures.
Reported Plans to Halve IRS Staff Represent “Existential Threat” to U.S. Revenue Collection
Just weeks after the Trump Administration’s firing of roughly 7,000 Internal Revenue Service (IRS) employees in February, reports now indicate that the IRS is planning to cut its remaining active workforce of more than 90,000 staff by a further half.
In a statement, FACT executive director Ian Gary said that “cuts at such a massive scale would destroy the ability of our nation’s revenue agency to effectively operate,” and added that the move, if executed, would “represent an existential threat to the revenues needed to operate the federal government.”
IRS funding – and, by extension, IRS personnel funding – is one of the most cost-effective revenue-raising investments available to appropriators, with every dollar spent on IRS audit actions yielding five to twelve dollars in revenue return. A 2024 report by the Government Accountability Office reveals that IRS agents found $1,000 to $13,000 of revenue for every additional hour spent auditing tax returns, depending on the pre-tax income of the taxpayer in question.
FACT’s policy platform for the 2025 tax debate includes increased IRS funding for audit and enforcement actions as one of five policy reform pillars, and FACT policy director Zorka Milin testified to the importance of adequately funding the Service before the Senate Finance Committee in April 2024.
FACT in the News
FACT executive director Ian Gary was quoted in the Associated Press’ coverage of Treasury’s announcement that it will no longer be enforcing beneficial ownership reporting requirements for U.S. companies under the Corporate Transparency Act.
“With one tweet, the Administration has contradicted fifteen years of bipartisan work by Congress to end the scourge of anonymous shell companies – which are a favorite tool of our nation’s global adversaries and criminals including fentanyl traffickers, money launderers, and tax cheats. Hollowing out the Corporate Transparency Act is an unconstitutional subversion of Congress’ intent that will not survive judicial scrutiny.”
Gary’s quote was also picked up by the Wall Street Journal’s Mengqi Sun.
FACT executive director Ian Gary was also quoted in the International Consortium of Investigative Journalists’ coverage of the consequences of Treasury’s announcement.
“Opening the U.S. up to dirty money, whether it’s from Chinese fentanyl traffickers or countries that threaten the U.S. like Iran or China make all Americans less safe,” he said. “It’s hard to understand why this move happened.”
EU, Australia Public Tax Reporting Stirs Firms’ Privacy Fears
FACT policy director Zorka Milin was quoted in Bloomberg Tax’s coverage of new public country-by-country reporting rules in the European Union and Australia.
While transparency advocates hailed Australia’s passage of world-leading public CbCR last year, many corporate stakeholders opposed the legislation. In response to the commonly-lodged argument that misinterpretation of published data could damage companies’ reputations, Milin argued that “it is somewhat condescending to say ‘taxes are hard and you just don’t get it.’”
Trump administration’s IRS job cuts could delay refunds, impact small business services
FACT’s Ian Gary spoke to ABC 7 news about the round of IRS cuts initiated by the Trump Administration last month, which impacted more than 6,000 employees.
“Congress appropriated billions of dollars to invest in the IRS to make sure that the wealthy, and rich and powerful corporations are not able to evade taxes,” Gary said.
“We are very concerned that these staffing cuts are going to hit some of the newer employees whose jobs are to specifically investigate and undertake complex investigations to go after this kind of tax evasion.”
From Our Allies
World Wildlife Fund’s (WWF) new report, which highlights the overlap of the illegal wildlife trade (IWT) and financial crime, includes new analysis by the FACT Coalition. This report complements the existing Environmental Crimes Financial Toolkit, a resource developed by WWF and Themis as part of the Climate Solutions Partnership, a collaboration between HSBC, the World Resources Institute, and WWF.
From the report: “Even by conservative estimates, the annual value of IWT surpasses the individual GDPs of almost a third of countries worldwide, and it is, therefore, unsurprising that it has been recognised by international organisations such as INTERPOL and the United Nations Office on Drugs and Crime as a serious crime…Furthermore, and in common with other criminal activities, IWT rarely exists in isolation but is frequently enabled by and converges with an array of other financial and predicate crimes – including money laundering, tax evasion, bribery and corruption, fraud, terrorist financing, drug trafficking, sanctions evasion, modern slavery, and human trafficking.”
Maira Martini and Gary Kalman, the heads of Transparency International (TI) and its U.S. chapter, argue that President Trump should take heed of the fraught history of “golden passport” programs in the EU, which have exposed European nations to increased risks of corruption and money laundering.
“Openly inviting the corrupt and criminals to purchase citizenship never ends well,” write Martini and Kalman. “The evidence from Europe is clear: These schemes don’t just pose risks; they actively enable crime and contribute to widening inequality. If history is any guide, selling gold cards won’t strengthen the U.S.; it will weaken it.”
A new investigation by the Transborder Investigative Network of OjoPúblico and Código Vidrio in Ecuador explores how gold mining has become deeply intertwined with the laundering of drug trafficking profits in Latin America.
Though the investigation primarily focuses on a case from Ecuador, FACT’s Julia Yansura was quick to note that this trend is visible across the region. “There is a close relationship throughout the Andean region between drug trafficking and illegal mining,” she said. “Gold has become ideal for laundering narcotics proceeds.”
The Tax Law Center at NYU Law: Statement on W&M Vote Advancing Repeal of DeFi Reporting Rules
Last week, the NYU Tax Law Center released a statement opposing congressional attempts to repeal recently-finalized regulations requiring decentralized finance brokers to provide tax information on digital asset transactions.
From the statement: “Repealing the rules that implement a bipartisan policy to stop money laundering, tax cheating, and other unlawful uses of digital assets would increase deficits by nearly $4 billion over 10 years, according to estimates from the Joint Committee on Taxation. And it would encourage more of the digital asset industry to move into the shadows, making it more difficult to counter crimes ranging from tax evasion to fentanyl trafficking to terrorist financing.”
About the FACT Coalition