California Attorney General Rob Bonta and attorneys general from 21 other states filed a lawsuit in the U.S. District Court for the District of Oregon challenging a new rule by the Treasury Department's Financial Crimes Enforcement Network (FinCEN) that eliminates beneficial ownership reporting requirements for U.S. companies and individuals.
The Corporate Transparency Act, which Congress passed with bipartisan support, required companies to submit names, addresses, birth dates and identification documents of beneficial owners to FinCEN. The law was designed to prevent shell companies from hiding their financial transactions and ownership structures from law enforcement, with particular focus on stopping money laundering, drug trafficking and corruption.
The attorneys general argue that FinCEN's new rule violates the Administrative Procedure Act and the U.S. Constitution. They contend the rule exceeds FinCEN's statutory authority, is contrary to law, and is arbitrary and capricious. According to the lawsuit, FinCEN claims that collecting information from U.S. entities does not serve the public interest.
Under the new rule, FinCEN has exempted all U.S. companies and individuals from beneficial ownership reporting, as well as foreign companies reporting U.S. beneficial owners. The agency has also committed to deleting all information previously reported by U.S. companies and individuals.
Bonta said, "The Trump Administration is unlawfully rolling back reporting requirements meant to help law enforcement track down bad actors who hide financial assets in shell companies."
According to the lawsuit, the Treasury rule will force law enforcement and regulatory agencies to use alternative procedures that are described as "time-consuming, less reliable, and less successful" to obtain beneficial ownership information. States also will be unable to use such information to enforce state tax law compliance. Attorneys general from Oregon, Illinois, Arizona, Colorado, Delaware, the District of Columbia, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Rhode Island, Virginia, Washington and Wisconsin joined Bonta in filing the lawsuit.