The U.S. Department of the Treasury will no longer require American companies to disclose detailed ownership information under the Corporate Transparency Act and will delete all data it has already collected, according to a final rule announced by the National Taxpayers Union Foundation. The agency characterized the move as a major privacy victory for all Americans. Going forward, only foreign companies will face enforcement of the disclosure requirements.
The Corporate Transparency Act became law in January 2021 as part of the 2020 National Defense Authorization Act, requiring disclosure of "beneficial owners" of various corporate entities, including limited liability companies, homeowners associations, and others, the report states. The Financial Crimes Enforcement Network (FinCEN) oversaw the program, an agency at Treasury specifically designed to serve as a clearinghouse for law enforcement to share data. More than a year ago, Treasury suspended enforcement of the law against U.S. citizens and companies, limiting reporting requirements to foreign companies only. The law generated lawsuits across the country and was headed toward Supreme Court review.
The final rule cites the broad powers Congress granted the Secretary of the Treasury to exempt types of organizations from reporting requirements, specifically under 31 U.S.C. § 5336(a)(11)(B)(xxiv), according to the foundation. That provision allows the Secretary to set aside reporting requirements if the U.S. Attorney General and the Secretary of Homeland Security agree that the information isn't needed "in the public interest" and wouldn't be "highly useful" to national security, intelligence, and law enforcement efforts. Treasury's rulemaking asserts that only foreign companies pose any significant risk in these areas, while the burdens on Americans to comply with the law are too great. FinCEN agreed with critics that "the values of privacy, information security, and the trust of the public all argue for the removal" of data already collected.
The report explains that financial records are deeply personal, but the Corporate Transparency Act provided none of the protections typically associated with tax information disclosed to the Internal Revenue Service. The law's very purpose was to gather and disseminate large quantities of financial information among multiple government departments, creating what critics called a dangerous tool in federal hands. The Supreme Court has long protected the privacy of financial information because it protects the privacy of association, and while the law exempted nonprofits from disclosing donor lists, making donors themselves register their activities simply added one extra step to achieve the same ends.
Within 180 days, FinCEN will work with the National Archives and Records Administration to sweep the database of anyone reasonably suspected of being an American—for example, if someone used a U.S. passport or driver's license to register. U.S. companies and citizens won't need to contact FinCEN to request deletion; it will happen automatically, and the agency won't provide acknowledgement or confirmation. While the regulation marks a significant restriction of a law that had the potential for widespread abuse of Americans' privacy, the foundation notes the battle is far from over to protect financial privacy.