21 States Sue Trump Administration Over Rollback of Corporate Ownership Reporting Rules

Twenty one states and the District of Columbia sued the Trump administration on Tuesday over its rollback of reporting requirements set by a 2021 law aimed at fighting illicit finance, Reuters reported. The lawsuit, filed in the United States District Court for the District of Oregon, asks the court to overturn a rule the Treasury Department finalized in August.

The rule, issued by the Treasury Department's Financial Crimes Enforcement Network, known as FinCEN, exempted United States companies and United States persons from reporting beneficial ownership information to the government's financial crimes unit. The states say the exemption covers more than 99.9 percent of the companies that were originally required to disclose information about their owners.

What the 2021 law required

Congress passed the Corporate Transparency Act with bipartisan support in 2021. The law requires businesses to tell the federal government who actually owns and controls them, and it created a Treasury database of business owners that law enforcement can use to trace dirty money, track down stolen assets and uncover bribes and political payoffs, according to the state attorneys general who filed the case.

State officials say criminals often hide behind shell companies, entities that exist on paper but do little real business, so their names never appear in records. California Attorney General Rob Bonta said the reporting requirements were meant to help law enforcement track down people who hide financial assets in shell companies, which he said are often used for money laundering, drug trafficking, bribes and illegal kickbacks.

The states' argument

The case is led by Oregon Attorney General Dan Rayfield and Illinois Attorney General Kwame Raoul, and the case name is State of Oregon v. Bessent, according to the Washington Attorney General's office. The suit names Treasury Secretary Scott Bessent, the Department of the Treasury and FinCEN as defendants, and it also lists the heads of the Departments of Justice and Homeland Security, Reuters reported.

"The executive branch cannot repeal a law by rulemaking. That fundamental principle resolves this case," the lawsuit said, according to Reuters. The states argue that FinCEN violated the Corporate Transparency Act and the Administrative Procedure Act, skipped required legal steps before changing the rule, acted arbitrarily and without a reasonable explanation, and failed to properly consult the Secretary of Homeland Security and the Attorney General before exempting nearly all businesses.

The states also challenge a further step FinCEN announced after the August rule: a plan to delete ownership information already in the database. State officials say those records could include evidence of unsolved crimes. Colorado Attorney General Phil Weiser said criminals use shell companies to hide stolen money, evade taxes and conceal illegal activity, and that Congress passed the law to give law enforcement tools to follow the money.

The administration's position

When the rule was made in August, Bessent cast it as "eliminating a burdensome reporting requirement for millions of law-abiding business owners without compromising our national security," Reuters reported. The Treasury Department did not respond to a request for comment on the lawsuit, according to Reuters.

If the states win, the court would throw out FinCEN's rule and require the agency to keep collecting and maintaining the ownership database for law enforcement, according to the Washington Attorney General's office. No ruling has been issued, and the administration has not yet filed its response in court.