Keep the Door Closed to Anonymous Shell Companies

Introduction

The Financial Crimes Enforcement Network’s (FinCEN’s) interim final rule exempting domestic entities from beneficial ownership information (BOI) reporting under the Corporate Transparency Act (CTA) undermines the law’s purpose, defies congressional intent, and creates severe vulnerabilities in the U.S. financial system. If finalized, this rule would have sweeping implications for law enforcement, national security, and the integrity of U.S. corporate formation.

Congress enacted the CTA with broad bipartisan support to close a glaring loophole: the widespread use of anonymous U.S. shell companies by terrorists, drug traffickers, sanctions evaders, corrupt foreign officials, and other malign actors. These entities are often formed in minutes with minimal documentation and no ownership disclosure — granting bad actors a powerful and legitimate-appearing tool to conceal illicit financial activity.

The CTA intended to stop this. FinCEN’s interim final rule instead restores the very opacity Congress acted to eliminate.

The Interim Final Rule Defies the Statute and Congressional Intent

The CTA defines a “reporting company” to include any corporation, limited liability company, or similar entity created by filing with a state authority — unless the entity qualifies for one of 23 narrowly tailored exemptions.[1] FinCEN’s interim final rule inverts this definition, using it to exclude nearly all domestic entities. As a result, more than 99 percent of companies covered by the statutory definition are exempted from reporting.[2]

This interpretation directly contradicts the CTA’s text and purpose. The law opens with a “Sense of Congress” section that leaves no ambiguity: More than 2 million corporations and LLCs are formed in the United States each year under state laws that, for the most part, do not require BOI disclosure.[3] Congress found that these anonymous entities were routinely used to facilitate terrorism, proliferation finance, drug and human trafficking, sanctions evasion, tax fraud, and foreign corruption.[4] The entire purpose of the CTA was to subject these opaque domestic entities to federal disclosure obligations.

FinCEN’s rule ignores this premise altogether.

The CTA also instructs the secretary of the Treasury to implement the law in a way that generates a database “highly useful to national security, intelligence, and law enforcement agencies.”[5] That mandate cannot be met if the database omits the very entities that domestic and transnational criminals most frequently exploit. If implemented, the interim final rule would create a registry that may assist in a narrow subset of foreign-owned company investigations but leaves law enforcement blind to the vast universe of U.S.-incorporated shell companies at the heart of illicit finance activity.

While the CTA directs FinCEN to minimize compliance burdens and provide clarity to filers, these goals are explicitly subordinate to the statute’s national security purpose. Exempting nearly all domestic companies is not a lawful way to simplify reporting obligations. It is a refusal to enforce the law.

National Security and Law Enforcement Consequences

If implemented, FinCEN’s interim final rule would deliver a profound blow to U.S. law enforcement and national security interests.

Anonymous U.S. shell companies are not a theoretical vulnerability — they are a proven vehicle for illicit finance, sanctions evasion, corruption, terrorism, and transnational crime. FinCEN itself has acknowledged this, warning in the past that “[c]orrupt foreign officials, sanctions evaders, and narco-traffickers, among others, exploit the current gap in the U.S. BOI reporting regime to park their ill-gotten gains in a stable jurisdiction, thereby exposing the United States to serious national security threats.”[6]

FinCEN’s decision to exempt domestic entities would allow these practices to continue unchecked. The agency’s BOI database would include only foreign reporting companies — and, of those, only ones that are not owned by U.S. persons. It may capture some information relevant to foreign corruption cases, but that would be of minimal use in detecting or prosecuting the majority of real-world abuses that law enforcement currently faces. As a result, federal, state, and local investigators would continue to rely on time-consuming subpoenas, international legal assistance, or multiagency workarounds to uncover basic ownership information that Congress intended to make readily available for law enforcement purposes.

This shortcoming stands in stark contrast to the original bipartisan vision for the CTA — and to the expectations of the law enforcement community. A wide range of public safety and law enforcement organizations, including the Fraternal Order of Police, the National Sheriffs’ Association, the Federal Law Enforcement Officers Association, and the National District Attorneys Association strongly supported the CTA’s passage and full implementation as a critical tool to combat organized crime, terrorism financing, and illicit finance.[7] As the National District Attorneys Association has argued in a previous submission to FinCEN, “Prosecutors have long recognized the need for the collection of beneficial ownership information to hold organized transnational criminal operations, terrorism financing, and other unlawful activity accountable.”[8]

The rule disregards these frontline perspectives and, in doing so, renders the CTA’s enforcement architecture both ineffective and incompatible with the statutory requirements set out by Congress.

The Interim Final Rule Exempts Known Threat Vectors

As noted, the interim final rule exempts all “domestic” companies from BOI reporting requirements. However, since “domestic” companies are defined simply as any entity formed under the law of any U.S. state — even those companies with 100 percent foreign ownership — the Interim Final Rule omits the very dangerous, anonymous entities that the CTA was seeking to expose: U.S. companies owned by foreign criminals, foreign governments, and foreign terrorists.

It is well established that U.S. anonymous shell companies are preferred vehicles for terror financing, drug trafficking, money laundering, sanctions evasion, and government fraud. The examples of foreign criminals and bad actors using U.S. anonymous vehicles to harm American national security are overwhelming.

Narco-traffickers widely use U.S. anonymous shell companies to hide their identities, launder cash, and commit crimes.

• A Los Zetas drug lord who has claimed to have killed 385 U.S. citizens used U.S. shell companies to anonymously launder money on U.S. soil by buying racehorses.^[9]
• Serbian drug gangs have used Delaware shell companies to sell cocaine.^[10]
• The Sinaloa drug cartel has used Wyoming shell companies to launder millions in dirty drug cash through the U.S. financial system and send it back to Mexico.^[11]
• Chinese gangs use U.S. anonymous shell companies to launder money for the Mexican drug cartels, sending billions of dollars through the U.S. financial system and back to Mexico to fund the cartel’s armies of sicarios and thugs.^[12] Chinese entities are already setting up shell companies to evade President Donald Trump’s tariffs.^[13]

Sanctions evasion is a known application for anonymous shell companies.

• The Iranian government used an anonymous New York company to buy part of a Manhattan 5th Avenue skyscraper and evade sanctions.^[14]
• Terrorist groups such as Hezbollah use U.S. anonymous shell companies to run profitable smuggling operations and buy investments for future attacks.^[15]
• Notorious arms trafficker Victor Bout relied on a dozen U.S. shell companies to sell weapons to the world’s worst regimes.^[16] He is now arming the Houthis as they launch missiles at American ships and Israel.^[17]

Moreover, anonymous U.S. shell companies can buy planes, and those companies can anonymously register them with the FAA — using the aircraft to traffic drugs, humans, or weapons with complete secrecy.^[18] They are also widely used to commit government fraud — something that the Government Accountability Office noted in April.^[19] For instance, an Armenian crime ring set up over 100 anonymous U.S. shell companies and used them to defraud Medicare out of more than $100 million.^[20]

This interim final rule would encourage these malign activities to continue unabated. Anonymous American shell companies present a direct threat to American national security. A U.S. company provides the ideal cover for a foreign criminal aiming to wreak havoc on American soil. Outlawing them will make America safer and more secure.

Conclusion and Recommendation

FinCEN’s interim final rule is unmoored from the text and purpose of the CTA. It contradicts Congress’s explicit findings, undermines the law’s core function, and would result in a beneficial ownership registry that is incomplete and largely ineffective for the kinds of national security and law enforcement investigations the law was designed to support. By exempting domestic reporting companies — the most important class of entities Congress intended to cover — the rule would keep open the most exploited loophole in the U.S. financial system.

Finalizing this rule in its current form would not only reverse a bipartisan legislative achievement; it would also leave U.S. law enforcement without one of its most essential tools to counter illicit finance, sanctions evasion, and transnational crime. It would create a system that offers the illusion of transparency while preserving the underlying opacity on which foreign adversaries and criminal networks depend.

Moreover, the legal risks of finalizing this rule are substantial. In today’s post-Chevron environment, FinCEN cannot rely on such broad regulatory discretion to defend rules that plainly contradict statutory language. The CTA defines which entities are covered, identifies its national security objectives, and outlines a narrow set of exemptions. This rule disregards all three. If implemented as currently constructed, the rule is likely to invite legal challenge and is unlikely to withstand it.

We respectfully urge FinCEN to rescind the interim final rule and finalize regulations that fully implement the CTA as written by requiring beneficial ownership disclosure from all non-exempt reporting companies, including those formed under U.S. state law. Congress closed the door to anonymous shell companies. This rule reopens it.

Foundation for Defense of Democracies (FDD)

FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.

FDD’s Center on Economic and Financial Power (CEFP)

FDD’s Center on Economic and Financial Power (CEFP) studies economic security and statecraft, with a focus on how the United States can leverage its unmatched economic and financial power to achieve national security objectives. Launched in 2014, CEFP provides research, analysis, and policy solutions relating to sanctions, illicit finance, global financial reform, national security, trade, supply chains, capital markets, and emerging alliances.

[1] Corporate Transparency Act, 31 U.S.C. § 5336. (https://www.govinfo.gov/content/pkg/USCODE-2023-title31/pdf/USCODE-2023-title31-subtitleIV-chap53-subchapII-sec5336.pdf)

[2] Maureen Leddy, “Groups Sound Alarm After Treasury Backtracks on Beneficial Ownership Reporting,” Thomson Reuters Tax & Accounting, March 10, 2025. (https://tax.thomsonreuters.com/news/groups-sound-alarm-after-treasury-backtracks-on-beneficial-ownership-reporting)

[3] Corporate Transparency Act, 31 U.S.C. § 5336. (https://www.govinfo.gov/content/pkg/USCODE-2023-title31/pdf/USCODE-2023-title31-subtitleIV-chap53-subchapII-sec5336.pdf)

[4] Corporate Transparency Act, 31 U.S.C. § 5336. (https://www.govinfo.gov/content/pkg/USCODE-2023-title31/pdf/USCODE-2023-title31-subtitleIV-chap53-subchapII-sec5336.pdf)

[5] Corporate Transparency Act, 31 U.S.C. § 5336. (https://www.govinfo.gov/content/pkg/USCODE-2023-title31/pdf/USCODE-2023-title31-subtitleIV-chap53-subchapII-sec5336.pdf)

[6] Beneficial Ownership Information Reporting Requirements, Financial Crimes Enforcement Network (FinCEN), 86 Federal Register 69920, December 8, 2021. (https://www.federalregister.gov/documents/2021/12/08/2021-26548/beneficial-ownership-information-reporting-requirements)

[7] Maureen Leddy, “Groups Sound Alarm After Treasury Backtracks on Beneficial Ownership Reporting,” Thomson Reuters Tax & Accounting, March 10, 2025. (https://tax.thomsonreuters.com/news/groups-sound-alarm-after-treasury-backtracks-on-beneficial-ownership-reporting)

[8] National District Attorneys Association, Comment Letter on Beneficial Ownership Reporting Requirements, February 14, 2023. (https://ndaa.org/wp-content/uploads/NDAA-Comment-CTA-2.14.23-Final.pdf)

^[9] Steven M. D’Antuono, “Combating Illicit Financing by Anonymous Shell Companies” Statement before the Senate Banking, Housing, and Urban Affairs Committee, May 21, 2019. (https://www.fbi.gov/news/speeches-and-testimony/combating-illicit-financing-by-anonymous-shell-companies)

^[10] “Brother of Drug Lord Šarić Charged With Money Laundering,” Organized Crime and Corruption Reporting Project, February 21, 2012. (https://www.occrp.org/en/investigation/brother-of-drug-lord-saric-charged-with-money-laundering)

^[11] U.S. Attorney’s Office, Southern District of California, Press Release, “Sophisticated Sinaloa Cartel Money Laundering Organization Dismantled,” United States Department of Justice, April 11, 2023. (https://www.justice.gov/usao-sdca/pr/sophisticated-sinaloa-cartel-money-laundering-organization-dismantled)

^[12] Christine Dobby, Ari Altstedter, David Voreacos, and Tom Schoenberg, “How TD Became America’s Most Convenient Bank for Money Launderers,” Bloomberg Businessweek, March 18, 2025. (https://www.bloomberg.com/news/features/2025-03-18/the-criminal-money-laundering-scams-that-cost-td-bank-billions)

^[13] Joe Miller, “Chinese Exporters Undervalue Cargo to Skirt Trump Tariffs,” Financial Times (UK), May 9, 2025. (https://www.ft.com/content/960787b5-693a-47e9-b1df-661d315e4729)

^[14] Julie Satow, “Seizing Iran’s Slice of Fifth Avenue,” The New York Times, September 24, 2013. (https://www.nytimes.com/2013/09/25/realestate/commercial/with-judges-ruling-seizure-of-650-fifth-avenue-grinds-on.html)

^[15] Dennis M. Lormel, “It’s time to pry criminals out of their shell (companies): Dennis M. Lormel,” Cleveland.com, August 16, 2013. (https://www.cleveland.com/opinion/2013/08/its_time_to_pry_criminals_out.html)

^[16] Stefanie Ostfeld, “Shell game: Hidden owners and motives,” CNN, September 11, 2012. (https://www.cnn.com/2011/10/26/opinion/ostfeld-shell-companies/index.html)

^[17] John Hardie, “Back in Business: Russian ‘Merchant of Death’ Selling Arms to Houthis,” Foundation for Defense of Democracies, October 8, 2024. (https://www.fdd.org/analysis/2024/10/08/back-in-business-russian-merchant-of-death-selling-arms-to-houthis)

^[18] Sen. Charles E. Grassley, “National Security Assessment: Criminal Exploitation of the Federal Aviation Administration Registry,” U.S. Senate Caucus on International Narcotics Control, April 8, 2024. (https://www.grassley.senate.gov/imo/media/doc/criminal_exploitation_of_the_federal_aviation_administration_registry.pdf)

^[19] U.S. Government Accountability Office, “Fraud in Federal Programs: FinCEN Should Take Steps to Improve the Ability of Inspectors General to Determine Beneficial Owners of Companies (GAO-25-107143),” April 8, 2025. (https://www.gao.gov/products/gao-25-107143)