Treasury Quietly Guts Anti-Money Laundering Rule Then Refuses to Fix It

Why It Matters

A quiet regulatory rollback is leaving a gaping hole in the United States' defenses against money laundering, drug trafficking proceeds, and cybercrime, and the federal agency responsible for plugging that hole is refusing to act.

That is the core finding of a report released May 29 by the Government Accountability Office, Congress's nonpartisan investigative arm. The report concludes that the Department of the Treasury has failed to address serious risks created by its own decision to gut corporate ownership transparency requirements that took years to build.

Treasury's own 2026 National Money Laundering Risk Assessment documents active cases in which shell companies (often structured as limited liability companies or corporations) were used to launder the proceeds of drug trafficking, cybercrime, and fraud. The same agency that produced that risk assessment then declined to act on the GAO's recommendation to close the loopholes enabling those very crimes.

The Law That Was Supposed to Fix This

For decades, the United States was an outlier among developed nations in allowing businesses to be formed with virtually no disclosure of who actually owned or controlled them. A Delaware LLC or a Nevada corporation could be created in a matter of hours, with no requirement to identify the human beings pulling the strings.

Congress moved to address that in 2020 with the Anti-Money Laundering Act, which included the Corporate Transparency Act. The CTA directed Treasury's Financial Crimes Enforcement Network, known as FinCEN, to build a registry of "beneficial owners," the real people who own or control business entities, not just the names on incorporation paperwork.

FinCEN issued its implementing rule in 2022. That rule established 23 categories of entities exempt from beneficial ownership reporting, covering businesses already subject to significant federal or state oversight: publicly traded companies, banks, credit unions, and similar entities that already disclose ownership through other regulatory channels. The logic was sound: don't duplicate reporting requirements that already exist.

By early 2025, millions of U.S. businesses were on track to comply with FinCEN ownership requirements.

The March 2025 Rollback

Then the Trump administration moved in a different direction.

In March 2025, FinCEN issued an interim final rule exempting domestic companies and U.S. persons from beneficial ownership reporting requirements entirely. The stated rationale was to reduce the burden on legitimate businesses, which is a standard deregulatory justification. The practical effect was far more sweeping.

According to the GAO, the expanded exemption now covers more than 99 percent of the entities that had previously been required to report. The businesses removed from coverage are predominantly the same types of entities that money laundering experts have long identified as high-risk vehicles for financial crime: LLCs and corporations.

The numbers illustrate the scale. As of July 2025, there were more than 35.3 million LLCs registered in the United States, along with nearly 13.8 million corporations, 1.2 million partnerships, and 82,000 trusts, according to GAO's analysis of OpenCorporates data. The overwhelming majority of those entities are now exempt from any federal beneficial ownership reporting under the Corporate Transparency Act.

What the States Can't Cover

Treasury and FinCEN have pointed to state-level reporting requirements as a partial substitute. Most states do require businesses operating within their borders to file reports that collect some ownership and control information: names of corporate officers, directors, LLC managers, or members.

The GAO examined reporting requirements in six states, selected because they had the highest numbers of business entity filings. Its conclusion is direct: state requirements are not an adequate substitute.

The people identified in state filings may not be the beneficial owners of a company, and they may not exercise substantial control over it. A nominee director or a registered agent can satisfy state filing requirements without revealing the actual human being who controls the entity and its finances. States also vary significantly in what they require, meaning the patchwork of state rules creates inconsistent coverage with identifiable gaps.

Treasury's Refusal to Act

The GAO's single recommendation is pointed: the Secretary of the Treasury should direct FinCEN to identify potential actions to address the risks created by the domestic company and U.S. person exemptions, and to provide Congress and law enforcement with information useful for combating those risks.

The Treasury disagreed with the recommendation.

That response puts the Treasury in an awkward position. The department's own 2026 National Money Laundering Risk Assessment explicitly acknowledges that shell companies remain a significant vehicle for financial crime. The Treasury is simultaneously documenting the risk and declining to take the steps its congressional watchdog says are necessary to address it.

The GAO is not backing down. The report states plainly that the agency "continues to believe that actions for this recommendation are needed."

The Treasury is also under a statutory obligation. The Anti-Money Laundering Act of 2020, the same law that created the CTA, requires the Treasury to report to Congress on exempt entities that are significantly abused for illicit finance and to provide law enforcement with highly useful information. The GAO found that Treasury has not identified potential actions or taken steps to fulfill that obligation in the context of the expanded exemptions.

The Illicit Finance Gap

Shell companies structured as LLCs or corporations are a well-documented tool of financial crime. Treasury's own risk assessment cites specific cases involving drug trafficking proceeds, cybercrime profits, and fraud schemes routed through domestic shell companies.

Before the CTA, the United States was frequently cited by international anti-money laundering bodies as a weak link in global efforts to combat financial crime precisely because of the ease with which anonymous shell companies could be formed here. The CTA was designed to address that vulnerability. The March 2025 exemption largely undoes that work for domestic entities.

The GAO's report was mandated by the Anti-Money Laundering Act of 2020 itself, which directed the agency to examine the regulation of exempt entities and assess the extent to which they pose illicit finance risks. The answer, delivered in 113 pages, is that the risks are real, the gaps are significant, and the agency responsible for addressing them has chosen not to.

The recommendation remains open, awaiting action that the Treasury has already said it does not intend to take.