WASHINGTON, Oct 27 - Twenty-one US states together with the District of Columbia filed suit on Tuesday challenging a Trump administration rule that exempts a large swath of companies from reporting beneficial ownership information to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
The rule, finalized in August, narrows reporting obligations created under the 2021 Corporate Transparency Act by excluding US companies and US owners of foreign companies from the requirement to provide FinCEN with information about their beneficial owners. In the court filing, the coalition said the change amounts to an effective nullification of the 2021 law.
The complaint, submitted to the US District Court for the District of Oregon, asks the court to vacate the rule. It contends that the Trump administration exempted more than 99.9% of the companies that the 2021 law had originally required to disclose ownership data, leaving the statute fundamentally hollowed out.
Named as defendants in the suit are US Treasury Secretary Scott Bessent, the Department of the Treasury and its anti-money laundering unit, the Financial Crimes Enforcement Network. The filing also lists the heads of the US Departments of Justice and Homeland Security as parties to the case.
In its complaint, the coalition asserted a legal principle in blunt terms: "The executive branch cannot repeal a law by rulemaking. That fundamental principle resolves this case," the filing states.
The Treasury Department did not provide a comment in response to a request for one. When the administration announced the rule in August, Treasury Secretary Scott Bessent described the action as "eliminating a burdensome reporting requirement for millions of law-abiding business owners without compromising our national security."
New York Attorney General Letitia James, one of the more than 20 state attorneys general participating in the challenge, criticized the rule for allowing continued anonymity for owners of shell companies. "The Trump administration has effectively overturned this law by enacting a rule that exempts all domestic companies and US owners of foreign companies from the law’s requirements, allowing the true owners of both foreign and domestic shell companies to remain anonymous," she said in a statement accompanying the filing.
Senator Elizabeth Warren, the top Democrat on the Senate Banking, Housing and Urban Affairs Committee, warned in August that the rollback could heighten certain criminal risks. She said the reduction in reporting requirements raised the potential for sanctions evasion, fraud and drug trafficking, as well as sex trafficking and organized criminal activity.
The lawsuit frames a direct legal confrontation over how far an administration may go in altering the implementation of a statute through regulatory action. The plaintiffs seek judicial review and reversal of a rule they say undermines Congress' mandate in the Corporate Transparency Act.