Trump Administration Sued Over Ownership Rule
Twenty-one states and the District of Columbia sued the Trump administration on Tuesday, asking a federal court to overturn its rollback of reporting requirements that were designed to expose the true owners of American companies. The lawsuit, filed in the U.S. District Court for the District of Oregon, challenges a rule the Treasury Department finalized in August that exempted domestic companies and their owners from disclosing beneficial ownership information to the government’s financial crimes unit. The states argue that the rule effectively repeals a law Congress passed in 2021 to fight money laundering, drug trafficking, sanctions evasion, and other illicit finance, and that the executive branch has no power to undo a statute by regulation. The case is the latest legal challenge to the administration’s effort to curtail anti-corruption enforcement, and it sets up a constitutional fight over how far a president can go in rewriting laws he dislikes.
The rule at the center of the case was one of the administration’s most consequential deregulatory moves. In August, the Treasury Department’s Financial Crimes Enforcement Network, known as FinCEN, finalized a regulation that permanently removed the requirement for American companies and American owners of foreign companies to report who owns and controls them. The requirement had been the core of the Corporate Transparency Act, a bipartisan law passed in 2021 that ordered companies to tell FinCEN the identities of their beneficial owners, the real people behind the corporate names on paper. By exempting domestic companies, the rule removed more than 99.9 percent of the entities originally required to report, according to the lawsuit, leaving the law in place in name only.
Trump Administration: The Rule at the Center of the Suit
The Corporate Transparency Act was passed in 2021 with broad bipartisan support, so much so that Congress overrode President Trump’s veto of the legislation during his first term. Lawmakers acted because of a problem that had troubled law enforcement and tax authorities for years: secretive shell corporations, arranged in layered structures, that hid the identities of the people who owned or controlled them. Those anonymous companies were used to launder money, evade sanctions, traffic drugs, hide bribes, and move the proceeds of crime through the financial system without detection. The law’s answer was simple. Companies would have to report basic identifying information about their beneficial owners to FinCEN, giving investigators a tool to follow the money when a company was used as a front.
Business groups spent years lobbying against the measure, arguing that the reporting burden fell hardest on small companies that lacked compliance departments. The administration agreed with that argument. When FinCEN finalized the exemption in August, Treasury Secretary Scott Bessent described the rule as eliminating a burdensome reporting requirement for millions of law-abiding business owners without compromising national security. The administration presented the move as common-sense deregulation, a correction to a law that had imposed paperwork on ordinary businesses while doing little to catch criminals. Supporters of the rollback said the requirement had been a costly nuisance for the small businesses that form the backbone of the American economy.
The states see it differently. In their complaint, they argue that the administration has effectively overturned the law by exempting all domestic companies and American owners of foreign companies from its requirements, allowing the true owners of both foreign and domestic shell companies to remain anonymous. New York Attorney General Letitia James, one of the state attorneys general who filed the challenge, said the administration had overturned the law by regulation, leaving the owners of shell companies hidden from the investigators who need to find them. California Attorney General Rob Bonta, who joined the coalition, said the administration was unlawfully rolling back reporting requirements meant to help law enforcement track down bad actors who hide financial assets in shell companies. He added that those anonymous accounts are often used for illegal activity, by cartels and criminals to launder money, traffic drugs, or hide bribes and illegal kickbacks.
Business News: What the States Are Asking the Court to Do
The lawsuit names Bessent, the Department of the Treasury, and FinCEN as defendants, and it also lists the heads of the Justice Department and the Department of Homeland Security. The states ask the court in Oregon to vacate the rule, which would restore the reporting requirement for domestic companies. Their legal argument rests on two pillars. First, they say the rule exceeds the authority Congress gave the executive branch, because the statute requires the reporting the rule eliminates. Second, they say the rule is arbitrary and capricious and contrary to law, violating the Administrative Procedure Act and the Constitution. The complaint’s central line is blunt: “The executive branch cannot repeal a law by rulemaking. That fundamental principle resolves this case.”
That argument goes to the heart of the separation of powers. Congress writes the laws, and the executive branch enforces them. When an administration disagrees with a law, its ordinary remedy is to ask Congress to change it, not to issue a regulation that cancels it. The states argue that FinCEN did the latter, using a rulemaking to achieve what only legislation could lawfully do. The administration will respond that the statute gives the Treasury Department discretion over how the reporting regime works, and that exempting domestic companies falls within that discretion. The court will have to decide whether the exemption is a reasonable exercise of regulatory authority or an unlawful repeal by another name.
The case also carries a political charge. The coalition is made up of mostly Democratic-led states, and the lawsuit was filed one week before the midterm elections, when control of Congress is at stake. The states frame the case as a defense of law enforcement and the rule of law. The administration frames the rule as relief for small businesses. Both sides know the case will be read through a partisan lens, but the legal question is narrower: whether a president can erase a reporting requirement that Congress created and that he himself once vetoed, only to see his veto overridden.
US Politics: The Administration’s Defense of the Rollback
The Treasury Department did not respond to a request for comment on the lawsuit. But the administration’s position has been clear since August. Bessent cast the rule as a burden lifted from millions of law-abiding business owners, and administration officials have argued that the reporting requirement was a paperwork exercise that did little to stop sophisticated criminals, who would simply ignore it or find other ways to hide. In that view, the law imposed costs on honest businesses while the real money launderers carried on unaffected. The rollback, supporters say, was a choice to stop punishing the law-abiding in the name of catching the lawless.
Critics of the rollback dispute that account. Senator Elizabeth Warren of Massachusetts, the top Democrat on the Senate Banking, Housing and Urban Affairs Committee, said in August that rolling back the reporting requirements increased the risks of sanctions evasion, fraud, and drug trafficking, as well as sex trafficking and organized criminal activity. Her warning reflected the view of law enforcement officials who had welcomed the law as a tool they had long lacked. Before the act, investigators who wanted to know who owned a suspicious company often had to chase paper trails through multiple states and countries, a process that could take months and often ended nowhere. The reporting requirement was meant to collapse that search into a single database query.
The dispute also reflects a broader shift in the administration’s approach to financial crime enforcement. Reuters, which first reported the lawsuit, described the rollback as part of a broader push by the administration to curtail anti-corruption efforts. That push has included pulling back on enforcement actions and narrowing the scope of anti-money-laundering rules. Supporters of the administration call it a correction to overreach. Critics call it an invitation to the cartels, the sanctioned oligarchs, and the fraudsters who depend on anonymous companies to move their money. The lawsuit filed on Tuesday is the most direct challenge to that shift to reach a court.
What Happens Next: The Case in Oregon
The case will now proceed in federal court in Oregon, where the states have asked a judge to overturn the rule. There is no timetable yet for a ruling, and the litigation could take months or longer, with appeals likely whatever the trial court decides. In the meantime, the exemption remains in effect, and domestic companies are not required to report their beneficial owners to FinCEN. If the states prevail, the reporting requirement would be restored, and millions of companies would once again have to disclose who owns them. If the administration prevails, the rollback would stand, and the Corporate Transparency Act would remain a law that applies in practice only to foreign companies operating in the United States.
The stakes extend beyond the reporting requirement itself. A ruling for the states would reaffirm the principle that an administration cannot repeal a law by rulemaking, a limit that would constrain future efforts to undo statutes through regulation. A ruling for the administration would give the executive branch broader latitude to reshape laws it dislikes without going back to Congress. Either way, the case is likely to be watched closely by businesses, by law enforcement agencies, and by other states considering similar challenges. For now, the fight is in Oregon, and the question is whether a law Congress passed over a presidential veto can be undone by a president’s pen.
Source: Reuters