Title: What a Recent Rule Change Means for Corporate Transparency Description: Drug cartels and other illegal enterprises often use shell companies to hide their dealings and launder money. To combat this activity, many countries have requirements that corporations disclose their ownership--or their beneficial owners. And the U.S. was adopting a similar policy when, in March of last year, the federal government significantly expanded exemptions that allow companies to keep this information private. We'll learn more about these requirements and the changes to them from GAO's Mike Clements. Mike, thanks for joining us. Related work: GAO-26-107967, Corporate Transparency: Treasury Should Address Gaps in Ownership Information Resulting from Expanded Exemptions Released: May 2026 [ START ] {Music} [ Holly Hobbs: ] This is GAO's Watchdog Report, your source for fact-based, nonpartisan news and information from the U.S. Government Accountability Office--I'm Holly Hobbs. Drug cartels and other illegal enterprises often use shell companies to hide their dealings and launder money. To combat this activity, many countries have requirements that corporations disclose their ownership--or their beneficial owners. And the U.S. was adopting a similar policy when, in March of last year, the federal government significantly expanded exemptions that allow companies to keep this information private. We'll learn more about these requirements and the changes to them from GAO's Mike Clements. Mike, thanks for joining us. [Mike Clements:] Happy to be here, Holly. [Holly Hobbs:] Maybe we can start with what are the requirements and what were they meant to disclose? [Mike Clements:] So Congress passed the Corporate Transparency Act in 2021. Under the act, legal entities--things such as corporations or limited liability companies--are required to report their beneficial owner or owners to the Financial Crimes Enforcement Network, known as FinCEN, which is part of the Department of the Treasury. A beneficial owner is a person who either one, owns 25% or more of that legal entity or two, exercises substantial control over the legal entity. So the requirement is that the legal entity must provide information on the beneficial owner --information such as the name, address, date of birth and identification number. The information would then be loaded into what's known as the Beneficial Ownership Registry, which is searchable by law enforcement. [Holly Hobbs:] So the requirement changed in March of 2025? [Mike Clements:] That's right. As originally envisioned, there were domestic reporting companies and foreign reporting companies. And there are tens of millions of these. So Congress realized they don't want all those entities reporting. So there were 23 exemptions. These were for entities that Congress thought--low probability of illicit activity, or where the name of the beneficial owner would be relatively easy to get at. And so those would be things such as banks, insurance companies, a public utility, other large public companies. You referenced March 2025. FinCEN issued what is known as the Interim Final Rule. And it expanded the exemptions. And it created two new exemptions. First, all domestic reporting companies are now exempt. And second, U.S. citizens who are the beneficial owners of a foreign reporting company are also exempt. The net result is that about 99% of reporting companies are now exempt. [Holly Hobbs:] Mike, do we know why this change was made? [Mike Clements:] FinCEN cited regulatory burden on legitimate businesses. In particular, what it noted was it reassessed the balance between the importance of collecting beneficial ownership information and the burdens imposed on legitimate businesses. At the time of the March 2025, Interim Final Rule, the then Attorney General and also Secretary of the Department of Homeland Security concurred that collecting beneficial ownership information on domestic reporting companies would not provide highly useful information. [Holly Hobbs:] So it's only been about a year. Do we know what the impact has been so far? [Mike Clements:] At this point, none of the domestic reporting companies are filing. There's an open question of what's going to happen to the information that was filed before March 2025, right? There's information on beneficial owners for those legal entities. What's still undecided is whether that information will stay or whether it's going to be removed. [Holly Hobbs:] These requirements were put in place for a reason. They wanted to be able to tell whether there's a shell company or trace money laundering. Has the risk gone up as a result of the exemption? Do we know? [Mike Clements:] The risk hasn't necessarily gone up, quite frankly because the beneficial ownership registry has never been fully operational. A couple of challenges. One, FinCEN was incurring delays in getting the registry up and going. Also, there's been litigation challenging the legality of the Corporate Transparency Act and the collection of that information. So, at this point, it's never been fully operational. That said, one could argue that the perceived benefits that the Corporate Transparency Act was going to deliver may not be available. These criminal enterprises establish these legal entities, particularly shell companies, to obscure and launder their funds. And the idea of the Corporate Transparency Act was we would have beneficial ownership behind the shell company. Therefore, law enforcement would easily identify who is the person who's actually conducting the illicit activity. [Holly Hobbs:] So is the Department of the Treasury and FinCEN doing anything to look at these risks? [Mike Clements:] At this point what they've said is they will evaluate alternative sources for beneficial ownership information. Some of the alternative sources they've talked about would be banks or other financial institutions. Those institutions are required to conduct customer due diligence. They need to understand who their customer are. So there's some opportunity there, perhaps to get beneficial ownership information. Another source would be the states. All these legal entities are established under state law. There are a few states that collect information that's somewhat comparable to beneficial ownership information. But, unfortunately, most states do not collect this type of information. [Holly Hobbs:] Do we think that's enough? [Mike Clements:] We acknowledge the concerns about regulatory burden, especially for the legitimate businesses. That said, our work found, in this case, that expanded exemption creates gaps in information, especially for these shell companies where there's very little information about who the beneficial owner is. And therefore, what we've recommended in our report is that FinCEN take action to identify the risk associated with these exemptions and then take action to ensure that law enforcement has solid, credible information of beneficial ownership. [Holly Hobbs:] Last question. What's the bottom line of this report? [Mike Clements:] Illicit actors have long used legal entities, in particular shell companies, to further their business operations, such as drug trafficking. It's really essential that law enforcement have access to quality, beneficial ownership information to help offset the criminal activity and thus promote public safety and also national security. [Holly Hobbs:] Mike, thanks for your time. [Mike Clements:] Happy to be here. {Music} [Holly Hobbs:] And thank you for listening to the Watchdog Report. To hear more podcasts, subscribe to us on Apple Podcasts, Spotify or wherever you listen. And make sure to leave a rating and review to let others know about the work we're doing. For more from the congressional watchdog, the U.S. Government Accountability Office, visit us at GAO.gov. [ END ]