The Trump administration’s surprise decision to stop enforcing a corporate transparency law threatens to undermine the fight against fentanyl by strengthening the veil behind which Mexican drug cartels and Chinese financiers engage in the drug trade.
The Treasury Department announced on Sunday that it will severely scale back its interpretation of a 2021 law establishing the nation’s first ever shell company registry, which forced all kinds of companies to start identifying their beneficial owners by providing government IDs. The change means that government investigators will only require the additional paperwork from companies based abroad, despite the fact that foreigners routinely create U.S. shell companies.
Treasury Secretary Scott Bessent labeled it as “part of President Trump’s bold agenda to unleash American prosperity by reining in burdensome regulations.”
The sudden pause on enforcement has anti-money laundering experts warning about the loss of a relatively new tool for investigators at the Treasury’s Financial Crimes Enforcement Network — at a time when they were finally empowered to start using it to bolster investigations at the Justice Department.
Nate Sibley, director of the nonprofit Hudson Institute’s Kleptocracy Initiative, said it is ironic that the Trump administration is pulling back while claiming to be refocusing law enforcement efforts on the opioid crisis and its Chinese and Mexican origins.
“This isn’t redirecting resources away from other things…this is just depriving itself of a critical tool directly related to that issue,” he said during a briefing Thursday about the change.
Sibley asserted that teams of FBI agents will still pursue the cartels shipping fentanyl across the U.S.-Mexico border, but without the possibility of enforcement on the actual people behind corporations used in those operations, “investigators will end up looking at a blank piece of paper.”
At first glance, chasing after money laundering accountants might seem boring and ineffective compared to the other measures President Trump has put on the table in the past seven weeks, including opening up the possibility of covert military action against the Sinaloa Cartel and others by designating them foreign terrorist organizations. But anti-money laundering experts note how this same approach actually strengthened the fight against Al-Qaeda and ISIS, and it could pack a larger punch than continuing to focus on ramping up interdiction at the border given that thousands of pills with enough potency to kill millions of Americans can be hidden in relatively small compartments.
The Financial Accountability and Corporate Transparency Coalition, a nonpartisan group seeking to combat illicit finance, is raising alarms. Its deputy director, Erica Hanichak, described how Chinese criminal organizations supply the fentanyl precursor chemicals to Mexican drug cartels, which manufacture the pills and later use couriers to launder the proceeds of those street sales inside the United States. Eventually, those funds make their way back to wealthy Chinese backers who frequently use them to buy American real estate.
“At every stage of that they’re using shell companies,” she said.
That’s in part what has baffled experts — money laundering crimes are central to so many issues the Trump administration has said it is prioritizing, like terrorism and the sexual exploitation of children. “You will not see the broader dismantling of the financial actors behind the criminal organizations,” warned Frank Russo, a director at the Center for Combating Human Trafficking.
The largely conservative National Federation of Independent Business welcomed the rollback and lambasted what it called the “dangerous and unconstitutional” beneficial ownership information reporting. Meanwhile, a progressive network of small business owners called Main Street Alliance claims the change is unnecessary, because the burden on small businesses is marginal.
“It frankly is very easy to comply with the Corporate Transparency Act. Oftentimes it would only take 15 minutes to do so,” said MSA campaign manager Shawn Phetteplace. “It’s very easy to know who owns your business. It’s you.”
The change marks the second time Trump has positioned himself against this law enforcement policy. Late in Trump’s first term, the Corporate Transparency Act was folded into the National Defense Authorization Act that permitted $740 billion in military spending. Trump vetoed the bipartisan bill in his administration’s final weeks, but enough Republicans joined in to pass it anyway at the start of 2021.
The Treasury took years to implement the policy and set Jan. 1 this year as the first deadline for companies to start self-reporting into the national registry. The Biden administration fought two legal challenges, including one in Texas federal court last year that argued the law “is both wildly over- and under-inclusive” because it unfairly captures millions of tiny firms “in its dragnet” while going easy on “large corporations and especially financial institutions that would seem to be prime targets for those engaging in knowing or unwitting money laundering.”
In court, FinCEN countered that the exemptions for banks, public accounting firms and other business entities makes sense given that those entities are “already subject to reporting or recordkeeping requirements.”
Scott Greytak, director of advocacy at Transparency International U.S., said this pullback from what would otherwise be a cornerstone for other stated Trump administration priorities should be viewed in greater context as part of the president’s retreat from the fight against global corruption.
On Attorney General Pam Bondi’s first day in office, she disbanded the Justice Department’s kleptocracy teams that had sought to identify foreign government officials who embezzle their people’s money, then seize their assets and return them from where they were stolen.
On Feb. 10, Trump signed an executive order pausing enforcement of the Foreign Corrupt Practices Act, the go-to enforcement mechanism used by federal prosecutors to stop American executives from bribing foreign leaders.
And last week, a top Hungarian government official publicly asserted that the United States was set to remove sanctions on Prime Minister Viktor Orbán’s chief of staff and security director, Antal Rogán, who had been targeted by the Biden administration in its closing days for allegedly using his power to exert control over sectors of that nation’s economy.
“We are really drawing together a constellation of truly weakened anti-corruption” measures, Greytak said.
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Jose Pagliery is a reporter at NOTUS.