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The lawsuit challenges a Treasury Department rule that sharply narrows beneficial ownership reporting requirements, with states warning that the exemptions could weaken safeguards against money laundering and other financial crimes
A Treasury Department rule that exempts more than 99.9 per cent of businesses previously covered by US corporate ownership disclosure requirements is facing a legal challenge from 21 states and the District of Columbia.
The lawsuit, filed on Wednesday, in the US District Court for the District of Oregon, seeks to overturn the Trump administration’s decision to roll back reporting requirements introduced under the 2021 Corporate Transparency Act. The coalition of mostly Democratic-led states argues that the rule undermines a federal law designed to make it harder for criminals to conceal their identities through shell companies.
The challenge names US Treasury Secretary Scott Bessent, the Treasury Department and its Financial Crimes Enforcement Network (FinCEN) as defendants. The heads of the US Departments of Justice and Homeland Security are also named in the lawsuit.
“The executive branch cannot repeal a law by rulemaking. That fundamental principle resolves this case,” the states said in their complaint.
Why are US states challenging Trump’s corporate disclosure rule?
The dispute centres on a rule finalised by the Trump administration in August 2026 that exempted US companies and individuals from reporting beneficial ownership information to the federal government.
Beneficial ownership disclosures are intended to identify the individuals who ultimately own or control a company. Such information can help law enforcement agencies investigate financial crimes by making it harder for people to hide behind corporate structures.
More from BusinessThe Corporate Transparency Act, enacted in 2021, established a reporting framework requiring covered businesses to disclose information about their beneficial owners to FinCEN, the Treasury Department’s financial crimes unit.
The law was designed to address concerns that anonymous corporate structures, including shell companies, could be used to conceal assets and facilitate money laundering, fraud and other illicit financial activities.
The administration’s August rule substantially narrowed the reporting requirements. According to the lawsuit, the exemptions removed reporting obligations for more than 99.9 per cent of companies that would otherwise have been covered.
The states argue that the Treasury Department has effectively gutted the law by using a regulatory rule to exempt businesses from obligations established by Congress.
They have asked the federal court to overturn the rule, setting up a legal dispute over the administration’s authority to narrow the scope of the reporting framework.
What has the Trump administration said?
The Treasury Department has defended the change as a way to reduce regulatory burdens on businesses while maintaining national security protections.
When the rule was finalised in August, Bessent described the decision as “eliminating a burdensome reporting requirement for millions of law-abiding business owners without compromising our national security”.
The administration’s position is that the reporting requirements imposed unnecessary compliance costs on legitimate businesses. The states, by contrast, argue that the exemptions undermine a key mechanism for identifying the people behind corporate entities.
Concerns over shell companies and illicit finance
New York Attorney General Letitia James, one of the officials involved in the legal challenge, said the administration’s rule allowed the owners of domestic and foreign shell companies to remain anonymous.
James argued that the rule effectively overturned the Corporate Transparency Act by exempting domestic companies and US owners of foreign companies from its reporting requirements.
The rollback has also drawn criticism from US Senator Elizabeth Warren, the Massachusetts Democrat who is the top Democrat on the Senate Banking, Housing and Urban Affairs Committee.
In August, Warren warned that weakening the reporting requirements could increase the risks of sanctions evasion, fraud, drug trafficking, human trafficking and organised criminal activity.
