Treasury curtails reporting rules for shell companies

Zoom in: The rule is part of the Corporate Transparency Act, passed with bipartisan support at the end of President Trump's first term as part of a larger defense bill.

What they're saying: The rule was overly complicated and costly for small businesses, the Treasury says.

• "President Trump promised to cut red tape, and this final rule delivers," Treasury Secretary Scott Bessent said in a statement Tuesday. "Treasury is eliminating a burdensome reporting requirement for millions of law-abiding business owners without compromising our national security."
• In a radio interview earlier this week, Bessent said that he didn't believe the provision was useful: "The Mexican cartels, they're not going to file a form and say, 'Oh, hello, the El whatever here in Sinaloa—we're sending in drug money.'"
• He also said it cost $2,500 for small businesses. The National Federation of Independent Business, a small-business advocacy group, says it's pushing for the law's repeal.

The other side: Sens. Chuck Grassley (R-Iowa) and Sheldon Whitehouse (D-R.I.) said in a statement that the Treasury's decision "undermines the clear intent of the law."

• "The Act gave the federal government needed tools to address criminal activity like human trafficking, terrorist financing, drug distribution, sanctions evasion and more without unduly burdening legitimate commercial entities," they said.

Follow the money: The law established a database of shell company owners that law enforcement agents could use to track money flows.

• As of March, the database held 16.4 million reports, with only about 15,000 filed by foreign reporting companies, according to the Government Accountability Office.
• The Treasury said it would delete information from the database about any individuals who are believed to be a "U.S. person."

Between the lines: The U.S. attracts an awful lot of dirty money, anti-corruption advocates tell Axios.

• "In the popular imagination, people think that if criminals want to stash money, they go to some small duchy or some island," says Julie Brinn Siegel, who worked on implementing the rule at the Treasury and is now a nonresident senior fellow at the Atlantic Council.
• "But the truth is that one of the most lucrative and safe places to do that is the United States."

Zoom out: Other advanced economies have passed beneficial ownership rules, making the U.S. an outlier, advocates and former government officials say.

• "If you're engaged in tax evasion, criminal activity, any other sort of bad stuff, you're going to open in the United States," says Jodi Vittori, a professor at Georgetown who worked on NATO's counter-corruption task force.

Yes, but: The Treasury has other tools to track illicit finance risks, through its Financial Crimes Enforcement Network, or FinCEN — the bureau at the agency that was tasked with implementing this now-canceled regulation.

Late last year, the department delayed a different rule that would have required private investment advisers to perform anti-money laundering checks.

• "There's not the same level of diligence required of these folks as there is of mutual funds, broker-dealers, commodities traders and others," notes Erica Hanichak, co-director at FACT Coalition, a nonpartisan anti-corruption advocacy group.
• That's led to a lot of dirty money flowing into private markets that's hard to track, she says.

The big picture: Financial information has been harder to get in other ways.

• There's missing data on the labor market and inflation, for example, because the government was unable to collect information during last year's shutdown.
• Bloomberg columnist Javier Blas has laid out how difficult it has become to understand how much oil is flowing through the Strait of Hormuz.
• And the Securities and Exchange Commission is considering a rule that would allow public companies to report their financial data less frequently.

The bottom line: Anti-corruption advocates say that the lack of transparency hurts the U.S. financial system, but that secrecy also attracts a lot of capital to the country.