Doing Your Own Homework: How Transparency Policy Changes Affect Your Clients

Welcome to the March 2025 edition of our newsletter!  In this issue, we’ll examine how changes to enforcement of the Corporate Transparency Act can affect your clients, and their clients.

Pivoting Away From Corporate Transparency At Home, But Not Abroad

The Corporate Transparency Act shepherded by the Biden Administration was meant to compel disclosure from a variety of U.S. companies which have long operated in opaque ways, whether real estate investors, money launderers, or private equity investment vehicles.  The goals of this policy were multi-faceted: to better identify bad actors, such as organized crime figures buying up legitimate assets with illegitimate funds – a problem currently plaguing the United Kingdom and other nations – and also to extract revenue from them and lessen the effectiveness of tax havens like Delaware to act as shelters.

The Trump Administration has, in short order, begun to neuter that effort, removing reporting requirements for U.S.-based companies while leaving the rule in place, albeit more narrowly, for foreign companies, while also generally suspending enforcement of the rule.

In the de-globalized, walled off country sought by the current administration, these actions should create incentives for more companies to make a U.S. state their domicile of choice. In the world we live in, however, globalization is still in force, and civil lawsuits are still very much a risk even if federal regulators are giving up the game.  This places the onus, as with many other nascent Trump policies, on market participants to police themselves and assess their own risks.

If it had been enacted as planned – the implementation was the subject of several court challenges prior to the first reporting deadline of December 31, 2024 —  the Corporate Transparency Act and its beneficial ownership reporting would have ultimately created a treasure trove of data which would allow law enforcement and regulators – if not the public – to pull back the curtain on parties seeking to act in the shadows.  If your clients – or their clients – need to understand such risks prior to a transaction, old fashioned due diligence remains the best option, given that government reporting shortcuts have been curtailed, likely permanently.