Presidential Authority and Agency Regulation Tensions

The presidential administration has taken significant actions that challenge congressional authority through agency regulation. On August 14, the Financial Crimes Enforcement Network, part of the U.S. Treasury Department, announced a final rule that largely deactivates reporting requirements set by Congress in the Corporate Transparency Act. This maneuver raises substantial constitutional concerns.

Imagine a scenario where a fentanyl trafficking organization uses anonymous limited liability corporations (LLCs) to purchase businesses such as apartment buildings, restaurants, and car washes for money laundering purposes. Drug money blends with legitimate revenue, while the shell businesses give an illusion of legitimacy. The LLC structure hides the true owners behind corporate layers. Honest, independent business owners face unfair competition against companies whose capital stems from illegal activity.

To address these issues, Congress enacted the Corporate Transparency Act in 2021. This law aims to assist law enforcement in identifying individuals financing criminal activities through LLCs. It requires corporations, LLCs, and similar entities to file reports containing ‘beneficial ownership information.’ This applies to both domestic and foreign LLCs. Congress concluded that gathering this data could help detect and prosecute money laundering and other crimes.

While the law impacts regular entrepreneurs, it was deemed vital to identify owners or controllers of shell companies involved in illicit activities, despite imposing certain burdens on legitimate businesses. Congress also listed 23 types of organizations exempt from these requirements, including heavily regulated entities like banks.

The Corporate Transparency Act allows the Treasury Secretary, with the Attorney General and Secretary of Homeland Security’s written agreement, to exempt entities if their reporting doesn’t serve the public interest or proves minimally useful to national security, intelligence, and law enforcement. However, contrary to expectations, the Financial Crimes Enforcement Network’s regulation entirely excludes domestic LLCs from the reporting requirement. This shift narrows the law’s scope mostly to foreign entities operating in the U.S., focusing only on foreign beneficial owners.

Congress designed the law primarily for small domestic corporations and LLCs, representing the estimated 32.6 million entities initially covered. By exempting all domestic entities, the administration undermines the law’s targets and contradicts Congress’s objectives when providing executive discretion for exemptions.

Sen. Ron Wyden highlighted cases during the Corporate Transparency Act’s introduction where shell companies facilitated money laundering, terrorism, tax evasion, and other crimes. For instance, international arms trafficker Viktor Bout used shell corporations to sell arms to the Taliban. Another case involved a U.S. company in a Manhattan skyscraper, facilitating payments to an Iranian bank linked to Iran’s nuclear and missile programs. A third involved a Medicare fraudster using 29 shell companies for over $50 million in fraudulent claims.

Justice Department officials testified about corrupt foreign officials using U.S. shell companies for money laundering, hampering investigations due to incomplete corporate records. This rule is inconsistent with recent Supreme Court doctrine from its 2021 West Virginia v. EPA decision that emphasizes ‘major questions doctrine,’ asserting that Congress must explicitly authorize significant regulatory actions.

The Financial Crimes Enforcement Network removed the beneficial ownership reporting obligation from entities Congress primarily intended to cover, citing high reporting costs. The administration also requires the deletion of already collected data on domestic entities. President Trump appears indifferent to the ease with which fentanyl traffickers maintain their operations, impacting the American public. Kimberly Wehle is a law professor and author addressing constitutional and legal education topics.