A March 2025 Treasury Department rule exempting virtually all U.S. companies from beneficial ownership reporting requirements has created significant gaps in the federal government’s ability to combat shell company abuse, the Government Accountability Office (GAO) has warned in a new report. 

The watchdog report, released May 29, found that FinCEN’s 2025 interim final rule, which removed beneficial-ownership reporting requirements for domestic companies and U.S. persons, exempted more than 99 percent of entities previously required to report under the Corporate Transparency Act (CTA). Only foreign companies registered to do business in the United States now remain subject to the reporting requirements.

The office concluded that Treasury has not identified potential actions to address the gaps created by the expanded exemptions, nor has it made a determination whether any exempt entity, including the newly exempted domestic reporting companies, poses significant illicit finance risks, as the CTA requires. 

GAO recommended that the Secretary of the Treasury direct FinCEN to identify such actions and provide Congress and law enforcement with information addressing those risks, but Treasury officials disagreed with the recommendation, according to the report. 

The CTA rollback stands at odds with FinCEN’s own findings, the watchdog noted. 

Treasury’s own 2026 National Money Laundering Risk Assessment identified cases in which shell companies were used to launder drug trafficking proceeds, cybercrime proceeds, and fraud proceeds. A 2025 FinCEN financial trend analysis found that suspected Mexican cartels and Chinese money laundering networks used front and shell companies, including some U.S.-based entities, to facilitate money laundering.

Yet under the bureau’s interim rule, there are no restrictions on foreign ownership of U.S.-formed companies, meaning an exempt domestic reporting company could have foreign beneficial owners, including individuals connected to sanctioned jurisdictions or transnational criminal organizations, the GAO concluded. 

Treasury has pointed to state-level ownership reporting and financial institutions’ customer due diligence requirements as alternative sources of beneficial ownership information. GAO found both to be inadequate substitutes, however. 

State requirements vary considerably in scope and depth, the watchdog said. Among the five states with the highest numbers of corporation and LLC filings—California, Delaware, Florida, New York, and Texas—only three collect any ownership or control information for LLCs. Delaware does not collect member or manager information at all. Only six states have requirements that incorporate specific ownership thresholds or explicitly reference beneficial owners.

On the financial institutions side, GAO noted that the customer due diligence rule does not require collection of beneficial ownership information at the time a legal entity is created and that not all transactions pass through covered financial institutions.

In a written response to the GAO, FinCEN said that Treasury, with concurrence from the Justice Department and the Department of Homeland Security, determined that beneficial ownership reporting from domestic companies is not sufficiently useful to justify the compliance burden, particularly given that most affected entities are small, legitimate businesses. 

GAO pushed back, noting that the supplementary information provided with the interim final rule did not include analysis supporting Treasury’s assessment that collecting such information would not be “highly useful” for law enforcement. The watchdog also pointed out that Congress passed the CTA specifically to address shell company risks, and that Treasury’s own prior work had documented those risks extensively.

FinCEN officials told GAO the agency had planned to finalize the interim rule by the end of 2025 but delayed issuance due to the government shutdown and other factors. No revised timeline has been established.