Data Innovation Center Endorses Firm Transparency Pledge, Encourages Further Efforts
In a bid to uncover fraud and corruption, journalists and law enforcement agencies often face challenges when bad actors can hide behind shell corporations. These legal entities, which list a nominal owner but conceal the identities of the individuals with ultimate control or benefits from transactions, have been linked to various criminal activities such as counterfeits, online piracy, crypto scams, and cybercrime.
Recognising the need for increased transparency, Treasury Secretary Janet Yellen pledged more corporate transparency at the Summit for Democracy, and reaffirmed this commitment at the same event, stating her plans to work with global allies to achieve the same. To address this issue, the United States has taken significant regulatory steps, primarily centred around the Corporate Transparency Act (CTA) and associated reporting rules.
The Corporate Transparency Act, enacted in 2021, requires companies to disclose their beneficial ownership information - the individuals who ultimately own or control the company. This is aimed at preventing criminals from hiding behind anonymous shell companies, which are frequently exploited for money laundering, terrorism financing, tax evasion, and other illicit schemes.
The Treasury’s Financial Crimes Enforcement Network (FinCEN) has implemented beneficial ownership information (BOI) reporting rules, mandating that U.S. businesses report their beneficial owners at formation and upon ownership changes. This creates a federal, confidential database accessible to authorized law enforcement and national security agencies, greatly improving transparency.
However, recent policy decisions have limited the effectiveness of these efforts. In March 2025, the Treasury scrapped previously proposed federal rules that would have made most anonymous shell companies illegal and broadened enforcement of the CTA. The Treasury exempted all domestic firms and owners from many reporting requirements, effectively allowing about 99% of companies to avoid disclosing beneficial owners. This rollback undermines the intended transparency and compromises national security.
To enhance transparency further, the U.S. could take several steps. These include restoring and strengthening full enforcement of the Corporate Transparency Act, ensuring all companies are required to report beneficial ownership without broad exemptions, closing loopholes exploited by illicit actors. Additionally, implementing stringent penalties and consistent compliance checks would ensure timely and accurate reporting, discouraging attempts to circumvent the rules.
Increasing collaboration and data-sharing among federal, state, and international agencies would also help track and prosecute shell company abuses tied to cybercrime and other illegal activities. Providing resources and support to businesses to comply effectively without undue burden, as advocated by lawmakers introducing supportive legislation to assist small businesses in meeting these transparency requirements, is another crucial step.
The Centre for Data Innovation, an organisation that has long championed more corporate transparency on beneficial ownership, has issued statements and published articles on the subject, such as "Europe Should Follow UK's Lead on Corporate Transparency" by Daniel Castro in May 2016 and "Why the U.S. Needs Federal Legislation to Unlock the Secret Dealings of Shell Companies" by Joshua New in June 2015.
Many online platforms are also working to validate business accounts and adhere to stronger know-your-business-customer processes. However, there are limits to what online platforms can do when bad actors can hide their identities in shell corporations. The Treasury Department is working to build a database of beneficial owners for U.S. businesses and aims to make as much of this information widely available in machine-readable formats, not just to law enforcement, but also to others working outside government to identify and stop illegal activity.
- The Treasury Secretary, Janet Yellen, has pledged more corporate transparency to combat the use of shell corporations for fraud and corruption, promising to work with global allies to achieve the same.
- In an effort to increase transparency, the United States enacted the Corporate Transparency Act in 2021, requiring companies to disclose their beneficial ownership information, aiming to prevent criminals from hiding behind anonymous shell companies.
- However, policy decisions have limited the effectiveness of these transparency efforts. In March 2025, the Treasury scrapped proposed federal rules that would have made most anonymous shell companies illegal, exempting many companies from reporting beneficial owners.
- To strengthen transparency further, the U.S. could restore and strengthen enforcement of the Corporate Transparency Act, ensure all companies report beneficial ownership, close loopholes exploited by illicit actors, and implement stringent penalties for non-compliance.
