On October 27, 20 states and the District of Columbia sued the U.S. Department of the Treasury and the Financial Crimes Enforcement Network (FinCEN), challenging rules that sharply narrow beneficial ownership reporting under the Corporate Transparency Act. The complaint alleges that the rules violate the Administrative Procedure Act and exceed the agencies’ authority under the Act.
The complaint challenges FinCEN’s 2025 interim rule and 2026 final rule, which exempt U.S.-formed entities from reporting and exempt foreign entities from reporting information about their U.S. owners. The complaint alleges that:
- The exemptions exceed the agencies’ authority. The states allege that Congress did not authorize FinCEN to exempt all domestic entities from the Act’s reporting requirements, effectively removing more than 99.9% of the entities that would otherwise report.
- The rules lack adequate support. The complaint alleges that FinCEN relied on conclusory explanations, failed to account for key aspects of the problem Congress sought to address, and did not adequately explain its departure from earlier agency findings.
- The planned data purge is unlawful. FinCEN has announced that it will delete previously submitted ownership information for newly exempt entities by February 2027.The states allege that the purge was announced without notice and an opportunity for public comment, exceeds FinCEN’s authority, and conflicts with federal records-retention requirements.
The states ask the court to set aside the rules and prevent FinCEN from deleting previously reported information while the case proceeds.
Putting It Into Practice: The lawsuit follows FinCEN’s final rule narrowing the Corporate Transparency Act’s reporting framework (previously discussed here). The case could affect both the reporting obligations of covered entities and the retention of information already submitted to FinCEN. Businesses and financial institutions should monitor the litigation and assess whether any developments require changes to their reporting, recordkeeping, or customer due diligence procedures.