US Freezes Beneficial Ownership Rule: What It Means for AML

In a surprising turn of events, the US Treasury Department recently announced that it will not enforce the beneficial ownership reporting rule under the Corporate Transparency Act (CTA). This decision has raised concerns among compliance professionals, financial institutions, and global regulators, as it directly impacts transparency in the fight against financial crime.

But what does this mean in practice? Let’s break it down.

Background: US AML framework and FATF scrutiny

The US has long been a leader in global anti-money laundering (AML) efforts, but it has also faced criticism for gaps in corporate transparency. In 2016, the Financial Action Task Force (FATF) assessed the US AML regime and found it largely compliant with global standards. However, two major weaknesses were identified:

1. Limited regulatory oversight of non-financial businesses.
2. Lack of transparency around beneficial ownership of legal entities.

To address these deficiencies, the US passed the Corporate Transparency Act (CTA) in 2021, mandating that businesses disclose their ultimate beneficial owners to the Financial Crimes Enforcement Network (FinCEN). This law was a key step toward improving corporate transparency, aligning the US more with international best practices. Once the CTA took effect in early 2024, FATF responded by upgrading the US rating for transparency measures to “Largely Compliant.”

The Corporate Transparency Act: A simple, yet controversial rule

The CTA requires businesses to report their true owners to FinCEN, with an estimated compliance cost of just $80 per entity. For compliance professionals and financial institutions, this was a long-overdue measure to close loopholes that allow illicit actors to hide behind anonymous corporate structures. Access to verified ownership data would enable banks and fintechs to strengthen their customer due diligence (CDD) and screening processes, making it harder for financial crime networks to operate undetected.

Countries such as the UK have already implemented similar transparency requirements, making ownership data publicly accessible through Companies House. However, in the US, the CTA quickly faced legal challenges. Critics argued that it imposed unnecessary bureaucracy on small businesses, leading to a wave of court appeals. Despite these objections, the law remained intact, with enforcement scheduled to begin in March 2025, carrying penalties of approximately $660 per day for non-compliance.

Treasury’s unexpected reversal: What happened?

Despite expectations that the CTA would move forward, the US Treasury unexpectedly announced in March 2025 that it would not enforce the beneficial ownership rule. The decision was framed around concerns for domestic businesses, but it left critical questions unanswered:

• Will foreign-owned entities still be required to report beneficial ownership?
• What happens to companies that have already complied?
• How will financial institutions manage due diligence with this regulatory uncertainty?

The announcement created a regulatory gray area, effectively moving the law from “approved” to “frozen.” This sudden shift has major implications for compliance teams in banks, fintechs, and other financial institutions.

The practical impact on AML compliance

The decision not to enforce the CTA does not change the fundamental AML obligations for financial institutions. However, it does present new challenges:

1. A setback for transparency
   The CTA was designed to help uncover hidden ownership structures, making it harder for criminals to exploit corporate entities for money laundering, sanctions evasion, and corruption. Without enforcement, a key tool for identifying illicit activity is now in limbo.
2. Screening & Due Diligence just got harder
   Many banks and fintechs had hoped to integrate FinCEN’s beneficial ownership database into their screening and CDD processes. Without this data, financial institutions must rely on existing tools and customer disclosures, making it more difficult to verify ownership structures.
3. Shell Companies & Hidden Beneficiaries remain a blind spot
   Identifying undeclared owners and shell companies remains a challenge. Without enforced transparency requirements, institutions must rely on transaction monitoring to flag unusual activity and address this challenge. Comparing actual versus expected behavior will become even more critical.
4. Uncertainty around foreign vs. domestic entities
   The Treasury’s announcement suggested a distinction between US and foreign businesses, but details remain unclear. Will US-owned companies face lighter requirements than foreign-owned entities? If so, this creates an uneven playing field and potential loopholes for bad actors.
5. Heightened sanctions & cross-border transactions risk
   FinCEN initially framed the CTA as a tool to combat sanctions evasion. Without enforcement, banks and fintechs must be extra vigilant in monitoring cross-border transactions to detect illicit financial flows tied to tax evasion, human trafficking, and money laundering.

What’s next? Practical steps for financial institutions

While this decision may create uncertainty, compliance teams still have robust tools at their disposal. Here’s how institutions can stay ahead:

• Enhance transaction monitoring: Since ownership transparency is stalled, focus on transaction patterns and discrepancies between declared and actual behavior.
• Strengthen Open-Source Intelligence (OSINT): Public data, third-party databases, and advanced AI-driven analytics can help bridge the transparency gap.
• Refine risk-based approaches: Use dynamic risk scoring to adjust controls based on the evolving risk landscape.
• Stay agile and proactive: Regulations may shift again. Financial institutions should be prepared to adapt quickly to any updates from FinCEN or other US regulatory bodies.

Transparency gaps remain in US AML

While the Treasury’s decision may slow down progress on corporate transparency, the responsibility to detect and combat financial crime remains with financial institutions. The US still needs stronger safeguards to prevent illicit actors from exploiting corporate structures. However, compliance teams should not wait for regulatory clarity—proactive risk management remains the best defense against financial crime.

As the situation develops, financial institutions must stay alert to potential policy reversals and new compliance requirements. In the meantime, leveraging Cognitive AI transaction monitoring, refining due diligence processes, and maintaining a risk-based approach will be critical in mitigating financial crime risks—regardless of regulatory enforcement.