FinCEN rule "essentially dead" for U.S. firms, compliance experts warn

A landmark anti-money laundering law is now "essentially dead" for U.S. companies and persons and a 21-state lawsuit filed October 27, 2026, in federal court is the latest challenge to a Treasury Department rule that compliance experts say has gutted one of law enforcement's most powerful tools for tracing dirty money.

Erin Bryan is chair of the Consumer Financial Services Group and a member of the Finance & Restructuring Practice Group at Dorsey & Whitney in Minneapolis - and a former in-house senior corporate counsel at one of the largest banks in the United States. She told InvestmentNews about the impact of the rule.

"FinCEN's final rule announced August 11, 2026, makes that previous pause permanent for the vast majority of potential reporting companies," Bryan said. "In addition, under the final rule, FinCEN confirmed it plans to delete previously reported information to the extent that information appears to relate to U.S. persons. The BOI rule is essentially dead for U.S. companies and persons."

The case, State of Oregon v. Bessent, is filed in the U.S. District Court for the District of Oregon and names Treasury Secretary Scott Bessent, FinCEN Acting Director Jenna Casanova, U.S. Attorney General Todd Blanche, and Secretary of Homeland Security Markwayne Mullin as defendants. It is led by Oregon Attorney General Dan Rayfield and Illinois Attorney General Kwame Raoul, with 19 additional attorneys general joining the coalition.

For financial advisors, the implications are direct. The intersection of anti-money laundering rules and investment advisor obligations has grown significantly more complex in recent years, and a hollowed-out corporate ownership database limits the information available for client due diligence and the detection of suspicious activity - precisely the function the Corporate Transparency Act (CTA) was designed to support.

What the rollback means in practice

Congress enacted the CTA in 2021 to close a long-standing vulnerability in U.S. financial oversight: the ease with which bad actors can form anonymous shell companies and use layered ownership structures to conceal money laundering, tax evasion, terrorism financing, and human trafficking.

The 2022 FinCEN rule implementing the CTA required approximately 32.6 million domestic and foreign entities to report beneficial ownership information, identifying the natural persons who ultimately own or control them. By December 2024, FinCEN had received approximately 10 million such reports ahead of the January 2025 deadline.

Then the new administration reversed course. An interim rule issued in March 2025 effectively exempted all domestic companies from reporting. A final rule, published in the Federal Register on August 14, 2026, made that exemption permanent. According to FinCEN's own estimates cited in the complaint, the rule now excludes more than 99.9 percent of the entities originally covered by the statute - reducing the reporting population from an estimated 32.5 million existing companies to approximately 28,000 foreign reporting companies.

The final rule went further still. FinCEN announced it will purge the beneficial ownership information already collected from domestic entities and U.S. persons - approximately 15 million BOI reports submitted before the March 2025 interim rule - with that deletion expected to occur no later than February 2027.

"The BOI rule had been widely criticized as an expensive and unnecessarily complicated compliance effort, but the harms it sought to address were serious - particularly, money laundering and terrorist financing," Bryan said. "The BOI rule sought to reduce the use of shell companies to launder money relating to illegal activity like human trafficking, by giving the federal government greater visibility into who actually owns and controls those companies."

The legal arguments

The complaint alleges multiple violations of the Administrative Procedure Act, arguing that FinCEN exceeded its statutory authority and acted arbitrarily and capriciously. At its core, the states contend that the executive branch cannot repeal an act of Congress through rulemaking, and that by exempting more than 99.9 percent of covered entities, that is precisely what FinCEN has done.

The planned data purge draws separate legal fire. The CTA requires FinCEN to retain reported beneficial ownership information for at least five years after a reporting company terminates.

The complaint argues that a company has not "terminated" simply because FinCEN has decided to exempt it, and that the purge would also violate the Federal Records Act, which prohibits the destruction of government records without approval from the Archivist of the United States. A constitutional claim - that the purge violates the separation of powers and the Take Care Clause - rounds out the filing.

The broader compliance environment for advisors has shifted considerably alongside this dispute. FinCEN extended anti-money laundering requirements to certain registered investment advisers in rules that took effect in January 2026, but the corporate ownership database those requirements were designed to complement is now largely empty of U.S. entity data.

State regulators cut off from the database

The complaint also flags a consequence that has already arrived for state financial regulators.

In October 2026, the Illinois Department of Financial and Professional Regulation requested access to the existing BOI database - information it uses in supervising state-chartered financial institutions. FinCEN responded that it had not yet begun providing BOI access to non-federal partners and was prioritizing efforts to bring the database into compliance with the updated rule.

That denial, the states argue, frustrates their ability to supervise financial institutions, investigate potential violations, and enforce state tax laws - functions that Congress explicitly anticipated when it authorized state access to the beneficial ownership database.

The FACT Coalition - the Financial Accountability and Corporate Transparency Coalition - applauded the filing.

"Congress spent fifteen years crafting and passing a bipartisan law to help federal, state, and local law enforcement follow the money and stop drug dealers, human traffickers, and fraudsters from harming our communities," said Erica Hanichak, co-director of the FACT Coalition, in a statement published October 28, 2026. "Now, many of those same law enforcement leaders are joining together to demand that the Treasury simply carry out the law as Congress intended."

As plaintiffs, the attorneys general of Arizona, California, Colorado, Delaware, Washington D.C., Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Rhode Island, Virginia, Washington, and Wisconsin join the two lead states.

They are asking the court to vacate both the interim and final exemptions rules, bar FinCEN from carrying out the data purge, and restore the agency's obligation to collect and maintain beneficial ownership information as Congress intended.

For advisors monitoring the shifting regulatory landscape, the outcome of this case could reshape the compliance infrastructure underpinning client due diligence, either by restoring the ownership database or confirming its effective elimination.