America Retreats from Corporate Transparency: Lessons for Pakistan

On 1st March 2024, Judge Liles C. Burke of the United States District Court for the Northern District of Alabama held, in National Small Business United v. Yellen, that the “Corporate Transparency Act”, the American statute requiring companies to report their beneficial owners to the Financial Crimes Enforcement Network (“FinCEN”), was unconstitutional, since the Congress of the United States possessed no enumerated power to regulate the mere act of incorporation. The opinion opened by recalling the late Justice Antonin Scalia's remark that federal judges should keep a rubber stamp reading “stupid but constitutional”, and observed that the inverse is equally true: the wisdom of a policy is no guarantee of its constitutionality, and even in pursuit of sensible and praiseworthy ends a legislature sometimes enacts smart laws that violate the Constitution.

The “Corporate Transparency Act” was the centrepiece of the American anti-money laundering reform enacted on 1st January 2021, when Congress overrode a presidential veto to pass it; it required more than thirty million existing companies to file with FinCEN the particulars of every individual owning twenty-five per cent or more of the entity, or exercising substantial control over it, by 1st January 2025. What followed the Alabama judgment was procedural whiplash: on 3rd December 2024 the Eastern District of Texas, in Texas Top Cop Shop, Inc. v. Garland, issued a nationwide injunction against the statute; on 23rd December 2024 the Fifth Circuit stayed that injunction; and while the appeals were still pending, the executive finished what the judges had started. By an interim final rule of 21st March 2025, FinCEN exempted every domestically formed American company from reporting, confining the register to foreign-formed entities registered to do business in the United States, and excusing even those from reporting their American beneficial owners.

The register remains on the statute book, but it is no longer in field against American companies.

Why Pakistan should study the American retreat

Since the Financial Action Task Force (“FATF”) placed Pakistan on its “Grey List” in June 2018 and kept it there until 21st October 2022, therefore every Pakistani banker, company secretary and compliance officer has lived for years under precisely the discipline which America has now abandoned for itself. The price of exit was steep: two Action Plans totalling thirty-four points, twenty-seven imposed in 2018 and seven added in 2021; the amendment of more than ten federal laws; and an International Monetary Fund programme of six billion US Dollars which included exit from the “Grey List” among its conditions, as the Basel Institute on Governance recorded in its country briefing of 15th December 2022.

Very unfortunately, the discipline has never been symmetrical. The Asia/Pacific Group on Money Laundering's Mutual Evaluation Report of October 2019 scored Pakistan at thirty-nine per cent for technical compliance and three per cent for effectiveness, and four follow-up reports between September 2020 and August 2022 raised technical compliance to seventy-two per cent, with not a single Recommendation left rated non-compliant. In the same period the Tax Justice Network's Financial Secrecy Index 2020 ranked the United States second in the world as a haven of financial secrecy, above Switzerland; yet, for the reasons best known to the FATF, the United States has never spent a day on any list.

Pakistan built its register, and kept it

Pakistan's counterpart to the fallen American statute is Section 123A of the Companies Act, 2017 (Act XIX of 2017), inserted by the Companies (Amendment) Act, 2020 and in field since 26th August 2020, under which every company must obtain and maintain the particulars of its “Ultimate Beneficial Owner”, the natural person who ultimately owns or controls it, and declare them to the Securities and Exchange Commission of Pakistan (“SECP”) on Form 45 under the Companies (General Provisions and Forms) Regulations, 2018; default attracts a penalty of up to ten million Rupees for the company and up to one million Rupees for an officer in default. Since the incorporation, regulation and winding-up of trading corporations is a federal subject under Entry 31 of Part I of the Federal Legislative List in the Fourth Schedule to the Constitution of the Islamic Republic of Pakistan, 1973, therefore the federalism objection which felled the American statute has no purchase in Pakistan; the act of incorporation here is Islamabad's to regulate, and no court of ours will be asked whether a company may be regulated, as Judge Burke put it, “the moment it obtains a formal corporate status”.

The reporting machinery responded to the FATF years exactly as intended. The Financial Monitoring Unit (“FMU”), Pakistan's financial intelligence unit under the Anti-Money Laundering Act, 2010 (Act VII of 2010), received 3,662 Suspicious Transaction Reports in 2016, 8,708 in 2018, 20,030 in 2019 and 33,743 in 2021, before the figure settled at 24,107 in 2022; Currency Transaction Reports rose from 221,533 in 2011 to 4,565,471 in 2022 (FMU, Quarterly Report, October to December 2022). Figure 1 tells the story of the “Grey List” in a single picture: the reporting curve bends sharply upward after June 2018 and never returns to its old level.

Three per cent.

That was Pakistan's score for effectiveness in the Mutual Evaluation Report of October 2019, and since the FATF follow-up process reassesses technical compliance but not effectiveness, that number was never revisited before delisting. Figure 2 sets the two measures side by side, and the gap between them is the whole argument of this article: paper compliance soared, while measured effectiveness never moved.

Where the gap shows: the courtroom

The gap is visible in the FMU's own tables. In the last quarter of 2022 the FMU sent 510 financial intelligence disclosures to law enforcement agencies, and the largest predicate categories were tax crimes, with ninety-nine items, and Hawala and Hundi, with eighty; which is to say that the offences at the centre of Pakistani money laundering are revenue offences, investigated by state functionaries who must first determine a liability before they allege its laundering.

When that sequence is ignored, the cases collapse. In Shahid Chaudhry v The State (Criminal Petition No.174 of 2026, decided on 27th February 2026), the Honourable Supreme Court of Pakistan confirmed pre-arrest bail where an FIR under Sections 3 and 4 of the Anti-Money Laundering Act, 2010 had been registered on allegations of tax evasion without any determination of liability through assessment under the Income Tax Ordinance, 2001 (Ordinance XLIX of 2001), and where the Appellate Tribunal Inland Revenue had subsequently annulled the tax liability altogether. Their Lordships held that the charge of money laundering is derivative; that whether an asset is “proceeds of crime” cannot be assumed before the predicate offence is determined; and that criminal law should not be used as a tool for the recovery of money, following Directorate of Intelligence and Investigation-FBR v Taj International (Pvt) Ltd (PLD 2025 SC 633).

The American episode and the Pakistani record therefore teach opposite halves of the same lesson. The American half is that a beneficial ownership register is politically fragile even in the richest jurisdiction on earth: struck down by a District Judge on 1st March 2024, rescued by appellate stays, and then hollowed out by the executive on 21st March 2025, before a single enforcement action had matured. The Pakistani half is that a register faithfully built is worth little if the prosecution machinery behind it cannot convert intelligence into convictions; keeping in view that the FMU disseminated 510 disclosures in a single quarter while the three per cent effectiveness rating of October 2019 has never been revisited in any published FATF reassessment, the imbalance between collection and conviction hence needs serious reconsideration.

What is to be done

In the light of the above, it is urgently required that, first, no FIR under the Anti-Money Laundering Act, 2010 be registered on a revenue predicate before the liability has been determined through assessment, as the Honourable Supreme Court of Pakistan has now insisted in both Taj International and Shahid Chaudhry; secondly, that the SECP move from collecting Form 45 declarations to verifying them against the records of NADRA and the Federal Board of Revenue, because a register of unverified declarations is a filing cabinet, not transparency; thirdly, that specialised anti-money laundering prosecutors be appointed and trained for the revenue predicates which dominate the FMU's tables; and fourthly, that the conversion rate from financial intelligence to prosecution to conviction be published annually, so that the next Mutual Evaluation measures Pakistan by outcomes it can prove rather than papers it has filed.

Judge Burke wrote that a legislature sometimes enacts smart laws that violate the Constitution. Pakistan's affliction is the reverse: we enact constitutional laws and then leave them dormant, as I argued in these pages on 12th August 2018 of the Anti-Money Laundering Act, 2010 itself. America can afford to dismantle its register, because no one grey-lists the author of the rulebook. Pakistan enjoys no such indulgence; and when the next Mutual Evaluation arrives, it is our conviction rate, not our statute book, that will be weighed.