The decision by the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, to halt enforcement of the Corporate Transparency Act’s Beneficial Ownership Information reporting requirement is a momentous one — and received mixed reactions.
“It drives a stake through the heart of BOI reporting for most if not all small businesses,” said Roger Harris, president of Padgett Business Services. “For everybody in the small-business community, given the way it was being enforced, it’s good news. I don’t know what its effectiveness would be in combating money-laundering and terrorist activity, but for being a burden on small businesses, it’s good news.”
Not everyone was thrilled with the decision. “This law was created to help deter illicit finance through shell companies or other opaque ownership structures” said Jill DeWitt, senior director of compliance & third-party risk management solutions at Moody’s. “It was also designed to align the U.S. globally with financial transparency, especially around beneficial ownership of entities to help prevent terrorist organizations, organized criminals, and other bad actors from exploiting the U.S. financial system and hide their illicitly obtained financial gains.”
Picasa/rrodrickbeiler – Fotolia
“While arguments against burdening small businesses with the requirements of beneficial ownership compliance and of financial reporting are understandable, greater transparency could help raise financial institutions’ awareness of bad actors in their customer base and support them in avoiding onboarding bad actors who might have otherwise been hidden or overlooked,” she explained.
The CTA requires corporations, LLCs, and other entities formed under state law (domestic reporting companies) or similar entities formed under foreign law and registered to do business in the U.S. (foreign reporting reporting companies) to report to FinCEN their beneficial ownership.
The reason for the legislation was that kleptocrats, human rights abusers, drug dealers and other corrupt actors have used complex and opaque corporate structures, including shell companies, to hide and launder the proceeds of their corrupt activities. But the law did not affect businesses evenly. Under the rules, more than 32 million small businesses were legally obligated to comply at the beginning of 2024, with 5 million more added every year. However, there is no small-business exception: In this case, the exception is reversed — large companies were mostly exempt, since the government already knew who they were.
“On Feb. 27, 2025, FinCEN said they would suspend all penalties and come out with ways to only penalize people they think were at risk,” said Harris. “Then over the weekend — on Sunday, March 2 — they said they will not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their domestic owner. They still have to issue final guidance, but basically the reporting requirement will only apply to foreign entities. They haven’t issued a rule yet; it’s just a statement.”
“Another administration could take office in four years and reverse the decision,” he noted.
But for now, it’s gone. President Trump praised the decision on Truth Social on March 2: “Exciting news! The Treasury Department has announced that they are suspending all enforcement of the outrageous and invasive Beneficial Ownership Information (BOI) reporting requirement for U.S. citizens … Treasury is now finalizing an Emergency Regulation to formally suspend this rule for American Businesses. The economic menace of BOI reporting will soon be no more.”
Credit: Source link
