FinCEN rule removes CTA’s BOI requirements for US companies

The Treasury Department’s Financial Crimes Enforcement Network issued an interim final rule Friday removing the requirement under the Corporate Transparency Act for U.S. companies and people to report beneficial ownership information to FinCEN.

In the interim final rule, FinCEN revised the definition of “reporting company” in its implementing regulations to mean only those entities that are formed under the law of a foreign country and that have registered to do business in any U.S. state or tribal jurisdiction by the filing of a document with a secretary of state or similar office (formerly known as “foreign reporting companies”). FinCEN also exempts entities previously known as “domestic reporting companies” from BOI reporting requirements.

The move reflects an announcement earlier this month in which FinCEN said it would no longer enforce the CTA, nor enforce any penalties or fines associated with beneficial ownership reporting under the existing regulatory deadlines, but left open the possibility of enforcing it against foreign companies, saying it planned to issue a proposed rulemaking that would narrow the scope of the rule to foreign reporting companies only. 

Under the interim final rule, all entities created in the United States — including those previously known as domestic reporting companies — and their beneficial owners will be exempt from the requirement to report BOI to FinCEN. Foreign entities that meet the new definition of a “reporting company” and do not qualify for an exemption from the reporting requirements must report their BOI to FinCEN under new deadlines, detailed below. These foreign entities, however, will not be required to report any U.S. persons as beneficial owners, and U.S. persons will not be required to report BOI with respect to any such entity for which they are a beneficial owner.

Upon the publication of the interim final rule, the following deadlines will apply for foreign entities that are reporting companies:

• Reporting companies registered to do business in the U.S. before the date of publication of the interim final rule must file BOI reports no later than 30 days from that date.
• Reporting companies registered to do business in the U.S. on or after the date of publication of the IFR have 30 calendar days to file an initial BOI report after receiving notice that their registration is effective.

FinCEN said Friday it’s accepting comments on this interim final rule and intends to finalize the rule this year.

If finalized, the rule would exempt more than 99% of entities from reporting their ownership information under the statute, according to advocacy groups.

“Treasury’s proposal contradicts decades of evidence that sanctions evaders, tax cheats, and fentanyl traffickers rely on anonymous U.S. companies to stash their illicit cash in the U.S. financial system,” said Ian Gary, executive director of the FACT Coalition, in a statement Friday. “This decision is tantamount to nullifying the statute and is very unlikely to be upheld in court. Treasury must take these legal and constitutional considerations into account as part of the rulemaking.”

The interim final rule is designed to formalize unusually abrupt announcements made earlier this month by the Treasury Department and President Trump that the Treasury would halt enforcement of the CTA, advocates noted. The announcements were made despite the fact that the law passed with the support of the first Trump administration.

“District attorneys around the country strongly support the Corporate Transparency Act as an indispensable tool for combating the fentanyl epidemic, transnational crime, terrorism financing, and other illicit activities,” said Nelson Bunn, Executive Director of the National District Attorneys Association, in a statement. “Access to beneficial ownership information is a necessity for prosecuting crimes. Treasury’s interim final rule threatens to deny law enforcement the vital information they need to pursue illegitimate business fronts that jeopardize U.S. national security and public safety. If finalized without amending, this proposal will undermine Congress’s intent and stunt efforts to achieve justice across the nation.” 

The CTA was signed into law as part of the National Defense Authorization Act of 2021 and requires individuals with an ownership interest in a limited liability company to disclose personal data to the Treasury Department’s Financial Crimes Enforcement Network as a way to deter illicit activity such as money laundering, tax fraud, drug trafficking and terrorism financing by anonymous shell companies. Failure to comply could result in up to two years of jail time and a $10,000 fine per violation. 

Under the CTA statute, the Treasury has the authority to make reporting exemptions only with concurrence from the Department of Homeland Security and Attorney General that reporting by the entities in question “would not serve the public interest” and “would not be highly useful in national security, intelligence, and law enforcement agency efforts to detect, prevent, or prosecute money laundering, the financing of terrorism, proliferation finance, serious tax fraud, or other crimes.” Two decades of evidence compiled by Congress and Treasury’s own risk assessments that “[s]hell companies and the lack of timely access to beneficial ownership information…are distinct vulnerabilities in the U.S.” anti-money-laundering system would suggest that the proposal violates the plain language of the act.  

“Today’s decision threatens to make the United States a magnet for foreign criminals across the world,” said Scott Greytak, director of advocacy for Transparency International U.S., in a statement. “The decision tells criminals — fentanyl traffickers, human traffickers, terrorist organizations, corrupt officials — that they can evade the most powerful anti-money laundering law since the PATRIOT Act by choosing to set up a shell company for their criminal operations anywhere in the United States.”

The National Federation of Independent Business, a small business advocacy organization that had sued to stop the Corporate Transparency Act, praised the interim final rule.

“NFIB has been steadfast since the beginning that this onerous requirement is a massive intrusion into small businesses’ privacy and creates an unprecedented new government database on Americans. We agree with President Trump that requirements from the Corporate Transparency Act are ‘outrageous and invasive,'” said NFIB president Brad Close in a statement. “NFIB will continue to work with Congress to put the Administration’s actions into law and repeal the CTA fully. Furthermore, Congress should direct FinCEN to immediately destroy all of the data that was already submitted by small businesses out of fear they would face fines and prison time.”