The Financial Crimes Enforcement Network, a bureau of the Department of the Treasury, has recently adopted an interim final rule that narrows the scope of beneficial ownership information reporting requirements under the Corporate Transparency Act. This new regulation exempts “domestic reporting companies” from the BOI reporting requirements and extends deadlines for “foreign reporting companies.” This article outlines these new regulations, their implications, and the rationale behind these changes.
Initial Reporting Requirements
The new regulations are primarily based on the CTA, which was enacted as part of the broader Anti-Money Laundering Act of 2020. The CTA amends the Bank Secrecy Act by adding a new section 5336, Beneficial Ownership Information Reporting Requirements. The CTA aimed to enhance transparency in corporate ownership to combat money laundering, terrorism financing, and other illicit activities. It required many corporations, limited liability companies, and other similar entities operating in the United States to report their beneficial ownership information to FinCEN. The initial regulations, effective January 1, 2024, mandated that both domestic and foreign reporting companies file BOI reports with FinCEN. Prior to the effective date the CTA was challenged in the courts resulting in an on-again off-again roller coaster of injunctions.
Revisions To BOI Reporting Requirements
The most significant change introduced by the new regulation is the exemption of “domestic reporting companies” from the BOI reporting requirements. This exemption is based on the determination that requiring BOI from domestic entities would not serve the public interest and would not be highly useful in national security, intelligence, and law enforcement efforts to detect, prevent, or prosecute money laundering, terrorism financing, and other crimes.
The rationale behind this exemption includes the recognition that most domestic reporting companies are small businesses, which are acknowledged as the backbone of the U.S. economy. The compliance costs associated with BOI reporting were deemed excessively burdensome for these small businesses, especially during financially difficult times. FinCEN estimated that the total aggregate labor costs for reporting companies filing initial BOI reports in the first year of the Reporting Rule would be $21.7 billion, with annual costs of $3.3 billion in subsequent years. By exempting “domestic reporting companies”, the new rule aims to alleviate these burdens and support the current administration’s goals.
The exemption of domestic reporting companies from BOI reporting requirements uses broader policy directives aimed at supporting economic prosperity and reducing regulatory burdens as support for the changes. On Jan. 31, 2025, President Donald Trump issued Executive Order 14192, “Unleashing Prosperity Through Deregulation,” which announced an administration policy to significantly reduce the private expenditures required to comply with federal regulations. The executive order emphasized the need to alleviate unnecessary regulatory burdens placed on the American people to secure economic prosperity and the highest possible quality of life for each citizen.
Consistent with this policy direction, the Secretary of the Treasury reassessed the balance between the usefulness of collecting BOI and the regulatory burdens imposed by the scope of the reporting rule. The regulations also consider findings from the Financial Action Task Force, particularly a report on the Concealment of Beneficial Ownership, which highlights the risks posed by shell companies and complex structures involving multiple jurisdictions. The regulations note that a majority of cases analyzed by FATF that included shell companies involved a corporation located in a foreign jurisdiction.
The Secretary, with the written concurrence of the Attorney General and the Secretary of Homeland Security, determined that the reporting of BOI by “domestic reporting companies” and their beneficial owners “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.” Especially when weighed against the cost burdens to small businesses.
Foreign Reporting Companies Must Still Comply
While “domestic reporting companies” are exempted, “foreign reporting companies” are still required to report their BOI to FinCEN with certain modifications. For example, the new rule introduces several exemptions and extensions to ease the compliance burden on these entities. Notably, “foreign reporting companies” are exempt from reporting the BOI of any U.S. persons who are beneficial owners. Similarly, U.S. persons are exempt from providing their BOI to foreign reporting companies for which they are beneficial owners.
The rule also revises the special rule associated with foreign pooled investment vehicles. These entities are now exempt from reporting the BOI of U.S. persons who exercise substantial control over the entity. If more than one individual exercises substantial control and at least one of those individuals is not a U.S. person, the entity must report information about the non-U.S. person with the greatest authority over the strategic management of the entity.
The regulations note that foreign illicit actors, such as corrupt foreign officials, sanctions evaders, and narco-traffickers, exploit gaps in the U.S. BOI reporting regime to park their ill-gotten gains in a stable jurisdiction, thereby exposing the United States to serious national security threats. Specific examples include significant criminal investigations into the use of shell companies to launder money or evade sanctions imposed by the United States, including sanctions evasion by Iran through shell companies abroad. Presumably, this motivated the focus on continued compliance by “foreign reporting companies” and non-U.S. beneficial owners.
Recognizing the challenges posed by ongoing litigation and the need for additional time to comply, FinCEN has extended the deadlines for foreign reporting companies to file their initial BOI reports and to update or correct previously filed reports. The new deadline is 30 days from the date of the rule’s publication or 30 days after their registration to do business in the United States, whichever comes later. This extension provides “foreign reporting companies” with the necessary time to comply with the reporting requirements without facing immediate penalties.
Conclusion
By exempting “domestic reporting companies” and extending deadlines for foreign reporting companies, the rule aims to balance the need for transparency in corporate ownership with the economic realities faced by small businesses. The exemptions for U.S. persons and the revised requirements for foreign pooled investment vehicles further tailor the regulations to balance national security and illicit finance risks without imposing undue burdens on legitimate businesses.
As FinCEN continues to solicit comments on this interim final rule, it remains to be seen how these changes will be received by the public and whether additional adjustments will be made in the final rule. Nonetheless, the current revisions mark a step towards a more balanced and pragmatic approach to beneficial ownership information reporting and acknowledgement of the burdens the reporting placed on small businesses.
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