Domestic Entities No Longer Required to Disclose Beneficial Ownership Information
The U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) issued an interim final rule on March 21, 2025 (effective March 26, 2025) that modifies the Corporate Transparency Act (“CTA”) by significantly reducing its scope. The CTA was ostensibly designed to increase transparency in corporate structures by requiring businesses to disclose their beneficial ownership information (“BOI”) to help combat money laundering, fraud, and the use of shell companies for illicit activities. However, many contended that it was cumbersome and an unnecessary burden on small businesses. Changes to the CTA now bring significant shifts to the reporting obligations of certain entities.
Key Changes Introduced by the Interim Final Rule
- Exemption of Domestic Entities: The interim final rule exempts domestic entities from the requirement to report BOI. This exemption effectively eliminates any reporting obligations for entities formed in a U.S. state or Indian tribal jurisdiction. Moreover, this exemption applies regardless of such entities’ ownership or control. Thus, a U.S. entity owned and controlled entirely by non-U.S. citizens or residents would still have no reporting obligation. The Treasury Department explained that this exemption aims to reduce regulatory burdens on small businesses.
- Continued Reporting Requirements for Foreign Entities: While domestic companies are exempt, foreign companies registered to do business in any U.S. state or Indian tribal jurisdiction are still required to disclose their BOI (unless another exemption applies). However, the new rule removes any obligation to report foreign entities’ beneficial owners who are U.S. citizens or residents. Foreign reporting companies registered to do business in the United States prior to March 26, 2025 must file BOI reports by April 25, 2025, while any foreign reporting companies registered thereafter must file an initial BOI report 30 calendar days after the effective date of registration to do business in the United States.
Implications and Reactions
Small business advocacy organizations have largely-welcomed the rule, arguing that the original BOI reporting requirements were burdensome. On the other hand, transparency advocates have raised concerns that exempting domestic companies from reporting their BOI could weaken efforts to combat illicit financial activities. The rule has also sparked legal debates, with some experts expressing concern as to whether the Treasury has the authority to make such changes without congressional approval.
Looking Ahead
The Treasury has invited public comments on the interim final rule, with a deadline for submission set for May 27, 2025. The feedback will likely influence future revisions to the rule, with a final rule expected by year’s end. As stakeholders continue to evaluate the impact of these changes, the balance between reducing regulatory burdens on businesses and maintaining the integrity of anti-money laundering efforts remains a key issue.
Beyond the text of the rules, uncertainty remains concerning how Congress may respond to a significant modification to the application of statutory law. Additionally, FinCEN has not commented on whether entities that complied with the law as then applied will be able to delete their previously submitted beneficial ownership information from the databases. Finally, it remains to be seen how the states will respond. Several states previously contemplated implementing state-level equivalents of the CTA, while the New York LLC Transparency Act (due to take effect on January 1, 2026) is designed to operate in conjunction with the CTA. The significant change effected by the interim final rule may alter the states’ plans.
In conclusion, the March 2025 interim final rule marks a significant shift in the U.S. approach to corporate transparency. It all but eliminates any burden on U.S. businesses, while reducing the burden on foreign entities registered to do business in the United States.
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