On March 21, the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) issued an Interim Final Rule (“Rule”) that provides a reprieve from the beneficial ownership reporting requirements under the Corporate Transparency Act (“CTA”) for domestic entities. The Rule marks a crucial step in the implementation of the highly controversial and extensively litigated aspect of the CTA, requiring certain entities to disclose to a national registry the names of individuals who directly or indirectly exercise substantial control over or receive significant financial benefits from the entity. The stated goal of the disclosure requirement is to enhance transparency and combat money laundering, terrorist financing, and other illicit financial activities.
The Interim Final Rule, which significantly narrows the scope of the CTA’s beneficial ownership information reporting requirement, comes in the midst of a bevy of legal challenges and conflicting federal court decisions related to enforcement of the CTA. In response to the series of decisions, including a nationwide injunction against enforcement and a lifting of the injunction, FinCEN issued a series of updates and delays to enforcement deadlines. The complete history of the drama can be found in our Law Alerts covering this topic, linked to below.
Key provisions of the Rule:
- Domestic Entities: Legal entities duly established under the laws of a U.S. State or Commonwealth and their beneficial owners, are exempt from the requirement to submit an initial beneficial ownership report, or to update or correct a previously submitted report.
- Foreign Entities: Legal entities formed under the laws of a foreign country that have registered to do business in any U.S. State or Commonwealth, and their beneficial owners, are exempt only from the requirement to provide the beneficial ownership information of any U.S. person who is a beneficial owner of the foreign reporting entity.
- Deadline Extension: For foreign entities and their beneficial owners that are still required to report beneficial ownership information, the deadline to file initial beneficial ownership information reports, or update or correct a previously filed report, is extended to 30 days from the later of (i) the date on which the Interim Final Rule is published in the Federal Register, or (ii) the date on which the entity registers to do business within the United States.
The CTA’s standard for determining who is a beneficial owner, while now applicable only to foreign entities, remains an individual who owns or controls 25% or more of the entity’s equity interests, or who exercises substantial control over the entity. Additionally, the Rule retains the existing exemptions from reporting for certain types of entities, a list of which can be found in our initial Law Alert on this topic. The consequences for noncompliance with the CTA’s reporting requirements under the Rule also have not changed, and can result in substantial penalties, including fines and potential criminal charges.
It is an understatement to say that the Interim Final Rule cuts down significantly on the number of entities that will now be required to submit beneficial ownership interest information. FinCEN estimates that, as a result of the changes adopted under the Rule, there will be approximately 12,000 filings annually over each of the first three years of implementation, compared to the estimate based on the CTA’s original scope, predicting roughly 10,510,000 annual filings over each of the first five years. While there is still pending litigation concerning the CTA’s beneficial ownership information reporting requirements, in light of the Interim Final Rule’s exemption of domestic entities and the resulting massive reduction in the number of entities impacted by the requirements, it is unclear what impact, if any, the outcomes of those cases might have.
Domestic businesses that held out on submitting beneficial ownership reports in the hope that pending litigation would come to the rescue, can now breathe a sigh of relief as a result of the absolution that has come from the exemption in FinCEN’s Interim Final Rule. Foreign entities should be prepared to submit required information by the deadline noted above.
Our prior Law Alerts on this topic are available here:
Corporate Transparency Act Beneficial Ownership Interest Reporting: Game Off…for the Moment – March 3, 2025
FinCEN Issues New CTA Beneficial Ownership Reporting Deadline After Court Lifts Nationwide Injunction – February 20, 2025
Corporate Transparency Act Litigation Continues to Induce Whiplash – January 24, 2025
No Rest for the Weary: Department of Justice asks Supreme Court to Issue a Stay of Nationwide Injunction Against Corporate Transparency Act (CTA) – January 2, 2025
Pencils Down: Corporate Transparency Act (CTA) Injunction Back in Effect – December 27, 2024
Fifth Circuit Court of Appeals Lifts Nationwide Preliminary Injunction Against Enforcement of Corporate Transparency Act Pending Ruling on the Merits – December 24, 2024
Texas District Court Issues Nationwide Preliminary Injunction Against Enforcement of Corporate Transparency Act (CTA) – December 4, 2024
FinCEN Beneficial Ownership Reporting Requirements Due by Year End for Many Organizations – November 18, 2024
