Client Alert: FinCEN Narrows CTA Scope - Key Updates
Update – FinCEN Narrows CTA Scope: Domestic Companies Are Now Presumably Exempt From Beneficial Ownership Reporting under New Interim Rule
Date: March 26, 2025
Recent Developments in CTA Enforcement
On March 21, 2025, the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Department of the Treasury, issued an interim final rule (the “Interim Rule”) under the Corporate Transparency Act (“CTA”) whereby it (i) significantly revised the statutory definition of “reporting company”, (ii) exempts domestic entities from beneficial ownership reporting requirements, (iii) limits the scope of the CTA to non-U.S. persons, i.e., entities formed under the laws of a foreign country and that are registered to do business in any state or tribal jurisdiction in the United States, and (iv) adds an exemption from reporting, as discussed below, by moving the term “domestic reporting company” to a new exemption.
This narrowing of the CTA’s statutory language is supported in the Interim Rule by the assertion that adding “domestic entities” to the exemptions falls within the statutory provision of the CTA for entities that “the Secretary of the Treasury, with the written concurrence of the Attorney General and the Secretary of Homeland Security, has, by regulation, determined should be exempt” because requiring beneficial ownership information (i) would not serve the public interest, and (ii) 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 [of] finance, serious tax fraud, or other crimes.” (31 U.S.C. § 5336(a)(11)(B)(xxiv)).
Key Changes in CTA Reporting Requirements
- Domestic companies (such as any corporation or limited liability company organized with any secretary of state or any similar office under the law of a U.S. state or Indian tribe) and their beneficial owners are now for the time being exempt from filing beneficial ownership information (“BOI”) reports or updating/correcting previously filed BOI reports;
- Foreign reporting companies are not required to file BOI reports for U.S. person beneficial owners;
- Reporting requirements are adjusted for non-U.S. pooled investment vehicles, such as private funds; under the new interim rule BOI reports are only required of an individual with substantial control who is not a U.S. person (if more than one individual exercises control and at least one of those is not a U.S. person, BOI reporting is only required for the non-U.S. person who has the greatest authority over the strategic management of the entity);
- BOI reporting requirements for foreign reporting companies and their non-U.S. beneficial owners are still required; and
- The deadline for foreign companies to file BOI reports is extended until 30 days after publication of the Interim Rule in the Federal Register or 30 days after registration to do business in the United States, whichever is later.
As a result of these changes under the Interim Final Rule, domestic entities and U.S. person beneficial owners should be able to reasonably rely on FinCEN’s intent in the March 21 announcement as the basis for not making CTA filings. It is important to note, however, that while FinCEN and the U.S. Treasury are delegated rule-making and compliance authority under the CTA, the legislation has not been officially repealed by Congress or stricken down by the U.S. Supreme Court or a U.S. Circuit Court of Appeals as unconstitutional.
Background
The Corporate Transparency Act (CTA) (enacted into law in 2021) requires “reporting companies” to submit information about their beneficial owners to FinCEN. Since the CTA’s enactment, its reporting provisions have faced numerous legal challenges and conflicting federal court rulings. In response, the U.S. Treasury Department issued a series of updates: On February 19, FinCEN announced that enforcement would resume, setting a new reporting deadline of March 21, 2025, for most companies. On February 27, 2025, FinCEN confirmed it would not impose penalties for noncompliance by that date and indicated plans to issue an interim final rule to further extend the deadline. As discussed above, on March 2, 2025, the U.S. Treasury Department announced its intent to revise the reporting requirements to apply only to foreign reporting companies, culminating in the interim final rule published on March 21, 2025.
Next Steps
FinCEN is currently accepting public comments on the Interim Rule and expects to issue a final rule later this year. The agency is also considering legislative changes that may further narrow the CTA’s scope.
These developments signal a shift toward a more focused approach to corporate transparency and compliance trends, as opposed to one that casts a broad net over the marketplace. These actions will significantly reduce operational burdens and costs of the CTA for certain parties, such as registered investment advisors. Businesses and their owners should stay up to date and consult with legal counsel regarding evolving requirements as to the CTA given that the statute has not yet been legislatively repealed or judicially stricken.
*Senior Law Clerk
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.