On March 21, the Treasury Department's Financial Crimes Enforcement Network (FinCEN) issued its "Interim final rule; request for comments" that removes any requirement for U.S. companies or U.S. persons to submit beneficial ownership information (BOI) reports, as required by the Corporate Transparency Act (CTA).
As we've previously written, on February 27, FinCEN announced that "it will not issue any fines or penalties or take other enforcement actions against any companies based on any failure to file or update BOI reports…until a forthcoming interim final rule becomes effective and the new relevant due dates in the interim final rule have passed."
As stated in FinCEN's latest release:
In that interim final rule, FinCEN revises 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.
Thus, through this 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 apply for foreign entities that are reporting companies:
- Reporting companies registered to do business in the United States 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 United States on or after the date of publication of the [Interim Final Rule] have 30 calendar days to file an initial BOI report after receiving notice that their registration is effective.
Notably, the interim final rule does not address what happens to the BOI reports for domestic reporting companies already filed with FinCEN, such as whether previously submitted data in BOI reports that are no longer required from domestic reporting companies or whether U.S. persons remain in the BOI database forever. Additionally—and importantly—anyone who obtained a FinCEN identifier (including U.S. persons) must continue to update and correct their personal information, even if the FinCEN identifier was obtained in relation to a BOI submission for a domestic reporting company. FinCEN has yet to propose a process for deactivating FinCEN identifiers.
In asserting the authority to issue the interim final rule, which eviscerates the substantive reporting provisions in the CTA, FinCEN points to a statutory exception in the CTA. The exception permits the Treasury Department to exclude the need to report information for an entity (or class of entities) provided the secretary of the treasury, the attorney general, and the secretary of homeland security all concur, in writing, that such entity (or class of entities) should be exempt because requiring reporting from that entity (or class of entities) "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 crime." The interim final rule details the bases of such determinations.
In light of the interim final rule, domestic reporting companies are not required to file BOI reports. The interim final rule amends existing regulations to provide that "[r]eporting companies are exempt from the requirement in [the CTA] and this section to report the beneficial ownership information of any United States persons who are beneficial owners."
In essence, this means that a foreign reporting company (a significantly small subset of those anticipated to be affected by the CTA reporting requirements still required) may satisfy its reporting obligations and file a "true, correct and complete" BOI report without including information on those persons who qualify as equity owners or who exercise substantial control if such persons are from the United States. It would not be surprising to see a drop in foreign reporting companies altogether. In the future, foreign persons or entities may elect to create a domestic reporting company that is wholly-owned by foreign persons rather than registering the foreign entity to do business in a U.S. state or tribal jurisdiction.
Based on the interim final rule, this appears to avoid the need to file BOI reports pursuant to the CTA. FinCEN is accepting public comments on the interim final rule for 60 days and stated that it will "assess the exemptions, as appropriate, in light of those comments and intends to issue a final rule this year."
This is not the end of the saga and the above is subject to change. To discuss this or other issues related to FinCEN or the CTA, please contact the authors, or any of the attorneys in Venable's Corporate Law Group.