Sliding in at the end of the deadline, FinCEN released an interim final rule that removes the beneficial ownership reporting requirements for U.S. companies and limits it to 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.
The text of the Corporate Transparency Act, as passed by Congress, defines a “reporting company”
(11)Reporting company.—The term “reporting company”—
(A)means a corporation, limited liability company, or other similar entity that is—
(i) created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe; or
(ii)formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian Tribe;
It then goes on to list 23 exceptions from the definitions, largely focused on companies that actually have employees and operations or are otherwise subject to regulation and oversight.
The 24th exception is allows for further exemptions:
(xxiv) any entity or class of 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 from the requirements of subsection (b) because requiring beneficial ownership information from the entity or class of entities— (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 finance, serious tax fraud, or other crimes.
According the interim final rule, the Secretary of the Treasury, in concurrence with the Attorney General and Secretary of Homeland Security has decided that Congress did not intend to include 11(A)(i) in the Corporate Transparency Act.
“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 companies, registered to do business in the US now have 30 days to file their reports.
There are several cases challenging the CTA’s BOI reporting requirements. I would assume this rule would make those cases moot and they will be dismissed. I had thought the better strategy would be for the DoJ to agree with unconstitutionality findings in the cases.
I question whether the interim final rule would stand up to judicial scrutiny since it seems to ignore the text of the statute. I’m not sure who would bring an action to overturn it.
This is probably the death of the Corporate Transparency Act for the next four years. A future administration may choose to replace this rule and bring the US closer to international standards.
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