FinCEN Exempts U.S. Companies from Beneficial Ownership Reporting Requirements
Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued a final rule that permanently removes the requirement for U.S. companies and U.S. persons to report beneficial ownership information under the Corporate Transparency Act. Treasury also will delete all previously reported information from U.S. companies in its database.
Two other points of relief are included in the final rule. It exempts foreign companies from having to report U.S. person “company applicants” who help a foreign company register to do business in the U.S. It also exempts U.S. persons who have applied for FinCEN identifiers from having to update or correct the information they provided to FinCEN.
Foreign Entities Remain Subject to Beneficial Ownership Reporting
Foreign entities will continue to be subject to beneficial ownership reporting of foreign individuals. The FAQs on the final rule explain that foreign entities include entities that are:
- formed under the law of a foreign country, and
- have registered to do business in any U.S. State or Tribal jurisdiction by filing a document with a secretary of state or similar office.
What the Previous Rule Required
The previous rule was clear. It covered all entities, of any size. Under that rule, entities created in the U.S. or registered to do business in the U.S. were required to report information about their beneficial owners to FinCEN. Beneficial owners are those individuals who own or control a company. The reporting requirement was enacted as part of the 2021 bipartisan Corporate Transparency Act, and was supposed to help the government identify fraud and prevent money laundering. The rule was delayed several times before Treasury announced it would not enforce it.
Small Businesses Challenged the Reporting Requirement
Small businesses in particular swiftly pushed back against the rule estimating that over 30 million small businesses would have to comply with unprecedented disclosures to the federal government. This effort led to the National Federation of Independent Business’s (NFIB) successful lawsuit to block its implementation. Then, when the Trump Administration came in, it announced it would not enforce the rule and quickly pivoted to limiting its reach. The Administration finally decided to suspend it all together for domestic entities.
On the other side, the Financial Accountability and Corporate Transparency Coalition (FACT Coalition) warn that the final Treasury rule “…leaves the U.S. virtually alone among developed nations in not requiring basic transparency for anonymous shell companies.” The group goes on to say that a lack of reporting will make it easier for shell companies to launder money, hide trafficking, and commit tax and other fraud. Interestingly, U.S. Senator Chuck Grassley (R-IA) condemned Treasury’s move, saying in a statement that the final rule “undermines the clear intent of the [Corporate Transparency] law.” Grassley is the Chairman of the Senate Judiciary Committee.
Key Takeaways for U.S. Business Owners
The removal of the beneficial reporting requirement has small businesses and their advisors breathing a sigh of relief. Although the reporting was not that complicated in itself, it was another compliance burden that caused confusion and potentially carried steep penalties. In short, the final rule is a positive development for millions of U.S. business owners.
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