Breaking News: Corporate Transparency Act Becomes a Shadow of its Former Self

As promised, the Financial Crimes Enforcement Network of the U.S. Department of Treasury (FinCEN) issued an interim final rule (IFR) late today that revises the Reporting Rule under the Corporate Transparency Act (CTA). Reporting companies under the CTA shall now exclude any “domestic entity,” which is defined as any entity that is a corporation, limited liability company, or other entity that is created by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe. Therefore, under the IFR, no domestic entity is required to file a beneficial ownership information report (BOIR) or disclose its beneficial owners or provide updated BOIRs if it previously filed an initial BOIR.  However, the Reporting Rule will still apply to foreign entities based on the new definition of a “reporting company” that is now defined as “[a]ny entity that is: (A) A corporation, limited liability company, or other entity; (B) Formed under the law of a foreign country; and (C) Registered to do business in any State or tribal jurisdiction by the filing of a document with a secretary of state or any similar office under the law of that State or Indian tribe.”  The newly defined reporting companies will have 30 days from the date the IFR appears in the Federal Register to file their initial BOIR or applicable amendments if they previously filed a BOIR. Newly created reporting companies will have 30 days to file an initial BOIR after they are registered in the U.S. and 30 days to file amendments to their BOIRs after a triggering event (change in reportable information).  However, the newly defined reporting companies do not need to disclose any beneficial owners that are U.S. persons, and U.S persons do not need to provide any information about themselves to the newly defined reporting companies for BOIR purposes.

FinCEN believes that it has the authority to exempt domestic entities from the purview of the CTA despite the CTA’s explicitly applying to domestic entities.  FinCEN states that it is relying on 31 U.S.C. §5336(b)(1)(A)(xxiv) of the CTA that provides a reporting company does not include:

“(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.”

The IFR states that the new administration has made those determinations.

The IFR is effective immediately as it relates to domestic entities since it eliminates a burden rather than imposing one.  There is still a public comment period for 60 days after the IFR is published in the Federal Register.  A final rule is expected later this year.  As with all things CTA, one can never rule out a challenge to the IFR, but we will take it on its face for now.

Links to the press release regarding the IFR and the IFR are included for your reading pleasure.