US scales back the Corporate Transparency Act
Date of publication: March 20, 2025
Overview
The Corporate Transparency Act (CTA), originally passed by Congress in 2021 and brought into force on January 1, 2024, requires many companies operating in the U.S. to report information about their beneficial owners — the individuals who ultimately own or control the company — to the Financial Crimes Enforcement Network (FinCEN). The goal is to increase transparency in creation of a centralized beneficial ownership registry to assist in preventing and combating illicit activities such as money laundering, terrorist financing, human and drug trafficking, terrorism, tax evasion, and fraud.
FinCEN initially delayed the reporting deadline (January 1, 2025) for most companies to March 21, 2025, and subsequently the agency announced on February 27, 2025, that it would not issue fines or penalties or take enforcement actions against any companies until a forthcoming interim rule goes into effect.
Then, on March 2, 2025, the Treasury Department (“Treasury”) announced via a statement on its website that it will no longer enforce any penalties or fines associated with the beneficial ownership reporting rule under the Corporate Transparency Act (CTA) against U.S. citizens or domestic reporting companies and their beneficial owners. Treasury stated its intent was to make this change permanent and that requirements would apply strictly to foreign reporting companies. This is even though many of the money laundering situations that have been found involve foreign criminals using domestic entities.
Summary of the CTA
The CTA essentially requires, at its highest level, that all entities, either formed in the United States or formed elsewhere but registered to do business in the United States, file a report that lets the federal government know, specifically the FinCEN, who their owners are.
Under the CTA, certain entities created in the U.S. or that are registered to do business in the U.S., referred to as “reporting companies” under the CTA, would be required to report to FinCEN specific information about their businesses, as well as their beneficial owners. Reporting companies include limited liability companies, corporations, and partnerships. The information must remain current, accurate and include deadlines for when updates must be made (within 30 days). Penalties exist for non-compliance.
Under the CTA beneficial ownership information (BOI) reporting rule:
- The term “domestic reporting company” means any entity that is: (i) a corporation; (ii) a limited liability company; or (iii) 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.
- The term “foreign reporting company” means any entity that is: (i) a corporation, limited liability company, or other entity; (ii) formed under the law of a foreign country; and (iii) 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 a State or Indian tribe.
There are some exceptions to the regulation. Entities that are already very well regulated by other aspects of the government — for example publicly traded companies, banks, insurance companies, utilities — are not required to file reports. The regulation is really aimed at those smaller and mid-size businesses.
Takeaways and next steps
While the CTA would appear to no longer be a requirement for domestic reporting companies, the situation is fluid. Many are taking a wait-and-see approach; however, a domestic reporting company may not feel any pressure to file a BOI report until further clarification indicates it is necessary to do so.
Additionally, Treasury’s announcement does not address all scenarios involving U.S. citizens. For example, it remains unclear whether a U.S. citizen who is a beneficial owner of a foreign reporting company, is exempt from enforcement. Hopefully, some of these outstanding questions will be further clarified in the upcoming final rule, which would also address reporting requirements for foreign companies. FinCEN has indicated that it may revise deadlines further and prioritize reporting requirements for entities posing significant national security risks.
Even if filing the actual reports is determined to be unnecessary at this time, companies may wish to be ready to file those reports. It may be a good idea to go ahead and get the required information in hand and know what you will need to report if it comes back. This readiness ensures prompt action if the order is lifted, reducing the risk of non-compliance if the deadlines are reinstated with little notice. FinCEN has advised that reporting companies may voluntarily submit beneficial ownership reports. This decision should be guided by your company’s risk tolerance and operational priorities.
Companies may also consider transparency regulations in other countries where they are conducting business that may make this practice wise to follow from a corporate perspective, as well as reviewing any contractual obligation they have in place that has language touching on this requirement.
Given the ongoing regulatory changes, and with potential appeals and legislative action on the horizon, it is wise to closely monitor developments for updates on any further modifications.
For more information on how ONESOURCE Global Trade solutions can assist you in managing supply chain risk and regulatory compliance, contact your Account Manager or Customer Success Manager.