By Grace Sutton

 

INTERIM FINAL RULE UPDATE:

Under the new interim final rule, domestic entities are now exempt from Beneficial Ownership Information (BOI) reporting. Domestic companies no longer need to file their initial BOI reports or make updates or corrections to previous reports.

According to the FinCEN Q&A page:

“Through an interim final rule, FinCEN revised 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 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. Only entities that meet these criteria and that are not otherwise exempt must report BOI to FinCEN.”

WHY THE CHANGE?

FinCEN has provided several justifications for this change:

  1. Regulatory Burden – The Treasury Secretary, backed by the Attorney General and Secretary of Homeland Security, stated that BOI reporting from domestic companies “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 illicit activities.”
  2. Presidential Policy – The revision aligns with President Trump’s Executive Order 14192, “Unleashing Prosperity Through Deregulation,” aimed at reducing the cost and effort individuals and businesses spend to comply with federal regulations. 
  3. Public Interest and Usefulness – The Secretary evaluated whether the benefits of collecting BOI outweighed the regulatory burden that small businesses faced. Ultimately, the Secretary determined that the majority of small businesses operate lawfully, and that the requirements were unnecessarily burdensome.
  4. Alternative Sources of Information – FinCEN has recognized that there are other ways BOI is collected. Financial institutions (e.g., banks) collect BOI at account openings. This practice helps reduce some of the illicit financial risks that could arise from discontinuing direct BOI reporting.

FOREIGN REPORTING COMPANIES:

Foreign entities still face BOI reporting requirements, though with some notable changes:

  1. Extended Deadlines – The rule will extend the deadline for foreign entities to file their BOI reports. Foreign entities now have 30 days from the publication of this rule or their U.S. registration date (whichever is later) to file initial BOI reports or make updates or corrections to previous reports.
  2. U.S. Beneficial Owners Exempt – Foreign companies no longer need to report the BOI of U.S. beneficial owners, reducing reporting obligations for foreign entities with U.S.-only ownership.
  3. Foreign Pooled Investment Vehicles Revision – These entities now report beneficial ownership only for non-U.S. citizens who hold substantial control. If all controlling individuals are U.S. citizens, no reporting is required.

WHY ARE FOREIGN ENTITIES STILL REQUIRED TO REPORT?

Foreign entities are still required to report as they present higher national security and illicit finance risks.

According to Kaplan Financial Education:

“FinCEN highlighted the risk of foreign illicit actors using legal entities registered in the U.S. to access the financial system for money laundering and sanctions evasion. The rule specifically mentions a National Security Presidential Memorandum (NSPM) addressing Iranian threats, which directs actions related to beneficial ownership to prevent sanctions evasion, further supporting the need for BOI reporting from foreign entities. The Financial Action Task Force (FATF) also found that shell companies, often located in foreign jurisdictions, are used in complex illicit financial structures.”

IN SUMMARY: 

  1. Domestic Companies – Fully exempt from BOI reporting
  2. Foreign Companies – Still must file but with extended timelines and potential exemptions for entities with U.S. beneficial owners
  3. Rationale – The rule aims to reduce regulatory burdens on domestic small businesses and U.S. individuals, while still requiring foreign entities to report due to national security and illicit financial risks. 

WHAT NOW?

For domestic companies, instant compliance relief. However, because it is an interim rule, FinCEN is accepting comments and feedback, and will likely finalize these regulations later on this year. As such, it’s important to still monitor for updates or developments to BOI reporting regulations. 

For foreign reporting companies, ensure you understand your obligations, including extended timelines and potential exemptions.

Next steps: Stay informed, proactive, and remember to monitor future BOI developments.