Major Policy Shift Exempts U.S. Companies and U.S. Beneficial Owners
On March 21, 2025, the Financial Crimes Enforcement Network (FinCEN) issued an interim rule via press release that fundamentally transforms the scope of the Corporate Transparency Act (CTA). This significant revision exempts all domestic reporting companies from filing requirements and removes the obligation for foreign reporting companies to report U.S. persons as beneficial owners.
Key Changes to CTA Requirements
The interim rule creates two major exemptions:
1. Domestic companies: U.S. entities are now completely exempt from filing Beneficial Ownership Information (BOI) reports
2. U.S. beneficial owners: Foreign reporting companies no longer need to report information about their U.S. person beneficial owners
This dramatic narrowing means the CTA will now only apply to foreign entities registered to do business in the United States and only require reporting of non-U.S. beneficial owners. According to American Banker, these changes exempt more than 99% of entities previously required to report under the CTA.
Compliance Timeline for Remaining Entities
Foreign reporting companies must comply with the revised requirements within 30 days of the rule’s Federal Register publication, scheduled for March 26, 2025. The Treasury Department will accept public comments on the interim rule for 60 days following publication.
Legal and Legislative Uncertainties
The interim rule’s sweeping exemptions may face legal challenges arguing that Treasury has exceeded its statutory authority. While the CTA authorizes the Treasury Secretary to create exemptions, critics may contend these changes contradict congressional intent and explicit statutory language.
The rule’s impact on pending constitutional challenges remains unclear. Both the Fifth and Eleventh Circuit Courts of Appeal have requested briefings on how the rule affects current litigation. Some cases brought by domestic companies may be rendered moot, while challenges from foreign entities can proceed.
Meanwhile, legislative efforts continue on two fronts:
– H.R. 425 seeks to repeal the CTA entirely
– H.R. 736/S.505 would extend CTA deadlines to January 1, 2026 (though now only relevant for foreign reporting companies)
Future Considerations
Despite this significant federal rollback, several key factors remain in play:
1. The CTA statute itself remains in effect and could be interpreted differently by future administrations
2. States may implement their own transparency laws, similar to New York’s corporate transparency law
3. Constitutional challenges will continue to shape the legal landscape
Bottom Line for Businesses
U.S. entities and U.S. beneficial owners of foreign entities can pause compliance efforts for now. However, foreign reporting companies must prepare to meet the updated reporting deadline for their non-U.S. beneficial owners.
Unless the CTA is fully repealed by Congress or ruled unconstitutional by the Supreme Court, these requirements could expand again under a future administration with different priorities.
The Corporate Transparency Act: A Comprehensive History of America’s Beneficial Ownership Framework
Introduction
The Corporate Transparency Act (CTA), enacted on January 1, 2021, represents a watershed moment in the United States’ approach to corporate transparency and anti-money laundering efforts. This landmark legislation established the first nationwide beneficial ownership registry, fundamentally changing how business entities disclose their true ownership. However, the path to its enactment was long and complex, shaped by international pressure, domestic concerns about illicit finance, and fierce debates about privacy and regulatory burden. This article traces the complete history of the CTA from its conceptual origins to its current implementation challenges.
Early Foundations: The Global Push for Beneficial Ownership Transparency (1989-2010)
FATF and International Standards
The conceptual groundwork for beneficial ownership disclosure began with the establishment of the Financial Action Task Force (FATF) in 1989. This intergovernmental body developed international standards to combat money laundering, terrorist financing, and other threats to the global financial system.
By the early 2000s, FATF had identified corporate anonymity as a significant vulnerability in global financial systems. Its recommendations increasingly emphasized that countries should ensure transparency regarding the beneficial ownership of legal entities—the natural persons who ultimately own or control a company.
Early U.S. Resistance
Despite being a founding member of FATF, the United States initially resisted implementing comprehensive beneficial ownership requirements. The U.S. approach to corporate formation, which delegates authority to individual states, created a fragmented system with minimal ownership disclosure requirements. States like Delaware, Nevada, and Wyoming became known internationally as secrecy jurisdictions, attracting business formations with their minimal disclosure requirements.
Panama Papers and Global Momentum
The 2016 release of the Panama Papers—11.5 million leaked documents exposing offshore financial structures—dramatically accelerated global momentum for beneficial ownership transparency. The leak revealed how wealthy individuals, politicians, and criminals used anonymous shell companies to hide assets, evade taxes, and launder money. This watershed moment intensified international pressure on the U.S. to address its corporate transparency deficiencies.
Legislative Development (2008-2020)
Early Legislative Attempts
Congressional efforts to address beneficial ownership transparency predated the Panama Papers. As early as 2008, Senator Carl Levin introduced the Incorporation Transparency and Law Enforcement Assistance Act, which would have required states to collect beneficial ownership information during the company formation process. Similar bills were introduced in subsequent Congresses but failed to gain sufficient traction.
These early proposals faced significant opposition from:
- State governments concerned about federal overreach
- Business associations worried about compliance costs
- Privacy advocates questioning data security
- The formation services industry fearing revenue loss
Building Consensus Through Compromise
Between 2016 and 2020, legislative momentum gradually built as key stakeholders found common ground:
1. Law enforcement advocacy: Federal, state, and local law enforcement agencies increasingly advocated for beneficial ownership legislation, citing numerous cases where anonymous shell companies hindered investigations.
2. Financial institution support: Major banks and financial institutions, which already collected beneficial ownership information under Customer Due Diligence (CDD) rules, supported a centralized registry to streamline their compliance efforts.
3. Small business accommodations: Later bills included exemptions for businesses with physical operations, employees, and revenue—focusing instead on shell companies with higher money laundering risk.
4. State government engagement: Rather than requiring states to collect the information, later proposals shifted collection responsibility to the federal government through FinCEN.
Bipartisan Breakthrough
By 2019, these compromises had produced the Corporate Transparency Act of 2019 (H.R. 2513), which passed the House with bipartisan support. The bill’s momentum continued into 2020 as the Senate developed complementary legislation.
Enactment as Part of NDAA (2020-2021)
Legislative Strategy
After years of standalone bills failing to become law, supporters adopted a new strategy: incorporating the Corporate Transparency Act into the National Defense Authorization Act (NDAA), an annual “must-pass” defense spending bill. This approach proved successful.
On January 1, 2021, when Congress overrode President Trump’s veto of the 2021 NDAA, the Corporate Transparency Act became law as part of the broader Anti-Money Laundering Act of 2020 within the NDAA.
Key Provisions of the Original CTA
The enacted legislation contained several core elements:
1. Reporting requirement: Certain corporations, LLCs, and similar entities would need to report beneficial ownership information to FinCEN.
2. Beneficial owner definition: The law defined beneficial owners as individuals who either exercise substantial control over an entity or own 25% or more of its ownership interests.
3. Information collection: Companies would need to provide beneficial owners’ names, dates of birth, addresses, and identification numbers.
4. Exemptions: The law exempted numerous categories of entities, including publicly traded companies, financial institutions, and companies with more than 20 employees and $5 million in gross receipts.
5. Access limitations: The information would not be publicly accessible but available to law enforcement, financial institutions (with customer consent), and certain regulatory agencies.
6. Implementation timeline: The Treasury Department was given one year to promulgate regulations implementing the law.
Implementation Challenges (2021-2024)
Regulatory Development
Following enactment, FinCEN faced the complex task of developing regulations to implement the CTA. The agency published:
- An Advance Notice of Proposed Rulemaking in April 2021
- A Notice of Proposed Rulemaking for beneficial ownership reporting in December 2021
- Final regulations on beneficial ownership reporting in September 2022
- Proposed rules on database access in December 2022
- Final rules on database access in December 2023
These regulations clarified key aspects of the law, including:
- The definition of “substantial control”
- The scope of reporting companies
- The specific information required
- The mechanics of filing reports
Implementation Timeline
The regulatory process extended well beyond the one-year statutory deadline. FinCEN ultimately established January 1, 2024, as the effective date for the beneficial ownership reporting requirements, with:
- Existing companies required to file by January 1, 2025
- Companies formed in 2024 required to file within 90 days of formation
- Companies formed after January 1, 2025, required to file within 30 days of formation
Legal Challenges
The CTA faced significant legal challenges during implementation. Several lawsuits were filed challenging the constitutionality of the law on various grounds:
1. National Small Business Association v. Yellen (2022): Challenged the CTA as exceeding Congress’s authority under the Commerce Clause.
2. State of Alabama v. Department of Treasury (2023): Argued the CTA violated the Tenth Amendment by commandeering state resources.
3. National Small Business United v. FinCEN (2023): Claimed the CTA violated the Fourth Amendment’s protection against unreasonable searches.
These cases produced conflicting rulings across different federal district and appellate courts, creating legal uncertainty about the CTA’s implementation.
Policy Shifts and Controversies (2024-2025)
Compliance Challenges
As the initial reporting deadlines approached, significant compliance challenges emerged:
1. Awareness gap: Many small businesses remained unaware of their reporting obligations despite FinCEN outreach efforts.
2. Technical difficulties: The FinCEN beneficial ownership secure system (BOSSy) faced technical challenges handling the volume of submissions.
3. Definitional ambiguities: Business owners struggled to determine whether they qualified as reporting companies and who counted as beneficial owners.
Administrative Response
In response to these challenges, FinCEN announced several deadline extensions and compliance aids throughout 2024, attempting to balance implementation with practical realities.
The 2025 Policy Shift
The most dramatic development in the CTA’s history came in early 2025, when the Treasury Department issued an interim final rule that fundamentally narrowed the scope of the CTA by:
1. Exempting all domestic reporting companies from filing requirements
2. Eliminating the requirement for foreign reporting companies to report U.S. persons as beneficial owners
This dramatic policy shift effectively limited the CTA’s application to foreign entities registered to do business in the United States, with reporting only required for non-U.S. beneficial owners—a dramatic departure from the law’s original scope.
International Context and Comparisons
Global Transparency Movement
The CTA’s development occurred within a broader global movement toward beneficial ownership transparency:
– United Kingdom (2016): Established the first public beneficial ownership registry
– European Union (2018): Required member states to establish beneficial ownership registries through the Fifth Anti-Money Laundering Directive
– Canada (2023): Implemented beneficial ownership requirements for federal corporations
Comparative Analysis
The original U.S. approach under the CTA differed from international models in several key respects:
1. Private vs. public access: Unlike the UK and EU registries, the U.S. database was not publicly accessible.
2. Federal vs. state implementation: The U.S. created a federal registry rather than requiring state-level implementation.
3. Broader exemptions: The U.S. exempted more categories of businesses than most international counterparts.
The 2025 policy shift further distinguished the U.S. approach, creating one of the narrowest beneficial ownership regimes among developed economies.
Future Outlook and Unresolved Questions
Legislative Possibilities
The future of the CTA remains uncertain, with several potential legislative paths:
1. Complete repeal: Bills like H.R. 425 seek to eliminate the CTA entirely.
2. Reform legislation: Congress could pass legislation modifying the CTA’s requirements to address implementation challenges while maintaining its core transparency objectives.
3. State-level action: In response to federal pullback, states may implement their own beneficial ownership requirements, potentially creating a patchwork of regulations.
Judicial Resolution
The ultimate constitutional fate of the CTA likely rests with the Supreme Court, which may need to resolve the conflicting lower court decisions regarding the law’s constitutionality.
Administrative Direction
Future administrations could reverse the 2025 policy shift, reinstating broader reporting requirements through new rulemaking, assuming the underlying statute remains in effect.
Conclusion
The Corporate Transparency Act represents a landmark but contested attempt to address longstanding concerns about the misuse of anonymous shell companies in the United States. Its journey from concept to implementation reveals the challenges of balancing competing interests in corporate transparency policy: national security and law enforcement needs, business compliance concerns, privacy considerations, and federalism principles.
Despite its tumultuous implementation, the CTA has fundamentally altered the landscape of corporate formation in America, establishing the principle of beneficial ownership disclosure even as debates continue about its proper scope and application. The law’s ultimate legacy will depend on how these unresolved questions are answered in the years ahead, shaping the future of corporate transparency in the United States.