The Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of Treasury, has announced an interim final rule that exempts U.S. citizens and companies from reporting "beneficial ownership information." The Trump administration started this initiative with the overall deregulatory intent of the administration. The purpose was to roll back regulations. Issued on March 21, it is currently on track to be finalized later this year. The rule is out now for public comment.
The final rule dramatically shrinks the pool of entities required to report under the Corporate Transparency Act of 2021. This provision, for the first time, has required millions of businesses to disclose basic identifying information about their beneficial owners. The rule initially was projected to apply to about 32.6 million businesses in its first year. But now, with the new exemptions included, FinCEN’s expectations are that roughly 20,000 entities will need this requirement.
The policy shift tracks well with President Donald Trump’s deregulatory just-do-it-let-‘er-rip directive. In the announcement accompanying the interim final rule, FinCEN Director Andrea Gacki underscored that the change was meant to further this directive. The updated rule retains these reporting requirements for certain foreign entities as well. These businesses are headquartered overseas, but registered as non-foreign entities to do business within the United States.
The original new reporting requirement was delayed several times in the courts before its set enforcement date of Mar. While the announcement officially makes this major policy change, earlier this month the Trump administration had already effectively suspended enforcement of the requirement.
Even with the changes, industry stakeholders are still not on board with the new regulation. Critics counter that it guts the regulatory framework that was meant to increase transparency and help fight financial crimes.
"This absolutely waters down the rule," remarked Erin Bryan, partner and co-chair of the consumer financial services group at Dorsey & Whitney.
Shell companies may be able to find loopholes in these exemptions to dodge the reporting requirements, which further raises worries about issues of accountability and transparency.
"Plenty of shell companies are going to be exempt from reporting now," stated Erin Bryan.
Further emphasizing the impact of these exemptions, Scott Greytak, director of advocacy for Transparency International U.S., expressed concern about potential misuse by illicit actors.
"From this day forward, criminals can evade this national security law by simply starting and running those front companies inside the United States," warned Scott Greytak.
We’re not sure why FinCEN chose to be mum about these exciting developments. Yet, the organization argues that the final rule is intended to make compliance easier and reduce regulatory burdens on U.S. businesses. We’ll still have to see how these changes will affect the regulatory landscape. Further, we need to understand their impact on initiatives to stop financial crimes.