The rise and fall of beneficial ownership information reporting

July 2025 | SPOTLIGHT | FRAUD & CORRUPTION

Financier Worldwide Magazine

July 2025 Issue

Prior to enactment of the Corporate Transparency Act (CTA) and implementation of the Beneficial Ownership Information (BOI) Reporting Rule (BOI rule), the US lacked any central repository of information about legal entities and their owners or requirement that owners and control persons identify themselves in a systematic way.

This made it an outlier among developed countries. It also drew negative attention from the Financial Action Task Force (FATF), an independent intergovernmental entity that assesses anti-money laundering (AML) and combatting the financing of terrorism (CFT) programmes in countries around the world, which found that a lack of timely access to adequate and accurate beneficial ownership information was a fundamental gap in the US AML/CFT regime.

Congress, focusing on the issue, found that “malign actors seek to conceal their ownership of corporations, limited liability companies, or other similar entities in the United States to facilitate illicit activity, including money laundering, the financing of terrorism, proliferation financing, serious tax fraud, human and drug trafficking, counterfeiting, piracy, securities fraud, financial fraud, and acts of foreign corruption, harming the national security interests of the United States and allies of the United States”.

To address this situation, in 2021, Congress enacted the CTA as part of the Anti-Money Laundering Act of 2020. Among the CTA’s chief components, it established a new beneficial ownership registry, which, as contemplated, would apply to any ‘reporting company’, defined to include any corporation, limited liability company or other similar entity that is: (i) created by the filing of a document with a secretary of state or a similar office under the law of a state or Indian tribe; or (ii) formed under the law of a foreign country and registered to do business in the US by the filing of a document with a secretary of state or a similar office under the laws of a state or Indian tribe, subject to certain exemptions.

The CTA requires, broadly speaking, that any ‘beneficial owner’ of a reporting company provide that person’s name, date of birth, current address and unique identifying number (for example the number included on a state-issued driver’s licence or a passport or a number issued to the person by the Financial Crimes Enforcement Network (FinCEN)).

The CTA also requires provision of information about ‘company applicants’, (i.e., those persons that file the documents forming a reporting company or registering it to do business in the US).

Subsequently, and as required by the CTA and in order to implement it, the US Department of the Treasury, acting through FinCEN, promulgated the BOI rule, which was finalised in January 2024. The rule established the mechanics by which reporting companies would file information about their beneficial owners and company applicants.

As promulgated, the BOI rule was complex. Largely tracking the CTA, the BOI rule established two categories of reporting companies: domestic reporting companies, or companies formed by the filing of a document with a US state or Indican tribe, and foreign reporting companies formed in another country but registered to do business in a US state or tribal jurisdiction.

A ‘beneficial owner’ of such companies was defined to mean an individual who either exercises substantial control over or owns at least 25 percent of a reporting company, subject to certain exceptions.

An individual would be considered to exercise substantial control, under the rule, if the individual: (i) serves as a senior officer of the reporting company; (ii) has authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body); (iii) directs, determines or has substantial influence over important decisions made by the reporting company, including decisions regarding a number of specified matters; or (iv) has any other form of substantial control over the reporting company.

The rule goes on to explain that an individual can exercise substantial control either directly or indirectly, through board representation, ownership or control of a majority of voting rights, arrangements or financial or business relationships or “otherwise”.

Consistent with the CTA, the BOI rule also exempted 24 types of legal entities (exempted entities) from the definition of reporting company. Among these exempted entities were banks, Securities and Exchange Commission registrants, broker-dealers, money service businesses, companies with more than 20 full time employees, a presence in the US and over $5m in gross receipts or sales in the prior year, and subsidiaries of other exempted entities (at least where the subsidiaries were completely owned and controlled by an exempted entity).

The reasoning for exempting these companies from the reporting requirements was that they already would be known to the government in other capacities.

As to timing, pursuant to the BOI rule, reporting companies formed: (i) prior to 1 January 2024 were required to file an initial BOI report no later than 1 January 2025; (ii) between 1 January 2024 and 1 January 2025 were required to submit an initial report within 90 calendar days; and (iii) on or after 1 January 2025 were required to submit an initial report within 30 calendar days. Following an initial BOI report, reporting companies were required to file updates within 30 days after “any change with respect to required information previously submitted”.

Businesses and individuals that attempted to comply with the CTA and BOI rule reporting requirements identified many issues with them. For example, many, if not most, sophisticated legal entities have complex organisational structures.

Even where a top-level parent is an exempt entity, it can be very difficult to determine whether subsidiaries are exempt; for example, where a subsidiary is owned and controlled both directly and indirectly by multiple entities, each of which have their own ownership and control structures.

Moreover, within complex organisational structures, it is often the case that a person who may be considered a beneficial owner under the rule by virtue of the exercise of control over an entity (as defined by the rule) is in reality a functionary employed by a corporate trustee or a family-owned entity with little actual authority, no ownership interest in the legal entity and no actual control. In practice, the individuals who fall within the control prong may change over time, necessitating frequently updated BOI reports.

Separate from the practical challenges that arose based on the difficulties in complying with the reporting requirements, businesses and individuals raised serious questions as to the constitutionality of the CTA and BOI rule, which resulted in challenges launched in various district courts throughout the US.

Broadly speaking, these challenges asserted that the CTA and BOI rule were beyond the scope of Congress’s constitutionally enumerated powers – including those related to foreign affairs, national security and taxation, as well as those stemming from the commerce and necessary and proper clauses.

A number of courts agreed and enjoined enforcement of the reporting requirements, with one extending the injunction nationwide. Although the nationwide injunction was eventually struck down, its existence caused much confusion (and consternation) among businesses that were in the midst of devoting significant time and resources to complying with the reporting requirements.

Following a change in presidential administration, and with the legal fate of the CTA and BOI rule uncertain, on 19 February 2025, the US Treasury Department announced that it would not enforce any penalties or fines associated with the reporting requirements while a court order enjoining the CTA remained in place.

On 2 March 2025, the Treasury Department announced it would propose additional rulemaking to narrow the scope of the BOI rule. In the face of ongoing litigation and uncertainty around the constitutionality of the BOI rule, on 26 March 2025, FinCEN published a revised, interim final rule containing a pared back BOI rule requiring BOI reporting only of “foreign reporting companies”, with initial reports due 30 days thereafter. Interested parties had until 27 May 2025 to provide comments on the revised BOI rule.

As a result of the BOI rule revisions, the US is once again an outlier among developed countries. While the FATF’s most recent assessment documented progress made by the US with respect to the BOI rule, it is not clear what the FATF’s assessment next year will reflect, given the FATF’s previous findings that the US lack of a central beneficial ownership repository rendered its AML/CFT programme inadequate.

To remedy the situation, FinCEN could consider certain modifications to the BOI rule. FinCEN could, for example, consider promulgating a new version of the BOI rule that applies to foreign legal entities and domestic institutions with cross-border activities while carving out US entities that operate on only a domestic level. This could address the beneficial ownership reporting gap while also addressing some of the constitutional challenges that have been raised.

To address the privacy and data security concerns of domestic institutions, FinCEN could consider establishing a process whereby a domestic reporting company will designate an individual who will be responsible for providing FinCEN with information about the beneficial owners of the domestic legal entity and its subsidiaries upon request.

Addressing illicit finance, money laundering, financing of terrorism and proliferation, among other criminal activity, are objectives that are uncontroversial. Nevertheless, it remains to be seen what shape the BOI rule will take to manage or limit the burden of the system as originally devised and navigate the legal issues raised in litigation regarding its constitutionality.

Sharon Cohen Levin, Nicole W. Friedlander and Anthony J. Lewis are partners at Sullivan & Cromwell LLP. Ms Cohen Levin can be contacted on +1 (212) 558 4334 or by email: levinsc@sullcrom.com. Ms Friedlander can be contacted on +1 (212) 558 4332 or by email: friedlandern@sullcrom.com. Mr Lewis can be contacted on +1 (310) 712 6615 or by email: lewisan@sullcrom.com.

Sharon Cohen Levin, Nicole W. Friedlander and Anthony J. Lewis

Sullivan & Cromwell LLP