The Beneficial Ownership Information database is a crucial tool for the financial sector, aiming to identify individuals behind shell companies and prevent money laundering; but what’s its status in the current administration?
For those institutions in the financial sector, the Beneficial Ownership Information (BOI) database — created as part of the Corporate Transparency Act (CTA) that went into effect in 2024 — was expected to be a value tool in fighting money laundering or other illicit financial activities.
In 2024, there was considerable discussion regarding who was required to file a beneficial ownership report and the BOI database in which all these filings would be stored. Also, there remained questions as to what the relevant deadlines were, with the most critical date being the enforcement deadline that passed on January 1, 2025. Subsequent litigation and changes in the presidential administration have since altered these requirements.
What happened to the CTA and the BOI database?
The primary objective of the CTA is to identify the real individuals behind shell companies or entities potentially involved in money laundering. By obtaining information about the actual beneficiaries of financial transactions, governments and law enforcement agencies are better equipped to safeguard innocent people. More specifically, these actions help to keep funds from going to terrorists and drug lords, making safety a priority.
Since the announcement of the rules surrounding the BOI, significant questions have been raised regarding their legality and constitutionality. Concerns were highlighted about the standards being overly broad and not effectively serving their intended purpose. Additional issues included the potential for improper security of information and the inappropriate application of the rule. Despite court-ordered stays in execution up until January 2025, it appeared just a few months ago that the CTA would ultimately come into effect, requiring all businesses within the original class to comply with this filing requirement.
With litigation peppering the courts from local jurisdictions to the United States Supreme Court, it was difficult to clearly see how the future application of the CTA and the BOI database would be applied. As numerous changes were brought forward, most attorneys recommended that their clients prepare for compliance by determining the ownership structure and identifying those individuals who would be required to report. However, in February 2025, lawyers’ positions seemed to shift as the administration began to lean toward weakened or little enforcement.
BOI timeline at a quick glance
Here are a few critical moments in the history of the CTA and the BOI database:
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- January 1, 2024 — The CTA went into effect, requiring reporting companies to file BOI reports with the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN). This date stated a year-long timer for companies to get into the swing of reporting, the database, and compliance in general.
- December 3, 2024 — A nationwide injunction blocked the enforcement of the CTA, halting BOI reporting requirements. This injunction stemmed directly from ongoing litigation in the U.S. District Court for the Eastern District of Texas.
- December 23, 2024 — The 5th Circuit Court of Appeals lifted the injunction, reinstating the reporting requirements. As a result, FinCEN extended the compliance deadline slightly to allow more time for compliance.
- December 26, 2024 — Three days later, the 5th Circuit reinstated the nationwide injunction, halting the BOI reporting requirements again.
- January 23, 2025 — The Supreme Court stayed the injunction, allowing FinCEN to enforce the CTA’s BOI reporting requirements once again.
- February 18, 2025 — FinCEN issued a notice confirming the CTA is back in effect and setting a new compliance deadline of March 21, 2025, for most reporting companies. The March 1 date currently remains the deadline for most companies to file initial, updated, or corrected BOI reports.
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Going forward from the March 1 compliance deadline, FinCEN has said it will assess its options for further modifying deadlines and may revise the Reporting Rule to reduce the burden for lower-risk entities, especially small businesses.
FinCEN’s current position is to narrow the scope of BOI reporting requirements under the CTA by taking a look at the rule’s initial exclusions. The newly proposed rule exempts “domestic reporting companies” from compliance with these reporting requirements as well. Despite these changes, “foreign reporting companies” are still required to report their BOI to FinCEN with certain modifications. However, one significant exemption for foreign reporting companies is that they are not required to report the information of any U.S. persons who are beneficial owners.
Where does the BOI database go from here?
Similar to how the CTA and BOI were challenged in court, any new or amended rule is likely to undergo similar examination. Legal discussions regarding ultimate ownership and the interpretation of the law are expected to arise, and consequently, corporate disclosure conditions may differ significantly from what was anticipated on January 1, 2025.
The situation with the current political regime presents uncertainty regarding future developments. While financial institutions are keenly aware of the newly posted rule and anticipate movement in ongoing litigation, it remains unclear whether progress will lead to effective combat against financial crime or if we will continue to face challenges related to money laundering and dishonest brokers.
Despite the confusing nature of the CTA and BOI status, financial risk & fraud professionals will have no choice but to just keep going and fighting the good fight that will keep their eye on where the money is going and where it winds up.
You can find more information on the challenges financial institutions face in fighting money laundering and other financial fraud here.
