FinCEN Warns US Financial Institutions of Bulk Cash Smuggling Risks from Mexico-Based Cartels
Go-To Guide:
FinCEN recently issued an alert to warn U.S. financial institutions, particularly depository institutions and money services businesses (MBSs), of the risks and red flags associated with bulk cash smuggling by Mexico-based drug cartels and other transnational criminal organizations.
FinCEN’s alert highlights the role played by Mexican and U.S. armored car services in knowingly or unknowingly introducing cartel proceeds into the U.S. financial system.
The alert, together with several other policy announcements from the Trump administration, signals an increased regulatory and enforcement focus on the laundering of cartel funds through U.S. financial institutions.
Financial institutions and common carriers of currency should review and update, as necessary, their compliance programs to address the identified money laundering risks.
On Mar. 31, 2025, as part of its responsibilities in administering the U.S. Bank Secrecy Act (BSA), the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued an alert urging financial institutions to be vigilant in identifying and reporting transactions potentially related to the cross-border smuggling of bulk cash from the United States into Mexico, and the repatriation of bulk cash into the U.S. and Mexican financial systems by Mexico-based drug cartels and other transnational criminal organizations (TCOs).
The alert highlights one particular money laundering typology that drug cartels have been observed using—namely, utilizing Mexico-based businesses as cover to repatriate smuggled bulk cash back into the United States via foreign and domestic armored car services and air transport. According to FinCEN, this bulk cash is then often delivered by an armored car service to a U.S. financial institution, typically a depository institution or MSB, and either deposited into accounts that are owned by the Mexico-based businesses or transmitted by the MSBs on the Mexico-based businesses’ behalf.
Highlights for US Depository Institutions and MSBs
The alert identifies several red flags for this money laundering typology that U.S.-based depository institutions and MSBs should monitor for, as appropriate, including:
a customer who owns a Mexico-based business receiving a large credit, either from a U.S.-based armored services (ASC) company or after the customer has deposited bulk cash into the bank’s vault at a U.S.-based ACS secure storage facility;
receipt of a large cross-border wire transfer from a Canada-based financial institution to the bank account of a customer that owns a Mexico-based business;
the transportation of large volumes of cash by an ACS company or passenger vehicles to a U.S.-based MSB located along the southwest border, followed by rapid transfer to Mexico; and
delivery of a large volume of cash to a U.S.-based financial institution via an ACS company on behalf of a customer that operates or is affiliated with a Mexico-based business, or a business located near the U.S. southwest border, followed by (i) rapid movement of funds to a financial institution based in Mexico, (ii) a transfer to another affiliated business in the United States, or (iii) transfer to purchase a large volume of goods.
Highlights for Armored Car Services
The alert also highlights red flags that ACS companies should monitor for, including, but not limited to, where a Mexico-based business or individual requests that bulk cash be transported into the United States and/or accepted by a U.S. financial institution, but (i) the funds are not commensurate with the size of the business or the business profile; (ii) the requestor is reluctant to provide information, or provides inconsistent information, on the currency originator; or (iii) the request does not provide a clear explanation of the funds’ source.
The alert also notes FinCEN’s view that certain armored car services and other common carriers of currency may be engaged in “money transmission” under the BSA, which would require FinCEN registration and the implementation of a BSA-compliant anti-money laundering (AML) compliance program. Earlier this year, FinCEN and the U.S. Department of Justice concluded parallel civil and criminal resolutions, respectively, against a major U.S.-based ACS for failure to register with FinCEN and failure to maintain an adequate BSA/AML compliance program.1
Recent Related Announcements and Actions
This alert follows several additional federal actions that, like the resolutions above, signal heightened regulatory and enforcement focus on the AML and counter-terrorism risks drug cartels pose, including the role U.S. financial institutions and ACS companies—knowingly or unknowingly—play. These include:
a Jan. 20, 2025, Executive Order in which President Donald Trump identified drug cartels as a national security threat, broadening the authority of the State Department to designate such cartels as Foreign Terrorist Organizations (FTOs);
the State Department’s designation, on Feb. 20, 2025, of several infamous Central American drug cartels, including Sinaloa, as FTOs under that Executive Order, creating additional legal risks for companies found to have provided financial services to cartels, including under the so-called “Material Support Statute” set forth in 18 U.S.C. § 2339B; and
the U.S. Attorney General’s identification of criminal activity connected to drug cartels, including the laundering of funds for cartels, as a DOJ enforcement priority.
Key Takeaways
Banks, MSBs, ACS companies, and other common carriers of currency should review their AML compliance programs (whether federally-mandated or voluntary) to ensure that the risks identified in the alert are appropriately analyzed and addressed, where necessary.
ACS companies and other common carriers of currency should review their operations with counsel to understand, and potentially respond to, the risk that FinCEN may deem certain activity to be BSA-regulated money transmission.
All companies, whether subject to the BSA or not, that are involved in cross-border cash shipments in any capacity should review their policies for filing Currency or Monetary Instruments Reports (CMIRs). CMIRs must be filed anytime a person attempts or actually does physically transport, mail, or ship, or cause to be physically transported, mailed, or shipped, currency or other monetary instruments in an aggregate amount exceeding $10,000 at one time into or out of the United States.
1 Although the BSA’s definition of “money transmission” includes an exception for certain currency transporters, a 2014 FinCEN administrative ruling stated that the exception does not apply when the consignee (i.e., the person appointed by the shipper to receive the currency or monetary instruments) is a third party.
10 Important Insights for Procurement Fraud Whistleblowers in 2025
If you have information about procurement fraud, providing this information to the federal government could lead to the recovery of taxpayer funds and put a stop to any ongoing fraud. It could also entitle you to a financial reward. In addition to providing strong protections to procurement fraud whistleblowers, the False Claims Act entitles whistleblowers to financial compensation when the information they provide leads to a successful enforcement action.
Whether you are interested in seeking a financial reward or you are solely focused on ensuring integrity and accountability within the federal procurement process, if you have information about procurement fraud, it will be important to make informed decisions about your next steps. While protections and financial incentives are available, whistleblowers who wish to expose procurement fraud must meet various substantive and procedural requirements, and they must come forward before someone else beats them to it.
“Federal procurement fraud is a pervasive issue, and whistleblowers play a critical role in the government’s fight against fraudulent bidding, contracting, and billing practices. For those who are thinking about serving as procurement fraud whistleblowers, understanding the federal whistleblowing process is critical for making informed decisions about their next steps.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.
So, what do you need to know if you are thinking about reporting procurement fraud to the federal government? Here are 10 important insights for whistleblowers in 2025:
1. Suspecting Procurement Fraud and Being Able to Prove Procurement Fraud Are Not the Same
Filing a whistleblower complaint for procurement fraud requires more than just suspicion of wrongdoing. To qualify as a federal whistleblower—and to become eligible for the protections and financial compensation that are available—you must be able to help the federal government prove that a contractor or subcontractor has violated the law, whether through false statements, bid rigging, overbilling, or other fraudulent actions.
As a result, if you just have general concerns about procurement fraud, these concerns—on their own—will generally be insufficient to substantiate a procurement fraud whistleblower complaint. However, if you have inside information about a specific form of procurement fraud, then this is a scenario in which filing a whistleblower complaint may be warranted.
2. You Don’t Need Conclusive Proof to Serve as a Procurement Fraud Whistleblower
To be clear, however, filing a whistleblower complaint does not require conclusive proof of government procurement fraud. Instead, to file a whistleblower complaint under the False Claims Act in federal court, you must be able to make allegations that “have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation.” As a result, you do not need any specific type or volume of evidence to serve as a procurement fraud whistleblower. If you have reason to believe that government contract fraud has been committed (or is in the process of being committed), this is generally all that is required.
With that said, the more evidence you have, the better—and you will want to work closely with an experienced procurement fraud whistleblower lawyer to determine whether you can meet the federal pleading requirements. If you need additional information, your lawyer can advise you regarding the information needed and how to collect it, as discussed in greater detail below.
3. You Must Be the First to Come Forward with Material Non-Public Information
Another requirement for serving as a procurement fraud whistleblower is that you must be privy to non-public information. In most cases, you also need to be the first to share this information with the federal government, though certain exceptions may apply.
With this in mind, while it is important to make an informed decision about whether to file a procurement fraud whistleblower complaint under the False Claims Act, it is also important to act promptly. A lawyer who has experience representing federal whistleblowers should understand that time is of the essence and should be able to assist you with making an informed decision as efficiently as possible.
4. While You Should Protect Any Evidence You Have, You Should Be Cautious About Collecting Additional Evidence
If you have collected or copied any evidence from your employer’s facilities or computer systems, you should protect this evidence to the best of your ability. Keep any hardcopy documents in a secure location and keep any electronic files on a secure storage device (and not in the cloud). This is important for your protection and for helping to ensure that you remain eligible to secure federal whistleblower status.
At the same time, if you are aware of additional evidence that you have not yet collected, you will need to be cautious about collecting this additional evidence. Even when you are taking steps to expose fraud, it is important to avoid violating employment policies or non-disclosure obligations–as doing so could put you at risk. While there are rules on when employers can (and can’t) enforce these types of restrictions to prevent whistleblowing, here too, you need to ensure that you are making informed decisions. An experienced procurement fraud whistleblower lawyer will be able to help.
5. If You Come Forward with Qualifying Information, the Government Will Have a Duty to Investigate Further
A key aspect of the procurement fraud whistleblower process is that the government has a duty to investigate allegations that warrant further inquiry. This is due, in part, to the nature of the qui tam procedures under the False Claims Act. The government isn’t necessarily required to pursue an enforcement action—this decision will be based on the outcome of its investigation—but it is generally required to determine if enforcement action is warranted.
With that said, not all substantiated allegations of government procurement fraud will necessarily warrant a federal investigation. If the amount at issue is small, the U.S. Department of Justice (DOJ) may be justified in deciding not to devote federal resources to a full-blown federal inquiry. A whistleblower lawyer who has significant experience in qui tam cases will be able to assess whether the DOJ is likely to determine that your allegations warrant an investigation.
6. Federal Authorities Will Expect to Be Able to Work With You During Their Procurement Fraud Investigation
If you file a procurement fraud whistleblower complaint and the government decides to open an investigation, you will be expected to work with the government during the investigative process. Whether, and to what extent, you remain involved is up to you–but it is important to understand that federal agents and prosecutors will be expecting you to assist to the extent that you can. Your lawyer can advise you here as well, and can communicate with federal authorities on your behalf if you so desire.
7. Procurement Fraud Whistleblowers Are Entitled to Protection Against Retaliation and May Be Entitled to Financial Rewards
If you qualify as a procurement fraud whistleblower under the False Claims Act, you will be entitled to protection against retaliation in your employment (if you are currently employed by the contractor or subcontractor that you are accusing of fraud). Your employer will be prohibited from taking adverse employment action against you based on your decision to blow the whistle; and, if it retaliates against you illegally, you will be entitled to clear remedies under federal law.
If the information you provide leads to a successful enforcement action, you may also be entitled to a financial reward. Subject to certain stipulations, under the False Claims Act, whistleblowers who help the government recover losses from procurement fraud are entitled to between 10% and 30% of the amount recovered.
8. Hiring an Experienced Whistleblower Lawyer is Important, and You Can Do So at No Out-of-Pocket Cost
While filing a procurement fraud whistleblower complaint is a complex process, you do not have to go through the process on your own. You can—and should—hire an experienced whistleblower lawyer to represent you at no out-of-pocket cost. An experienced lawyer will be able to advise you of your options every step of the way, answer all of your questions, and interface with the federal government on your behalf.
9. There Are Several Reasons to Consider Blowing the Whistle on Procurement Fraud
If you have information about government procurement fraud, there are several reasons to consider coming forward. While the prospect of a financial reward is appealing to many, blowing the whistle is also simply the right thing to do. Contractors that engage in procurement fraud deserve to be held accountable, and helping federal and state governments recover taxpayer funds—while also helping to mitigate the risk of future losses—is beneficial for everyone.
10. It Is Up to You to Decide Whether to Blow the Whistle on Procurement Fraud
Ultimately, however, whether you decide to serve as a procurement fraud whistleblower is up to you. While an experienced whistleblower lawyer will help you make sound decisions, your lawyer should not pressure you into coming forward. It is a big decision to make, and it is one that you need to make based on what you believe is the right thing to do under the circumstances at hand.
As we mentioned above, however, time can be of the essence in this scenario. With this in mind, if you believe that you may have inside information, you should not wait to report fraud to the government. Your first step is to schedule a free and confidential consultation with an experienced procurement fraud whistleblower lawyer—and this is a step that you should take as soon as possible.
Confirmation of the Territorial Scope of the Collateral Law
Key Takeaway
Luxembourg’s law of 5 August 2005 on financial collateral arrangements, as amended (Collateral Law 2005), continues to offer strong safe-harbor protections for financial collateral arrangements and is now confirmed to apply to insolvency proceedings globally.
Recent Developments
Court of Appeal Ruling
On 11 January 2024, the Luxembourg Court of Appeal ruled that the Collateral Law 2005’s safe-harbor protections were limited to European Economic Area (EEA) countries. This meant that insolvency proceedings against a collateral provider in non-EEA countries could prevent the enforcement of financial collateral arrangements subject to the Collateral Law 2005.
Legislative Clarification
In response, Luxembourg’s legislators quickly amended the Collateral Law 2005 to clarify that its safe-harbor protections apply to any country, not just those in the EEA.
Supreme Court Decision
On 19 December 2024, the Luxembourg Supreme Court overturned the Court of Appeal’s decision, confirming that the Collateral Law 2005 provides for a global safe-harbor protection.
Background—Essential Features of the Collateral Law 2005
Luxembourg has become a preferred location for security arrangements in cross-border financings, largely due to the creditor-friendly Collateral Law 2005, since implementing the European Directive 2002/47/EC of 6 June 2002 on financial collateral arrangements (Financial Collateral Directive) into national law. The Luxembourg legislator has used all options available under the Financial Collateral Directive to provide for maximum flexibility and protection of creditors in the context of financial collateral arrangements.
Financial collateral arrangements include pledges and transfer of title arrangements.
By way of illustration, the flexibility and creditor protection of the Collateral Law 2005 are visible through the following features:
Enforcement Trigger
The enforcement trigger of a financial collateral arrangement can either be a payment default or any other event whatsoever as agreed between the parties on the occurrence of which the collateral taker is entitled to enforce the financial collateral arrangement.
Enforcement Methods
The collateral taker has the option between a number of enforcement methods. This includes, among others, the appropriation of the collateral by itself or by a third party, the assignment of the collateral by private sale in a commercially reasonable manner or on a trading venue on which the collateral is admitted, or set-off, in each case as a swift procedure without court intervention.
Insolvency Protection
Except for over-indebtedness proceedings concerning private individuals, financial collateral arrangements are safe-harbored against national or foreign insolvency or restructuring proceedings of any kind, in that those will not present an obstacle to the enforcement of a financial collateral arrangement.
Restrictive Interpretation of Territorial Scope by Court of Appeal
On 11 January 2024, the Luxembourg Court of Appeal ruled that the Collateral Law 2005’s safe-harbor protections were limited to EEA countries (Court of Appeal Judgment). This decision arose from a case involving insolvency proceedings against an Ivorian company, where the court determined that the safe-harbor protections of the Collateral Law 2005 did not apply to non-EEA countries and that, consequently, the pledge (governed by Luxembourg law) could not be enforced following the opening of insolvency proceedings against the collateral provider in a non-EEA country. This interpretation diverged from the prevailing view among legal scholars and practitioners, who had previously understood foreign proceedings to encompass any non-Luxembourg jurisdiction (including non-EEA countries).
Legislative Response
In response to the Court of Appeal Judgment, the Luxembourg legislator immediately seized the opportunity of an ongoing legislative process to clarify the Collateral Law 2005 to explicitly include any third country in the definition of “Insolvency Proceedings.”
Supreme Court Reaffirmation
The Luxembourg Supreme Court overturned the Court of Appeal’s decision on 19 December 2024, confirming that the Collateral Law 2005 protects against insolvency proceedings in both EEA and non-EEA countries. This reaffirmation ensures that financial collateral arrangements are protected throughout from insolvency proceedings, enhancing the security and predictability of financial transactions in Luxembourg.
What This Means for You
Global Safe-Harbor Protection
Financial collateral arrangements are safeguarded against insolvency proceedings in any country.
Swift Enforcement
The Collateral Law 2005 allows for quick enforcement of collateral without court intervention, providing greater certainty and efficiency.
Enhanced Security
Luxembourg remains a top choice for cross-border financings due to its stability and robust legal framework.
Cleo AI Agrees to $17 Million Settlement with FTC
Sometimes, deals are too good to be true. That was the case for Cleo AI, an online cash advance company that promised consumers fast, up-front cash payments. According to the Federal Trade Commission (FTC), Cleo AI offered consumers a mobile personal finance application that “promises consumers instant or same-day cash advances of hundreds of dollars.” When a consumer requests a cash advance, Cleo AI offers two subscription models, Cleo Plus and Cleo Builder. Once the consumer picks a subscription, they must provide a payment method that Cleo AI can use to obtain a cash advance repayment and subscription and other fees.
According to the FTC’s Complaint filed against Cleo AI, the company limits the cash advances promised to consumers below the advertised amounts. In addition, Cleo AI “falsely promises that consumers can obtain cash advances ‘today’ or instantly,” while it actually takes several days. Cleo AI required consumers to pay an extra fee to obtain the cash advance the same day or the next.
After much dissatisfaction, many consumers attempted to cancel their subscriptions. However, Cleo AI made it difficult to cancel their subscriptions and stop the recurring fees.
The FTC alleges that Cleo AI violated Section 5 of the FTC Act because it made material misrepresentations or deceptive omissions of material fact to consumers that constitute deceptive acts or practices. It also alleges violations of the Restore Online Shoppers’ Confidence Act.
Cleo AI has agreed to pay $17 million to settle the allegations against it.
This settlement reinforces that the FTC will not tolerate companies making misrepresentations to consumers. It also teaches consumers to: a) beware of advertisements that are too good to be true, and b) be wary of providing payment information for a subscription. Once they have your payment information, it is difficult to end the subscription.
The SEC Under Paul Atkins – What to Expect for Registered and Private Offerings, Climate-Related Disclosure, Consolidated Audit Trail, Digital Assets, and Agency Re-Organization
Paul Atkins, who has been nominated by President Trump to serve as Chairperson of the Securities & Exchange Commission, last week completed a short confirmation hearing before the U.S. Senate Banking Committee. Despite its brevity, the hearing provided meaningful clues to Mr. Atkin’s plans if he is confirmed by the Senate to lead the SEC, which appears reasonably assured to occur. On April 3, 2025, the Senate Banking Committee approved his nomination with a vote of 13 to 11.
Paul Atkins previously served on the staff of SEC Chairman Richard Breeden, as an SEC Commissioner from 2002 to 2008, and as a member of the Congressional Oversight Panel for the Troubled Asset Relief Program, or TARP following the 2008 financial crisis. Most recently, he founded and ran a regulatory and compliance consulting company.
Here are a few takeaways from the hearing:
He Supports Regulation, but “Clear,” More “Tailored,” Less “Political”
Mr. Atkins can be expected to avoid regulation that he perceives as unnecessarily burdensome on business, but indicated that he would back regulation that he believes appropriately balances effectiveness and costs. Pressed on whether he intends to be “deregulatory,” he stated repeatedly that he believes in regulation that is carefully tailored to the actual problem being addressed. When pressed on the causes of the 2008 financial meltdown, noting that he served as an SEC Commissioner in the years prior, he cited “mis-regulation” following the SEC’s “focus on the wrong things” rather than the “actual problems.”
Although Mr. Atkins did not comment extensively on enforcement, the expectation is that he will move away from what some perceive as “regulation by enforcement,” which refers to enforcement cases against grey area activity, in favor of a focus on more traditional fraud actions, such as insider trading and market manipulation. This has been a particular concern of market participants in the crypto and digital assets industries. Mr. Atkins stated that he was in favor of imposing penalties on regulated entities for regulatory violations, citing the compromise reflected in the 2006 Statement of the Securities and Exchange Commission on Financial Penalties.
He Appears to View the SEC’s Climate-Related Disclosure Rules as “Political”
Mr. Atkins stated that he would “get politics out of the financial markets.” When asked about the SEC’s extensive climate change disclosure rules, he clearly backed the agency’s recent retreat from those requirements [link to The SEC Votes to “End its Defense” of Climate Change Rules | Regulatory & Compliance ], but did not comment on the subject of climate-related and other ESG disclosure in principle, and thereby left the door open for new disclosure rules that in his view would provide information material to investors.
Public Registration Is Preferable to Private Offerings, and the SEC Did Not Go Far Enough In Implementing the JOBS Act, And May Suggest Further Legislation
Mr. Atkins indicated that public registration of securities offerings is preferable to private offerings, while citing the unnecessary burdens of public registration that he believes have contributed to a decline in the number of public offerings and public companies. In particular, he cited regulatory changes in 2016 called for by the JOBS Act, which among other things eased the requirements for “emerging growth companies” in registered offerings. Mr. Atkins stated that the SEC “never fully implemented” the JOBS Act, although he also mentioned potential additional statutory relief through Securities Act amendments.
Public commenters at the time of the adoption of the JOBs Act suggested some areas of additional flexibility, which may inform Mr. Atkin’s priorities. For example, the Act raised the threshold for requiring large private companies to become publicly reporting companies from 500 record holders to 2,000 record holders or 500 non-accredited investor holders. Some commenters had suggested ways to ease issuers’ determination of the number of non-accredited investor holders, such as allowing them to rely on the initial determinations made in a private offering, or to allow 3(c)(7) funds to presume the accredited investor status of their “qualified purchasers.” Under current rules, making the determination is difficult at best. The SEC under the leadership of Acting Chairperson has taken steps designed to ease access to capital in recent months, including providing staff guidance designed to increase the use of Rule 506(c) exempt offerings (see below), and opening the confidential review process of SEC registration statements to all companies regardless of how long they have been public.
Views on Retail Participation in Private Funds
Members of the Senate Banking Committee pressed Mr. Atkins on the increasing availability of hedge fund, private equity and similar interests to retail investors. In response, he did not offer any specific SEC action that he believes warranted at this time, pointing to existing guardrails, and indicating that individual retail investors who are “accredited investors” do not require special SEC protection in making these kinds of investments.
The JOBSs Act also required the SEC to adopt Rule 506(c) permitting private placements using general solicitation, and raised the threshold for requiring large private companies to file public reports with the SEC. In expanding the JOBs Act amendments, Mr. Atkins may plan to further facilitate the use of Rule 506(c), perhaps through rule amendments and/or Commission interpretive guidance, following the very recent staff interpretive letter liberalizing the rule, which received widespread attention. [link to SEC Eases Verification Burdens in Rule 506(c) Offerings | Regulatory & Compliance ].
Members of The Committee Reflected Skepticism About Favorable Treatment Afforded to “Foreign Private Issuers”
In the course of their questioning, members of the Senate Banking Committee reflected skepticism about favorable treatment of “foreign private issuers,” such as their exemption from the short-swing profit rules applicable to domestic issuers. Mr. Atkins stated that he would review these issues.
Digital Assets Will Be “Top Priority”
It comes as no surprise that Mr. Atkins believes that crypto and other digital assets have been hindered by regulatory uncertainty, and he intends to provide a “firm regulatory foundation” for the offering and trading of digital assets through “a rational, coherent, and principled approach.” In other words, he believes that these activities should be regulated, but plans to provide clear, practical regulatory processes. The SEC recently established a Crypto Task Force, which has scheduled roundtable discussions. There has been proposed legislation on digital assets, as addressed in our prior blog Digital Assets: What to Expect from the Incoming Administration and Congress | Regulatory & Compliance , and Mr. Atkins likely will weigh with Congress on where legislation may help the SEC’s efforts.
He Will Review the Consolidated Audit Trail Requirements
Members of the Committee pressed Mr. Atkins on his support for the SEC’s controversial Consolidated Audit Trail, or CAT, requirements, and indicated that he looked forward to reviewing the system to ensure that it is accomplishing the purpose it was adopted to serve. The CAT was mandated by the SEC following the 2010 “flash crash” and provides for the collection of trade and personal identifying information on all equity and options transactions in the United States. The CAT permits the SEC to detect and respond to market inefficiencies, but it has been criticized for its cost as well as for its retention of significant volumes of personal trade and other information, and for the lack of public access when the SEC writes new rules based on its analysis of the data.
No Immediate Major Overhaul of the SEC, But the Agency Will Be Reviewed For Effectiveness and Efficiency
Given his substantial experience with the SEC, Mr. Atkins likely believes in the agency and its mission, but also has ideas for reform. As for DOGE and its efforts to substantially reduce the size of government agencies, he stated that “if there are people who can help creating efficiencies I would definitely work with them,” and he will review the Commission’s operations to ensure that the agency is working “effectively and efficiently.”
SEC Policy Shift and Recent Corp Fin Updates – Part 1
Since the beginning of the year, the US Securities and Exchange Commission’s (SEC) Division of Corporation Finance staff (Corp Fin Staff) has issued several important statements and interpretations, including a Staff Legal Bulletin on shareholder proposals and multiple new and revised Compliance and Disclosure Interpretations (C&DIs). Given the pace and importance of these recent changes, it is critical that public companies be aware of the significant policy shift at the Division of Corporation Finance and the substance of the updated statements and interpretations.
This is the first part of an ongoing series that will discuss recent guidance and announcements from the Corp Fin Staff. This alert will review the new and revised C&DIs released by the Corp Fin Staff relating to Regulation 13D-G, proxy rules, and tender offer rules.
Regulation 13D-G
On 11 February 2025, the Corp Fin Staff revised one C&DI and issued a new C&DI with respect to beneficial ownership reporting obligations. Revised Question 103.11 clarifies that determining eligibility for Schedule 13G reporting (as opposed to Schedule 13D reporting) pursuant to Exchange Act Rule 13d-1(b) or 13d-1(c) will be informed by all relevant facts and circumstances and by how “control” is defined in Exchange Act Rule 12b-2. This revised C&DI removed the examples previously given as to when filing on Schedule 13D or Schedule 13G would be appropriate.
New Question 103.12 states that a shareholder’s level of engagement with a public company could be dispositive in determining “control” and disqualifying a shareholder from filing on Schedule 13G. This new C&DI notes that when the engagement goes beyond a shareholder informing management of its views and the shareholder actually applies pressure to implement a policy change or specific measure, the engagement can be seen as “influencing” control over a company. Together, these revised and new C&DIs present a significant change in beneficial ownership considerations with respect to shareholder engagements.
Since the issuance and revision of these two C&DIs, the Corp Fin Staff has further indicated that the publishing of a voting policy or guideline alone would generally not be viewed as influencing control. However, if a shareholder discusses a voting policy or guideline when engaging with a company and the discussion goes into specifics or becomes a negotiation, it could be seen as influencing control. Additionally, the Corp Fin Staff explained that, while statements made by a shareholder during an engagement may indicate that it is not seeking to influence control, a shareholder’s actions may still be considered an attempt to do so.
For companies that actively engage with shareholders that report ownership of the company’s holdings pursuant to a Schedule 13G, the new and revised Regulation 13D-G C&DIs may have the unintended effect of causing additional time and resources to be spent engaging with a broader pool of investors if engagements with larger shareholders are canceled, postponed, or lessened in scope.
Proxy Rules and Schedules 14A/14C
Over the past several proxy seasons, there has been an increase in the number of voluntary Notice of Exempt Solicitation filings by shareholder proponents and other parties in what is often seen as an inexpensive way to express support for a shareholder proposal or to express a shareholder’s views on a particular topic. This can be seen as contrary to the intended purpose of a Notice of Exempt Solicitation filing, which was to make all shareholders aware of a solicitation by a large shareholder to a smaller number of shareholders. Many companies that had these voluntary Notice of Exempt Solicitation filings made in connection with a shareholder proposal have found them to be confusing to shareholders since there was limited information required by these filings and there was uncertainty about how to respond to materially false and misleading statements in them.
On 27 January 2025, the Corp Fin Staff revised two C&DIs and issued three new C&DIs relating to voluntary Notice of Exempt Solicitation filings. The new and revised C&DIs clarify that voluntary submissions are allowed by a soliciting person that does not beneficially own more than US$5 million of the class of subject securities, so long as the cover page to the filing clearly indicates this fact. Additionally, the notice itself cannot be used as a means of solicitation but instead should be a notification to the public that the written material has been provided to shareholders by other means. The Corp Fin Staff also confirmed that the prohibition on materially false or misleading statements contained in Exchange Act Rule 14a-9 applies to all written soliciting materials, including those filed pursuant to a Notice of Exempt Solicitation.
For companies that have had voluntary Notice of Exempt Solicitation filings made to generate publicity for a shareholder proposal or express a view on a particular topic, the new and revised Proxy Rules and Schedules 14A/14C C&DIs are intended to significantly limit the number of or stop these voluntary filings, which are simply made for publicity or to express a viewpoint.
Tender Offer Rules
On 6 March 2025, the Corp Fin Staff added five new C&DIs relating to material changes to tender offers after publication. According to Exchange Act Rule 14d-4(d), when there is a material change in the information that has been published, sent, or given to shareholders, notice of that material change must be promptly disseminated in a manner reasonably designed to inform shareholders of the change. The rule goes on to say that an offer should remain open for five days following a material change when the change deals with anything other than price or share levels.
In new C&DI Question 101.17, the Corp Fin Staff clarified that while the SEC has previously stated that an all-cash tender offer should remain open for a minimum of five business days from the date a material change is first disclosed, it understands this may not always be practicable. The Corp Fin Staff believes that a shorter time period may be acceptable if the disclosure and dissemination of the material change provides sufficient time for shareholders to consider this information and factor it into their decision regarding the shares subject to the tender offer.
New C&DIs 101.18–101.21 address material changes related to the status or source of the financing of a tender offer. In Question 101.18, the Corp Fin Staff indicated that a change in financing of a tender offer from “partially financed” or “unfinanced” to “fully financed” constitutes a material change that requires shareholder notice and time for consideration on whether a shareholder will participate. In Question 101.20, however, the Corp Fin Staff clarifies that the mere substitution of the source of financing is not material. The Corp Fin Staff did note that an offeror should consider whether it needs to amend the tender offer materials to reflect the material terms and the substitution of the funding source. While this may seem contrary to the Corp Fin Staff’s guidance in this C&DI, an immaterial change in the funding source could trigger an obligation to amend the tender offer materials to reflect other changes, such as the material terms of the new source of funding.
In Question 101.19, the Corp Fin Staff indicated that a tender offer with a binding commitment letter from a lender would constitute a fully financed offer, while a “highly confident” letter would not. The answer to Question 101.21 builds on the guidance from the previous three new C&DIs to establish that when an offeror has conditioned its purchase of the tendered securities on the receipt of actual funds from a lender, a material change occurs when the lender does not fulfill its contractual obligation and the offeror waives it without an alternative source of funding.
In light of these new C&DIs, companies planning tender offers should play close attention to the status of any necessary funding, as changes in unfunded, partially funded, or fully funded financing can trigger the need to disclose a material change to stakeholders as well as to amend the tender offer materials.
Conclusion
This publication is the first in a series that seeks to highlight these policy changes and help public companies stay up to date on the Corp Fin Staff’s guidance. Our Capital Markets practice group lawyers are happy to discuss how these policy and guidance changes can impact companies as they consider how to address the new and revised Regulation 13D-G, proxy rules, and tender offer rules C&DIs.
Corporate Transparency Act Update: Drastic Reduction in Scope of BOI Reporting in March 21, 2025 FinCEN Guidance
On March 21, 2025, the United States Treasury announced a significant reduction in scope of the definition of “reporting company” under the Corporate Transparency Act, limiting the obligation to file beneficial ownership reports to foreign entities only and removing the obligation to file from U.S. persons and U.S. companies.
As noted in our previous online posts, following significant litigation regarding the constitutionality of the regulation, on February 19, 2025, FinCEN suspended reporting obligations under the CTA and promised further guidance on reporting obligations to be issued on or before March 21, 2025. On March 21, 2025, FinCEN issued an interim final rule:
The new rule exempts U.S. persons from having to disclose BOI under the regulations by narrowing the definition of a “reporting company”. This means that any entity created in the United States does not need to report beneficial ownership to FinCEN under the CTA, even if it has non-US persons as beneficial owners.
The rule is now narrowed to only foreign entities that are registered to do business in the United States by the filing of a document with a secretary of state or similar office. The rule reduces the scope of the CTA dramatically, as most foreign enterprises doing business in the United States will have created a legal subsidiary within the country in order to conduct business. As above, U.S. entities are exempt from reporting.
Entities in existence prior to Friday have 30 days to complete their BOI filings with FinCEN. Entities that come into existence after the issuance of the rule have 30 days following formation to complete their filing obligations.
FinCEN continues to accept comments to this interim final rule and intends on issuing a final rule later this year. The final rule may change the scope of the CTA, and litigation continues before the courts regarding the CTA. We will continue to follow the law’s progress and will provide updates as this regulation evolves.
Our prior posts on CTA developments can be found here:
Client Alert: Corporate Transparency Act Beneficial Ownership Information Reporting On Hold – Business Law
Client Alert: Supreme Court Allows Corporate Transparency Act Enforcement But FinCEN Notes Another Stay Prevents Current Implementation – Business Law
CTA Reporting Now Required, but FinCEN Waives Penalties and Indicates New Reporting Deadline Extension Likely Later This Year – Business Law
The Third Time’s A Charm: Colorado Adds Nuclear Energy as a Clean Energy Resource
After considering similar legislation in two prior sessions, the Colorado General Assembly passed, and Gov. Jared Polis signed into law, House Bill 25-1040 which explicitly adds nuclear energy to the state’s statutory definitions of “clean energy” and “clean energy resource” for purposes of complying with Colorado’s carbon dioxide emission reduction requirements and applying for financial assistance under Colorado’s Rural Clean Energy Project Finance Program. In so doing, Colorado joins more than a dozen other states that consider nuclear power to be a clean energy resource under various state energy policies, and is consistent with the growing number of states taking legislative, regulatory, or policy steps to support or at least consider adding nuclear power to their energy mix.
Acknowledging Colorado’s projected growth in peak electricity demand and the potential energy supply, reliability, climate, and economic benefits of nuclear energy, including advanced reactors such as Small Modular Reactors (SMRs), the legislation expands the statutory definitions to include “nuclear energy, including nuclear energy projects awarded funding through the United States Department of Energy’s Advanced Nuclear Reactor Programs.”
Under Colorado’s carbon dioxide emission reduction statute, qualifying retail utilities in Colorado are required to submit to the Colorado Public Utilities Commission (CPUC) a plan detailing how they intend to reduce by 2030 carbon dioxide emissions associated with their electricity sales by 80 percent as compared to 2005 levels, and how they will seek to achieve 100% emission free electricity sales by 2050. For compliance purposes, the Statute incorporates the “eligible energy resources” that can be used to comply with Colorado’s separate Renewable Energy Standards (RES); these include recycled energy, renewable energy resources (wind, solar, geothermal, new small hydropower, and certain biomass), and renewable energy storage, however, nuclear energy is expressly excluded. Recognizing that not all clean energy resources may be considered renewable, the Statute also allows any other “electricity-generating technology that generates or stores electricity without emitting carbon dioxide into the atmosphere.” While this catch-all language arguably encompasses nuclear energy, HB25-1040 amends the statute to remove any doubt and emphasize the potential benefits of nuclear energy.
Colorado’s three largest electric utilities are in the process of implementing their respective CPUC-approved clean energy plan or electric resource plan that meets the state’s emission reduction requirements. While none of the plans presently include nuclear power, Colorado’s largest investor-owned electric utility, Public Service Company of Colorado (PSCo), has indicated it is open to considering nuclear energy resources in the future.
HB25-1040 also expands the types of energy that qualify for potential financial assistance through Colorado’s Rural Clean Energy Project Finance Program. The Program allows certain rural property owners to apply to their board of county commissioners for the issuance of tax-exempt private activity bonds to help finance the construction, expansion, or upgrade of a clean energy project having a capacity of no more than 50 MW and which is owned by and located on the property owner’s land. The electricity generated by such a project would be delivered to the cooperative electric association in whose service territory the project is located. Similar to Colorado’s RES, the Program defined “clean energy” to include only biomass, geothermal, solar, wind, and small hydropower resources as well as hydrogen derived from these resources. As such, only projects using these technologies were eligible for financial assistance under the Program. Now, small nuclear power projects are also eligible for financial assistance under the Program.
Colorado presently has no operating commercial nuclear power plants. From 1979 until 1989, Colorado was home to the Fort St. Vrain Nuclear Power Plant, a 330 MW(e) high temperature gas cooled reactor, owned and operated by PSCo. The plant was decommissioned in 1992 following a series of operational issues and portions of the plant were converted to a natural gas combustion turbine generating plant. The statutory amendments resulting from HB25-1040 do not mean that new nuclear power is coming to Colorado, but they do evidence a state policy environment more favorable to nuclear power and provide practical, incremental improvements that may incentivize utilities and landowners to consider developing nuclear power generating facilities in the state.
For example, PSCo has indicated that new nuclear generation is one possible option to replace the electricity and economic benefits of its Comanche-3 power plant located in Pueblo, Colorado and which is scheduled to retire by January 1, 2031. The ability to count nuclear energy toward PSCo’s carbon dioxide emission reduction obligations may be an additional consideration as PSCo evaluates this option. Furthermore, once advanced reactor designs progress from First-of-a-Kind to Nth-of-a-Kind, cost effective, deployable systems, some SMRs and microreactors could align well with Colorado’s Rural Clean Energy Project Finance Program and become viable power supply options for Colorado’s rural communities.
Ultimately, taking advantage of HB25-1040’s incremental improvements will also require sound legal and regulatory advice related to nuclear matters as well as siting, permitting, environmental, and numerous other issues. If you have questions concerning this legislation or the opportunities it may create, please reach out to the author of this alert or the Womble Bond Dickinson attorney with whom you normally work.
SEC Provides Further Clarity in Rule 506(c) Offerings
On March 12, 2025, the Securities and Exchange Commission (the “SEC”) issued a No-Action Letter that provided guidance regarding the ways issuers can satisfy the accredited investor verification requirements of offerings made pursuant to Rule 506(c) under Regulation D. Specifically, the SEC confirmed that an issuer will satisfy the requirement that it take “reasonable steps” to verify the accredited investor status of an investor if the issuer requires purchasers to agree to certain minimum investment amounts, coupled with such investor’s self-certification of certain representations related to its investment.
Rule 506(c) provides a non-exhaustive list of steps which include collecting bank statements, verification letters, credit reports, or other sensitive documentation, which many issuers find too burdensome. The SEC’s clarification could make it easier for issuers relying on Rule 506(c) to make general solicitations to accredited investors.
Under the guidance provided by the No-Action Letter, an issuer can satisfy the verification requirement if:
The offering requires a minimum investment of at least $200,000 from natural persons or $1 million for legal entities (in either case, including binding commitments to invest at least the minimum amount in one or more installments when called by the issuer); and
The investor provides written representations that (a) the purchaser is an accredited investor; and (b) the purchaser’s minimum investment amount is not financed in whole or in part by any third party for the specific purpose of making the particular investment in the issuer.
US Treasury Extends Recordkeeping Requirement for Economic Sanctions Compliance to 10 Years
On March 20, 2025, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) published a final rule (Final Rule) extending the recordkeeping requirement for compliance with U.S. economic sanctions regulations from five to 10 years. This change aligns with the April 2024 legislation (Pub. L. 118-50) that increased the statute of limitations for economic sanctions violations under the International Emergency Economic Powers Act (IEEPA), 50 U.S.C. § 1705, and the Trading with the Enemy Act (TWEA), 50 U.S.C. § 4315 to 10 years. The Final Rule took effect March 21, 2025.
10-Year Recordkeeping Requirement for Sanctions Compliance
The April 2024 legislation doubled the statute of limitations for civil and criminal violations of IEEPA and TWEA. Subsequently, OFAC issued an interim final rule (89 Fed. Reg. 74832) in September 2024 to amend its recordkeeping requirements, consistent with the revised statute of limitations. After reviewing public comments, OFAC finalized the rule, officially codifying the 10-year recordkeeping requirement at 31 C.F.R. 501.601 and requiring that:
[E]very person engaging in any transaction subject to [U.S. sanctions regulations] shall keep a full and accurate record of each such transaction engaged in, regardless of whether such transaction is effected pursuant to license or otherwise, and such record shall be available for examination for at least 10 years after the date of such transaction.
Additionally, individuals or entities holding blocked property must keep a full and accurate record of that property for at least 10 years after the date of unblocking.
Implications for Financial Institutions
Financial institutions – including banks, casinos, and money services businesses – subject to the Bank Secrecy Act (BSA) must implement risk-based measures to address compliance risks related to money laundering and terrorist financing.
Previously, the BSA’s recordkeeping requirements aligned with OFAC’s five-year retention period. With the Final Rule’s extension, financial institutions must reassess their record retention policies and update internal frameworks to comply with the new 10-year requirement. Regulatory agencies will expect institutions to revise policies, procedures, and controls to reflect this change.
Key Takeaways
The extended recordkeeping requirement applies only to sanctions compliance and does not affect the five-year retention requirements for the International Traffic in Arms Regulations (ITAR) or the Export Administration Regulations (EAR).
Companies should review their existing recordkeeping and record retention policies to determine updates or adjustments to be made to align with the new 10-year OFAC period, as well as evaluate potential conflicts with other regulatory record retention periods to be reconciled. Companies should also evaluate from an operational standpoint whether their systems, resources, and technologies can support the longer retention period, including assessing potential impacts on data management, storage costs, access controls, and cybersecurity.
Compliance measures should include updating record-retention policies, enhancing automated systems, and conducting organization-wide training to ensure adherence to the new rules.
This change carries significant operational and compliance implications, particularly for financial institutions, which must ensure readiness to meet the extended requirements while maintaining secure and accessible records for regulatory purposes.
Recent Division of Corporation Finance Guidance Relating to Regulation 13D-G Beneficial Ownership Reporting, Proxy Rules, and Tender Offer Rules
Since the beginning of the year, the US Securities and Exchange Commission’s (SEC) Division of Corporation Finance staff (Corp Fin Staff) has issued several important statements and interpretations, including a Staff Legal Bulletin on shareholder proposals and multiple new and revised Compliance and Disclosure Interpretations (C&DIs). Given the pace and importance of these recent changes, it is critical that public companies be aware of the significant policy shift at the Division of Corporation Finance and the substance of the updated statements and interpretations.
This is the first part of an ongoing series that will discuss recent guidance and announcements from the Corp Fin Staff. This alert will review the new and revised C&DIs released by the Corp Fin Staff relating to Regulation 13D-G, proxy rules, and tender offer rules.
Regulation 13D-G
On 11 February 2025, the Corp Fin Staff revised one C&DI and issued a new C&DI with respect to beneficial ownership reporting obligations. Revised Question 103.11 clarifies that determining eligibility for Schedule 13G reporting (as opposed to Schedule 13D reporting) pursuant to Exchange Act Rule 13d-1(b) or 13d-1(c) will be informed by all relevant facts and circumstances and by how “control” is defined in Exchange Act Rule 12b-2. This revised C&DI removed the examples previously given as to when filing on Schedule 13D or Schedule 13G would be appropriate.
New Question 103.12 states that a shareholder’s level of engagement with a public company could be dispositive in determining “control” and disqualifying a shareholder from filing on Schedule 13G. This new C&DI notes that when the engagement goes beyond a shareholder informing management of its views and the shareholder actually applies pressure to implement a policy change or specific measure, the engagement can be seen as “influencing” control over a company. Together, these revised and new C&DIs present a significant change in beneficial ownership considerations with respect to shareholder engagements.
Since the issuance and revision of these two C&DIs, the Corp Fin Staff has further indicated that the publishing of a voting policy or guideline alone would generally not be viewed as influencing control. However, if a shareholder discusses a voting policy or guideline when engaging with a company and the discussion goes into specifics or becomes a negotiation, it could be seen as influencing control. Additionally, the Corp Fin Staff explained that, while statements made by a shareholder during an engagement may indicate that it is not seeking to influence control, a shareholder’s actions may still be considered an attempt to do so.
For companies that actively engage with shareholders that report ownership of the company’s holdings pursuant to a Schedule 13G, the new and revised Regulation 13D-G C&DIs may have the unintended effect of causing additional time and resources to be spent engaging with a broader pool of investors if engagements with larger shareholders are canceled, postponed, or lessened in scope.
Proxy Rules and Schedules 14A/14C
Over the past several proxy seasons, there has been an increase in the number of voluntary Notice of Exempt Solicitation filings by shareholder proponents and other parties in what is often seen as an inexpensive way to express support for a shareholder proposal or to express a shareholder’s views on a particular topic. This can be seen as contrary to the intended purpose of a Notice of Exempt Solicitation filing, which was to make all shareholders aware of a solicitation by a large shareholder to a smaller number of shareholders. Many companies that had these voluntary Notice of Exempt Solicitation filings made in connection with a shareholder proposal have found them to be confusing to shareholders since there was limited information required by these filings and there was uncertainty about how to respond to materially false and misleading statements in them.
On 27 January 2025, the Corp Fin Staff revised two C&DIs and issued three new C&DIs relating to voluntary Notice of Exempt Solicitation filings. The new and revised C&DIs clarify that voluntary submissions are allowed by a soliciting person that does not beneficially own more than US$5 million of the class of subject securities, so long as the cover page to the filing clearly indicates this fact. Additionally, the notice itself cannot be used as a means of solicitation but instead should be a notification to the public that the written material has been provided to shareholders by other means. The Corp Fin Staff also confirmed that the prohibition on materially false or misleading statements contained in Exchange Act Rule 14a-9 applies to all written soliciting materials, including those filed pursuant to a Notice of Exempt Solicitation.
For companies that have had voluntary Notice of Exempt Solicitation filings made to generate publicity for a shareholder proposal or express a view on a particular topic, the new and revised Proxy Rules and Schedules 14A/14C C&DIs are intended to significantly limit the number of or stop these voluntary filings, which are simply made for publicity or to express a viewpoint.
Tender Offer Rules
On 6 March 2025, the Corp Fin Staff added five new C&DIs relating to material changes to tender offers after publication. According to Exchange Act Rule 14d-4(d), when there is a material change in the information that has been published, sent, or given to shareholders, notice of that material change must be promptly disseminated in a manner reasonably designed to inform shareholders of the change. The rule goes on to say that an offer should remain open for five days following a material change when the change deals with anything other than price or share levels.
In new C&DI Question 101.17, the Corp Fin Staff clarified that while the SEC has previously stated that an all-cash tender offer should remain open for a minimum of five business days from the date a material change is first disclosed, it understands this may not always be practicable. The Corp Fin Staff believes that a shorter time period may be acceptable if the disclosure and dissemination of the material change provides sufficient time for shareholders to consider this information and factor it into their decision regarding the shares subject to the tender offer.
New C&DIs 101.18–101.21 address material changes related to the status or source of the financing of a tender offer. In Question 101.18, the Corp Fin Staff indicated that a change in financing of a tender offer from “partially financed” or “unfinanced” to “fully financed” constitutes a material change that requires shareholder notice and time for consideration on whether a shareholder will participate. In Question 101.20, however, the Corp Fin Staff clarifies that the mere substitution of the source of financing is not material. The Corp Fin Staff did note that an offeror should consider whether it needs to amend the tender offer materials to reflect the material terms and the substitution of the funding source. While this may seem contrary to the Corp Fin Staff’s guidance in this C&DI, an immaterial change in the funding source could trigger an obligation to amend the tender offer materials to reflect other changes, such as the material terms of the new source of funding.
In Question 101.19, the Corp Fin Staff indicated that a tender offer with a binding commitment letter from a lender would constitute a fully financed offer, while a “highly confident” letter would not. The answer to Question 101.21 builds on the guidance from the previous three new C&DIs to establish that when an offeror has conditioned its purchase of the tendered securities on the receipt of actual funds from a lender, a material change occurs when the lender does not fulfill its contractual obligation and the offeror waives it without an alternative source of funding.
In light of these new C&DIs, companies planning tender offers should play close attention to the status of any necessary funding, as changes in unfunded, partially funded, or fully funded financing can trigger the need to disclose a material change to stakeholders as well as to amend the tender offer materials.
Conclusion
This publication is the first in a series that seeks to highlight these policy changes and help public companies stay up to date on the Corp Fin Staff’s guidance. Our Capital Markets practice group lawyers are happy to discuss how these policy and guidance changes can impact companies as they consider how to address the new and revised Regulation 13D-G, proxy rules, and tender offer rules C&DIs.
CTA Drastically Pared Back
As promised by the US Department of Treasury in early March, the Financial Crimes Enforcement Network (FinCEN) issued an interim final rule removing the requirement for US companies, their beneficial owners, and US persons to report beneficial ownership information (BOI) to FinCEN under the Corporate Transparency Act (CTA).
Now, only non-US entities that have registered to do business in the United States are subject to the CTA.
See our prior alert on Treasury’s March 2 announcement here.
Only Non-US Entities Subject to the CTA
The interim final rule, issued by FinCEN on March 21 and published on March 26, amends the BOI reporting rule to revise the definition of “reporting company” to extend only to entities formed under the law of a foreign country that have registered to do business in any US state or tribal jurisdiction by filing a document with a secretary of state or similar office. This category of entities under the original rule was termed “foreign reporting companies.” And, in a related move, the interim final rule also formally exempts domestic entities (formerly known as “domestic reporting companies”) from the CTA’s requirements.
No BOI Reporting of US Persons Is Required
Furthermore, reporting companies are not required to report the BOI of any US persons who are beneficial owners, and US persons are exempt from having to provide BOI with respect to any reporting company for which they are a beneficial owner.
Company Applicant Reporting Is Still Required
The concept of a “company applicant” has been retained for the foreign entities still subject to the CTA, but it applies only to the individual who directly files the document that first registers the reporting company with a state or tribal jurisdiction and to the individual (if different from the direct filer) who is primarily responsible for directing or controlling that filing. A company applicant may be a US person and is not exempted from being reported as a company applicant by virtue of being a US person.
New Initial Reporting Deadlines
Foreign entities that are “reporting companies” under the interim final rule and do not qualify for an exemption from reporting under the CTA are subject to new deadlines:
Reporting companies registered to do business in the United States before March 26 must file BOI reports by April 25.
Reporting companies registered to do business in the United States on or after March 26 have 30 calendar days to file an initial BOI report after receiving notice that their registration is effective (or public notice has been provided, such as through a publicly accessible registry).
Having filed an initial BOI report, a foreign entity that is a reporting company is subject to the 30-day deadline after March 26 to file an updated or corrected report as needed.
Next Steps
FinCEN is accepting comments on the interim final rule until May 27 and intends to finalize it later this year.
There are certain special cases that remain ambiguous under the interim final rule, such as that of a company that has been formed and exists simultaneously in the United States and in a foreign country. Based on the text of the interim final rule, such a company appears to not be a “reporting company,” as it presumably would fall within the new regulatory exemption for an entity that has been created by the filing of a document with a secretary of state or similar office under the law of a US state or tribal jurisdiction. But, as of now, the matter is not entirely clear.
With the changes wrought by the interim final rule, most companies are no longer subject to the CTA. For various reasons, the number of foreign entities that have registered to do business in the United States is small, and those companies may wish to consider restructuring their US activities to avoid a continued CTA obligation (although they may still need to file an initial report with FinCEN), such as by creating a US operating subsidiary.