Beneficial ownership information (BOI) reporting

BOI reporting was originally designed as a comprehensive transparency requirement to identify and disclose the real people who ultimately own or control companies. The goal was to combat money laundering, terrorist financing, and other illicit activities by eliminating the anonymity that shell companiesCompanies that exist primarily on paper with minimal or no actual business operations, often used to obscure ownership. and complex ownership structures can provide to criminals.

The Corporate Transparency Act, enacted as part of the Anti-Money Laundering Act of 2020Federal legislation that significantly expanded anti-money laundering requirements and included the Corporate Transparency Act., initially required most U.S. business entities, including hedge fund vehicles, to report beneficial ownership information. However, implementation faced significant constitutional challenges and concerns about regulatory burden on small businesses.

On March 26, 2025, FinCEN published an interim final ruleA rule that takes effect immediately while allowing for public comment before final adoption. that fundamentally transformed the regulatory landscape. The Treasury Department simultaneously announced it would not enforce penalties against U.S. citizens or domestic companies, effectively exempting the entire U.S. domestic business sector.

Current scope of BOI reporting:

• Subject to reporting: Only foreign entities formed under foreign law that have registered to do business in any U.S. state or tribal jurisdiction (must report only non-U.S. beneficial owners)
• Exempt: All U.S. domestic entities including hedge funds, management companies, and investment vehicles; all U.S. persons as beneficial owners

For the limited entities still subject to BOI reporting, beneficial ownership focuses on individuals who either:

• Own 25% or more of the entity's equity interestsOwnership stakes in a business entity that typically provide voting rights and claims on profits and assets.
• Exercise substantial control through senior positions or decision-making authority

This 25% threshold aligns with other regulatory frameworks such as Section 13 reporting under securities laws and customer due diligenceProcedures to verify customer identity and assess money laundering risks before establishing business relationships. requirements under the Bank Secrecy ActFederal law requiring financial institutions to assist U.S. government agencies in detecting and preventing money laundering..

The elimination of CTA BOI reporting for U.S. hedge funds does not affect other AML Anti-money laundering (AML) Anti-money laundering (AML) refers to the set of laws, regulations, and procedures designed to prevent the conversion of illegally obtained funds into legitimate assets, requiring financial institutions to implement monitoring systems, customer due diligence, and suspicious activity reporting. obligations, which operate under separate regulatory frameworks:

• Investment Adviser AML Rule: Requires certain registered investment advisers Registered investment adviser (RIA) A registered investment adviser (RIA) is a hedge fund manager or other investment adviser that has registered with the SEC or state securities regulators. These advisers must follow comprehensive rules including fiduciary duties, compliance requirements, and regular examinations. and exempt reporting advisers Exempt reporting adviser An exempt reporting adviser is an investment adviser that doesn't have to complete full SEC registration, but still must meet some basic reporting requirements. This status typically applies to advisers who only manage private funds with less than $150 million in U.S. assets, or advisers who exclusively manage venture capital funds. to implement AML programs and report suspicious activities (effective date postponed to January 1, 2028)
• Enhanced due diligence: Required for high-risk investors including politically exposed personsIndividuals who hold prominent public positions and may present higher corruption risks.
• Know your customer procedures: For investor onboarding and ongoing monitoring

U.S. hedge fund managers: No action required under the Corporate Transparency Act. However, managers should:

• Monitor potential regulatory changes as FinCEN may reassess these exemptions
• Continue compliance with existing AML obligations under other frameworks
• Prepare for Investment Adviser AML Rule compliance (effective January 1, 2028)

Foreign hedge fund entities: Those registered to do business in the United States should evaluate BOI reporting obligations and ensure compliance with applicable deadlines.

The Treasury Department will not enforce penalties against U.S. citizens or domestic companies under the Corporate Transparency Act, applying to both past deadlines and future changes. However, foreign entities subject to reporting requirements still face significant penalties for non-compliance, including substantial fines and potential criminal sanctionsLegal penalties that may include imprisonment, fines, or other punitive measures for criminal violations. for willful violations.

FinCEN intends to solicit public commentsWritten submissions from stakeholders during the regulatory rulemaking process to provide feedback on proposed regulations. on the interim final rule and may issue a final rule during 2025 that could reimpose some BOI reporting requirements, particularly for U.S. companies with foreign owners presenting anti-money laundering risks. Any reimposition would likely provide adequate notice and compliance timelines.

U.S. hedge funds are exempt from Corporate Transparency Act BOI reporting requirements as of March 26, 2025. While this represents a significant change from the original regulatory framework, hedge funds must continue complying with other AML obligations and should monitor potential future developments in BOI reporting requirements.