The FinCEN BOI Filings Legal Saga: A Closer Look

In the ever-evolving world of financial regulation, few topics have generated as much buzz and debate as the FinCEN Beneficial Ownership Information (BOI) filings. Intended to bring greater transparency to the ownership structures of corporations and other legal entities, these filings have become the centerpiece of a legal saga involving compliance challenges, privacy concerns, and regulatory evolution. This blog post explores the background, controversies, and implications of the FinCEN BOI filings.

Background: Why BOI Filings Matter

The Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, introduced the BOI reporting requirement as part of its effort to combat illicit finance. Mandated under the Corporate Transparency Act (CTA) of 2020, the rule requires certain entities to disclose key information about their beneficial owners—individuals who own or control at least 25% of the entity or have significant influence over it.

The primary goal of these filings is to address the opacity that often enables money laundering, tax evasion, and other financial crimes. By creating a centralized registry of beneficial ownership information, FinCEN aims to empower law enforcement and regulators with the tools needed to crack down on these illicit activities.

The Legal Saga Begins

Despite its laudable goals, the BOI filing requirement has sparked significant legal challenges. Some of the key issues include:

1. Privacy Concerns: Critics argue that requiring entities to disclose personal information about their beneficial owners poses privacy risks. While FinCEN has promised robust safeguards, skeptics fear potential breaches or misuse of sensitive data.

2. Compliance Burden: Small businesses and startups have raised concerns about the compliance costs associated with BOI filings. For entities with complex ownership structures, the requirement to track and report changes to beneficial ownership adds administrative and financial strain.

3. Ambiguity in Definitions: Legal challenges have also arisen over the definitions of “beneficial owner” and “substantial control,” which some argue are overly broad or vague. This ambiguity has led to confusion and varying interpretations by entities attempting to comply with the law.

4. Constitutional Challenges: Some litigants have questioned the constitutionality of the BOI filing requirement, arguing that it infringes on the Fourth Amendment’s protections against unreasonable searches and seizures.

5. Taxpayer dollars: Not only are the small businesses getting hurt with increased administrative costs, but taxpayers also foot the bill for this massive undertaking. Public sector jobs that have been created to develop, maintain and enforce this  mandate cost taxpayers a lot of money.

Key Court Cases and Developments

Several lawsuits have emerged challenging the BOI filing requirements. Among the most prominent cases:

• Small Business Coalition v. FinCEN: A coalition of small business owners filed suit, alleging that the BOI rule imposes an undue burden and violates constitutional protections.

• Doe v. Treasury: In this case, anonymous plaintiffs argued that the disclosure of beneficial ownership information jeopardized their safety and violated their right to privacy.

There have been several major court cases against the order and Department of Treasury. The two above are two of the more prominent cases but there are others working their way through the Fourth and Ninth Circuit courts as well. These cases continue to wind through the legal system, with potential implications for the future of financial regulation.

December 17th Ruling

Judge Amos Mazzant granted the request of the National Federation of Independent Business (NFIB) for a preliminary injunction, effectively alleviating the need (temporarily at least) for companies to file BOI filings.

December 23rd

A Unanimous Fifth Circuit bench granted the government’s emergency motion for a stay of a preliminary injunction. They extended the deadline to file to January 13th instead of January 1st.

December 26th

The Fifth Circuit issued an order to VACATE the previous order. Effectively bringing the preliminary injunction back nationwide.

However, the court wrote, "in order to preserve the constitutional status quo while the merits panel considers the parties' weighty substantive arguments, that part of the motions-panel order granting the Government's motion to stay the district court's preliminary injunction enjoining enforcement of the CTA and the Reporting Rule is VACATED."

Read the unpublished order here.

Effectively, you don’t need to file again, until something changes.

What do you have to do?

Until something changes, you do not have to comply with filing your FinCEN BOI filings at the moment, however you should prepare the information to file before January 13th in case something materially changes prior to that deadline.

Conclusion

The FinCEN BOI filings legal saga underscores the complexities of modern financial regulation. As courts, regulators, and businesses grapple with the implications, one thing is clear: transparency and privacy must coexist in a delicate equilibrium. How this balance is achieved will shape the future of financial oversight and set precedents for years to come.

**The above is not to be considered advice of any kind. This blog is for informational purposes only. Readers should consult with their legal or compliance professional.