2024-23920. Update to the Public Utility Exemption Under the Beneficial Ownership Information Reporting Rule

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Department of the Treasury

Financial Crimes Enforcement Network

1. 31 CFR Part 1010
2. RIN 1506-AB49

AGENCY:

Financial Crimes Enforcement Network (FinCEN), Treasury.

ACTION:

Final rule.

SUMMARY:

FinCEN is publishing this final rule to clarify an exemption under the beneficial ownership information reporting rule that FinCEN published on September 30, 2022. This rule modifies the language exempting certain public utilities from the definition of “reporting company” in the beneficial ownership information reporting rule to more clearly implement the language of the exemption found in the Corporate Transparency Act.

DATES:

This rule is October 18, 2024.

FOR FURTHER INFORMATION CONTACT:

The FinCEN Regulatory Support Section at 1-800-767-2825 or electronically at [e-mail].

SUPPLEMENTARY INFORMATION:

I. Background

On September 30, 2022, FinCEN issued the beneficial ownership information (BOI) reporting rule (“Reporting Rule”).^[1] That rule implemented the reporting requirements of section 6403 of the Corporate Transparency Act (CTA), enacted into law as part of the National Defense Authorization Act of Fiscal Year 2021 (NDAA).^[2] The CTA requires certain types of domestic and foreign entities, called “reporting companies,” to submit information about “beneficial owners” to FinCEN.^[3] The CTA generally defines a reporting company as a corporation, limited liability company, or other similar entity that is created or registered to do business in the United States by the filing of a document with a secretary of state or similar office under the law of a State or Indian Tribe.^[4] The CTA exempts twenty-three categories of entities from that definition.^[5] One such exemption is for “a public utility that provides telecommunications services, electrical power, natural gas, or water and sewer services within the United States.” ^[6]

In the Reporting Rule, FinCEN gave precision to the CTA's public utility exemption by making a reference to the Internal Revenue Code, which defines a regulated public utility for tax purposes. The Reporting Rule states that the exemption applies to “[a]ny entity that is a regulated public utility as defined in 26 U.S.C. 7701(a)(33)(A) that provides telecommunications services, electrical power, natural gas, or water and sewer services within the United States.” ^[7]

While the CTA's public utility exemption mentions four types of public utilities (telecommunications services, electrical power, natural gas, and water and sewer services), questions have arisen about the application of the exemption to providers of telecommunications services because the specific provision cross-referenced in the Internal Revenue Code definition—subparagraph (A) of 26 U.S.C. 7701(a)(33)—is only part of the definition of a regulated public utility that provides telecommunications services. Unlike covered providers of electrical power, natural gas, and water and sewer services, which are defined in subparagraph (A), covered providers of telecommunications services are defined by operation of subparagraphs (D) and (A) together. Subparagraph (D) specifies that a regulated public utility includes “a corporation engaged in the furnishing or sale of telephone or telegraph service, if the rates for such furnishing or sale meet the requirements of subparagraph (A),” and subparagraph (A) sets forth those requirements with regard to rates. FinCEN intended to cross-reference both of these provisions in the Reporting Rule's public utility exemption but inadvertently omitted a reference to subparagraph (D) in the final rule.^[8]

On June 10, 2024, FinCEN issued guidance in the form of a Frequently Asked Question clarifying that the CTA's exemption for public utilities includes a corporation engaged in the furnishing or sale of telephone or telegraph services if the rates for such furnishing or sale meet the requirements of 26 U.S.C. 7701(a)(33)(A), as specified in 26 U.S.C. 7701(a)(33)(D).^[9]

II. The Final Rule

In this final rule, FinCEN is amending its regulations, consistent with its June 10, 2024 guidance, to make clear that certain telecommunications services providers are exempt from reporting requirements under the CTA. To avoid any confusion arising from the cross-reference to subparagraph (A), FinCEN is adding a cross-reference to subparagraph (D). As amended, the regulation will provide as follows (new language in bold italics ): “(xvi) Public utility. Any entity that is a regulated public utility as defined in 26 U.S.C. 7701(a)(33)(A) or (D) that provides ( print page 83783) telecommunications services, electrical power, natural gas, or water and sewer services within the United States.” This amendment will more clearly conform the regulation's language to the scope of the CTA's exemption, making it easier for covered entities to understand their compliance obligations.

III. Public Participation

Because this final rule is a technical clarification that does not change the scope of the public utility exemption, FinCEN believes it is unnecessary to solicit comment on this rule. As explained above in Section II, FinCEN intended the Reporting Rule's public utility exemption to include telecommunications services providers, as set forth in the CTA, and understood the reference to 26 U.S.C. 7701(a)(33)(A) to include them. This final rule makes FinCEN's interpretation of the CTA and the Reporting Rule more clear, without altering the legal rights and responsibilities of any person. FinCEN therefore finds that it has good cause to dispense with notice and comment, pursuant to 5 U.S.C. 553(b)(B).

IV. Effective Date

Because this rule does not impose any obligations on the public, instead simply clarifying an existing exemption's scope, FinCEN finds good cause for making this rule effective immediately upon publication in the Federal Register , as permitted by 5 U.S.C. 553(d)(3).

V. Compliance With Other Authorities

Executive Orders 12866, 13563, and 14094 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule would not have an annual effect on the economy of $200 million or otherwise constitute a “significant regulatory action” as defined under section 3(f)(1) of Executive Order 12866, as amended. Accordingly, a regulatory impact analysis is not required.

Because no notice of proposed rulemaking is required, the provisions of the Regulatory Flexibility Act do not apply.

The Regulatory Flexibility Act, Public Law 96-354, applies only to rules for which an agency publishes a general NPRM pursuant to 5 U.S.C. 553(b).^[10] This rule is being immediately published as a final rule; it was not preceded by an NPRM. Therefore, the Regulatory Flexibility Act does not apply to it.

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, requires that an agency prepare a budgetary impact statement before promulgating a rule that includes a Federal mandate that may result in expenditure by state, local, and Tribal governments, in the aggregate, or by the private sector, of $184 million or more in any one year.^[11] FinCEN has determined that this rule will not result in expenditures by state, local, and tribal governments, or by the private sector, of $184 million or more. Accordingly, FinCEN has not prepared a budgetary impact statement or specifically addressed regulatory alternatives.

The provisions of the Paperwork Reduction Act of 1995, Public Law 104-13, and its implementing regulations do not apply to this rule because there are no new or revised recordkeeping or reporting requirements.^[12]

This rule is not a major rule as defined by the Congressional Review Act, Public Law 104-121.^[13] FinCEN, however, is submitting reports under the CRA to both Houses of Congress and to the Comptroller General.

List of Subjects in 31 CFR Part 1010

• Administrative practice and procedure
• Aliens
• Authority delegations (Government agencies)
• Banks and banking
• Brokers
• Business and industry
• Commodity futures
• Currency
• Citizenship and naturalization
• Electronic filing
• Federal savings associations
• Federal-States relations
• Foreign persons
• Holding companies
• Indian—law
• Indians
• Indians—tribal government
• Insurance companies
• Investment advisers
• Investment companies
• Investigations
• Law enforcement
• Penalties
• Reporting and recordkeeping requirements
• Small businesses
• Securities
• Terrorism
• Time

Authority and Issuance

For the reasons set forth in the preamble, part 1010 of chapter X of title 31 of the Code of Federal Regulations is amended as follows:

PART 1010—GENERAL PROVISIONS

1. The authority citation for part 1010 is revised to read as follows:

Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314, 5316-5336; title III, sec. 314 Pub. L. 107-56, 115 Stat. 307; sec. 2006, Pub. L. 114-41, 129 Stat. 457; sec. 701 Pub. L. 114-74, 129 Stat. 599; sec. 6403, Pub. L. 116-283, 134 Stat. 3388.

2. In § 1010.380, revise paragraph (c)(2)(xvi) to read as follows:

§ 1010.380

Reports of beneficial ownership information.

* * * * *

(c) * * *

(2) * * *

(xvi) Public utility. Any entity that is a regulated public utility as defined in 26 U.S.C. 7701(a)(33)(A) or (D) that provides telecommunications services, electrical power, natural gas, or water and sewer services within the United States.

* * * * *

Andrea M. Gacki,

Director, Financial Crimes Enforcement Network.

Footnotes

1.  87 FR 59498 (Sept. 30, 2022), codified at31 CFR 1010.380.

2.  The CTA is Title LXIV of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, Public Law 116-283 (Jan. 1, 2021). Division F of the NDAA is the Anti-Money Laundering Act of 2020, which includes the CTA. Section 6403 of the CTA, among other things, amends the Bank Secrecy Act (BSA) by adding a new section 5336, Beneficial Ownership Information Reporting Requirements, to subchapter II of chapter 53 of title 31, United States Code.

3.  31 U.S.C. 5336(b)(1).

4.  31 U.S.C. 5336(a)(11)(A).

5.  31 U.S.C. 5336(a)(11)(B).

6.  31 U.S.C. 5336(a)(11)(B)(xvi).

7.  31 CFR 1010.380(c)(2)(xvi).

8.  FinCEN had cross-referenced both (A) and (D) in the proposed rule, 86 FR 69920 (Dec. 8, 2021).

9.  FinCEN Frequently Asked Question L.8. (Jun. 10, 2024) available at https://www.fincen.gov/​boi-faqs.

10.   See generally 5. U.S.C. 601 et seq.

11.  The U.S. Bureau of Economic Analysis reported the annual value of the gross domestic product (GDP) deflator in 1995 (the year in which UMRA was enacted) as 66.939; and in 2023 as 123.273. See U.S. Bureau of Economic Analysis, “Table 1.1.9. Implicit Price Deflators for Gross Domestic Product” (accessed Sept. 16, 2024). Thus, the inflation adjusted estimate for $100 million is 123.273 divided by 66.939 and then multiplied by 100, or $184.157 million.

12.   See generally44 U.S.C. Chapter 35, 5 CFR part 1320.

13.  5 U.S.C. 804(2).