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Client Alert

FinCEN Issues Final Regulations to Implement the BSA’s Revised Beneficial Ownership Requirements

December 5, 2022

by Joseph Lynyak and Erin Bryan

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Pursuant to the adoption of comprehensive revisions to the U.S. anti-money laundering statutes as part of the Defense Appropriations Act of 2021 (the “Defense Act”)1, on September 30, 2022, the Financial Crimes Enforcement Network (“FinCEN”) issued final regulations to implement revised “beneficial ownership information” (“BOI”) disclosure rules for legal entities (the “Final Rule”)2. Specifically, the Final Rule implements Section 6403 of the Corporate Transparency Act (the “CTA”)3, which requires reporting companies, including corporations, limited liability companies and similar entities, to submit to FinCEN specified information identifying their beneficial owners—that is, the natural persons who own and control them—as well as information about the persons—termed “company applicants” and discussed in greater detail below—who form or register those corporate entities.

The Final Rule is a major departure from the current scheme of FinCEN’s regulations regarding the identification of the beneficial ownership of legal entities, which requires banks, other lenders and certain other financial intermediaries (defined as “financial institutions”) to obtain a limited amount of BOI information prior to engaging in a financing transaction or opening an account relationship with a covered legal entity.4 While these obligations will remain in place for the immediate future, the CTA creates the “Beneficial Ownership Secure System” (the “BOSS”), a new federal BOI data base. That data base will contain confidential information provided directly from reporting companies to FinCEN, including updates, and will make that information available to certain government agencies, as well as financial institutions that are currently subject to obtaining BOI pursuant to FinCEN’s CDD Rule.5

Importantly, the scope of reportable BOI has been substantially expanded, and by January 1, 2025, will require literally millions of existing smaller-sized legal entities to initially register directly with FinCEN—as well as each time a new reporting company is either formed or registered.6 Further, a reporting company will be required to amend its filing with FinCEN whenever the reporting company determines that the BOI data previously reported to FinCEN is no longer accurate.

The Final Rule is the first of three proposed regulations that FinCEN will issue to implement the CTA’s legal entity reporting requirements, and addresses: (a) the legal entities that must file with FinCEN; (b) when filing must occur; and (c) the information that must be provided in the filing.7

This Alert summarizes each of these components of the Final Rule, as well as provides observations regarding the impact the Final Rule may have on the U.S. anti-money laundering (“AML”) compliance process.

For ease of discussion, the summary will be divided as follows:

  • Coverage under the Final Rule;
  • Timing requirements for filing initial reports and amended reports;
  • Required information to be filed about a reporting company and its BOI;
  • Special disclosure requirements regarding “company applicants”; and
  • Comments and observations.
Reporting Requirements for Covered Legal Entities'

The Final Rule establishes two categories of reporting companies that must file reports with FinCEN—“Domestic Reporting Companies” and “Foreign Reporting Companies.” However, in addition to imposing the obligation on reporting companies to file and amend required reports, the Final Rule also identifies several critical persons and entities that are substantially impacted by the requirements of the Final Rule, and whose individual identification data must be included in a filing by a reporting company: beneficial owners and company applicants.

Each is discussed separately below.

Domestic Reporting Companies and Foreign Reporting Companies

Subject to exemptions, discussed below, a Domestic Reporting Company is any entity that is created under state or federal law by the filing of a document with a Secretary of State’s office, or a comparable office operated by an Indian Tribe.8

A Foreign Reporting Company is any entity formed under the law of a foreign (i.e., non-U.S.) jurisdiction that is required to be registered to do business with a Secretary of State’s office, or a comparable office operated by an Indian Tribe.9

As defined by the Final Rule, the range of a legal entity that is a covered reporting company is extremely broad, and includes corporations, limited liability companies, statutory trusts and other similar legal entities created by the filing or registration of a document with a Secretary of State’s office (or similar office), including a comparable office operated by an Indian Tribe. However, because the intent of the CTA is to capture BOI for legal entities whose ownership and management is not otherwise available, the following 23 exemptions10 are available for those legal entities whose ownership information is either already publicly available or readily obtainable:

  • SEC reporting issuers;
  • Governmental authorities;
  • Banks;
  • Credit unions;
  • Depository institution holding companies;
  • Money services businesses (i.e., money transmitters);
  • Securities exchanges or clearing agencies;
  • Other Exchange Act registered entities;
  • Investment companies or investment advisers;
  • Venture capital fund advisers;
  • State-licensed insurance producers;
  • Commodity Exchange Act registered entities;
  • Accounting firms;11
  • Public utilities;
  • Designated financial market utilities;
  • Pooled investment vehicles;
  • Tax-exempt entities;
  • Certain entities that provide services to tax-exempt organizations;
  • Large operating companies;12
  • Subsidiaries of certain exempted entities;13 and
  • Inactive entities.14

As noted in the Final Rule, FinCEN estimates that approximately 5 million covered legal entities are created each year that would qualify as a reporting company (i.e., not exempted). Further, all existing legal entities not otherwise exempted as of the effective date of the Final Rule—which is January 1, 2024—will likewise be required to register with FinCEN and provide BOI within 1 year of the effective date (i.e., by January 1, 2025). (FinCEN estimates that the number of covered reporting companies in this category exceeds 30 million entities.)15

Beneficial Owners

As compared to the CDD Rule regarding the collection of BOI, the definition of the term “beneficial owner” under the Final Rule is the most significant change—and perhaps presents the greatest compliance challenge for reporting companies. This is because the requirement by a reporting company to identify a beneficial owner will now include not only all individuals who own or control 25% of more of a reporting company, but also all individuals who hold the authority to cause the adoption of major corporate and operational decisions at a reporting company. This is due to the revised definition of a beneficial owner, which states:

Beneficial owner. For purposes of this section, the term ‘‘beneficial owner,’’ with respect to a reporting company, means any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns or controls at least 25 percent of the ownership interests of such reporting company.16

The import of this definition is that, unlike the current CDD Rule, the Final Rule will require that a reporting company identify not only all individuals who own or control 25% of the “ownership interests” in a reporting company, but all individuals who exercise substantial control over a reporting company. Further, unlike the CDD Rule which requires a disclosure to a financial institution, potential liability will be increased because a reporting company will be required to provide BOI directly to the federal government (i.e., to FinCEN).

In regard to an individual owning a 25% ownership interest in a reporting company, the Final Rule creates layers of analytic complexity in regard to determining what constitutes a direct or indirect ownership interest—which is measured beyond a mere computation of equity ownership in a reporting company, and includes:

  • Any equity, stock, or similar instrument (without regard to whether the instrument is transferable, is classified as stock or anything similar, or confers voting power or voting rights);
  • Any capital or profit interest in a reporting company;
  • Any instrument convertible, with or without consideration, into any share or instrument in the two categories above (and regardless of whether the instrument ischaracterized as debt);
  • Any put, call, straddle, or other option or privilege of buying or selling any of the foregoing; or
  • Any other instrument, contract, arrangement, understanding, relationship, or mechanism used to establish ownership.

To emphasize the expansive nature of an ownership interest that is intended, the Final Rule indicates that direct or indirect ownership may include: (a) joint ownership of an undivided interest; (b) ownership through another individual acting as an nominee or similar intermediary; (c) ownership through a trust (including a trustee or a settlor or beneficiary of a trust if that individual holds the authority to direct certain activities of the trust); and (d) ownership through one or more intermediary entities.17

Unlike the current CDD Rule, the Final Rule will require that a reporting company identify every individual who exercises “substantial control” over a reporting company, which includes an individual who:

  • Serves as a “senior officer” of the reporting company;
  • Has authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body); or
  • Directs, determines, or has substantial influence over “important decisions” made by the reporting company.18

As a clear indication that the substantial control factor is not limited to individuals holding a formal position at a reporting company, the term “important decisions” includes an individual that directs, determines, or has substantial influence over important decisions made by the reporting company, including decisions affecting:

  • Major aspects of the business, including the sale, lease, mortgage, or other transfer of principal assets of the reporting company;
  • The reorganization, dissolution, or merger of the reporting company;
  • Expenditures or investments, including the issuance of any equity or debt, or approval of the operating budget of the reporting company;
  • The selection or termination of business lines or ventures, or geographic focus, of the reporting company;
  • Compensation schemes and incentive programs for senior officers;
  • Significant contracting activities of the reporting company;
  • Amendments of any significant governance documents of the reporting company; or
  • Any other form of substantial control over the reporting company.19

Company Applicants

The Final Rule defines a “company applicant” as “an individual that either directs or controls the creation or registration of a reporting company.”20 This would include, for example, an attorney at a law firm that orders the incorporation or formation of a new corporation, limited partnership, statutory trust or limited liability company through a subordinate employee.

As originally proposed in the rulemaking process, the BOI disclosure scheme would have required that a reporting company identify its “company applicant” and provide information regarding that individual or entity. In the public comments to the proposed BOI regulations, strong concerns were raised by law firms and other potential covered parties regarding this requirement. In a compromise responding to these concerns, the Final Rule limits the identification of company applicants to reporting companies formed or registered on and after January 1, 2024—meaning that the estimated 30 million reporting companies already in existence as of the effective date of the Final Rule are relieved from this reporting requirement when filing their initial reports.21

The term “company applicant” refers to the individual or individuals that are responsible for forming or registering a reporting company, and states:

  • For a Domestic Reporting Company, the individual who directly files the document that creates the Domestic Reporting Company;
  • For a Foreign Reporting Company, the individual who directly files the document that first registers the Foreign Reporting Company; and
  • Whether for a Domestic or a Foreign Reporting Company, the individual who is primarily responsible for directing or controlling the filing if more than one individual is involved in the filing of the document.22

The import of the third formulation above is that frequently there will be two individuals who will fall into the definition of a company applicant: (a) a senior official directing the incorporation or registration project; and (b) the individual actually making the filing. For example, this means that, in the case of law firms or in-house law departments, a supervising lawyer and a junior lawyer, paralegal or other ministerial employee will need to be identified as company applicants for reporting companies formed or registered on and after January 1, 2024.

Timing Requirements for Filing Initial and Amended Reports

Under the Final Rule, the time at which a required report is due by a reporting company is based upon: (a) the date the reporting company was created or registered; and (b) whether the report is an initial report, an updated report providing new information or a report correcting erroneous information in a previous report.

Domestic Reporting Companies and Foreign Reporting Companies created or registered to do business in the U.S. prior to January 1, 2024, will have until January 1, 2025, to file their initial reports with FinCEN.23

Domestic Reporting Companies and Foreign Reporting Companies created or registered to do business in the U.S. on and after January 1, 2024, will be required to file their initial report with FinCEN within 30 calendar days of the date on which they are created or registered, respectively.24

Finally, in regard to all reporting companies, the Final Rule would impose subsequent filing requirements. First, when there is a change in the information previously reported to FinCEN, a reporting company would have 30 calendar days to file an updated report. For example, this filing obligation would arise if the ownership or management prongs of the beneficial ownership tests changes. Second, if a reporting company determines that it filed information that was inaccurate at the time of the filing, the reporting company would have to file a corrected report within 30 calendar days of the date it knew, or should have known, that the information was inaccurate.25

Information Required to be Provided or Amended

A reporting company must file two general categories of information: (a) detailed information regarding the reporting company and its company applicant; and (b) BOI identifying individuals owning or controlling a 25% or more ownership interest, and management individuals holding the authority to direct the operations of the reporting company.

Reporting Company Information

In regard to general information to be filed by a reporting company concerning its own corporate existence and operations, information that must be provided in an initial report includes:

  • The full name of the reporting company;
  • Any trade name or ‘‘DBA” name of the reporting company;
  • The business address of the reporting company;
  • The State or Tribal jurisdiction of formation of the reporting company (or for a Foreign Reporting Company, the State or Tribal jurisdiction where the Foreign Reporting Company first registers); and
  • A unique identifier associated with the reporting company, such as an IRS TIN or EIN.26

Company Applicant Information 

In the case of a reporting company formed or registered on and after January 1, 2024, the following information must be filed by a reporting company for a company applicant:

  • The full legal name of the company applicant;
  • The date of birth of the company applicant;
  • The complete current address of the company applicant; and
  • A unique identifying number of the company applicant issued by an approved source, such as a passport, governmental ID or driver’s license (including a photo of the individual).27

Beneficial Owner Information

In regard to a beneficial owner, the following information must be provided:

  • The full legal name of the beneficial owner;
  • The date of birth of the beneficial owner;
  • The complete current address of the beneficial owner; and
  • A unique identifying number of the beneficial owner, such as a passport, governmental ID or driver’s license (including a photo of the individual).28

Penalties for Non-Compliance

The CTA makes it a federal crime to file false reports regarding a reporting company. Paraphrasing the language in the CTA, it states:

  • It shall be unlawful for any person to willfully provide, or attempt to provide, false or fraudulent beneficial ownership information, including a false or fraudulent identifying photograph or document, to FinCEN or willfully fail to report complete or updated beneficial ownership information to FinCEN; and
  • Any person that commits a violation: (i) shall be liable to the United States for a civil penalty of not more than $500 for each day that the violation continues or has not been remedied; and (ii) may be fined not more than $10,000, imprisoned for not more than 2 years, or both.

The Final Rule states that “each person filing such report or application shall certify that the report or application is true, correct, and complete.” Further, the Final Rule clarifies that liability may apply to a person who provides required information through another person—which impliedly includes BOI and related data required to be assembled and filed by a reporting company.29

Comments and Observations

We offer the following comments and observations.

First, as noted above, the Final Rule is the first of three regulations that FinCEN will issue to implement the CTA’s legal entity reporting requirements. As stated in the Final Rule, the two additional regulations that will be issued by FinCEN will address: (a) the protocols for accessing the BOI database by permitted users; and (b) revisions to the current CDD Rule.

If the BOSS ultimately relieves financial institutions from the current burdens of complying with the CDD Rule, the BOSS may provide a welcome relaxation regarding AML compliance for financial institutions. If, however, covered financial institutions will be required to separately report legal entity information they receive under the CDD Rule—and compare that data with the data filed by a reporting company and held in the BOSS—compliance will become potentially more complicated.

Second, the Final Rule creates a complicated (and potentially burdensome) analytical scheme for calculating the aggregate ownership interests of a reporting company and for each possible beneficial owner. Besides computational rules that do not necessarily comply with accounting related to corporate ownership, a reporting company may be subject to engaging in legal and contractual reviews of investor entitlements that may be beyond the capability of the management of a small corporate entity.30 Further, as the capitalization and operations of a reporting company expands, obtaining and evaluating ownership interests may prove increasingly problematical.31

Third, from the viewpoint of existing reporting companies (i.e., companies chartered or registered prior to January 1, 2024), there will likely be an informational gap that will prove challenging. Many smaller companies and entities rely on third parties to perform organizational tasks such as the filing of charter documents, and frequently technical compliance is more aspirational in nature than the reality. For example, this may mean that the relationship between this category of a reporting company and its company applicant may by necessity have to be expanded (or revisited) to include ensuring that the company applicant provides (or assists) the reporting company in the filing of an initial report and any subsequent reports to FinCEN.

Fourth, particularly for reporting companies such as companies that are formed or registered on and after January 1, 2024, several consecutive amended reports may be required following the filing of an initial report. This is because, for reporting entities employed for many typical commercial purposes, the organization of a legal entity such as a corporation proceeds in several steps, including: (a) initial formation; (b) board of director and similar organizational actions; (c) structuring of management; and (d) one or several rounds of capital raising. If one or several of these and related stages of a reporting company fall outside of a single 30-day period and the BOI has changed, amended reports will be required.

 
Finally, in light of the probability that reporting companies may elect to employ legal counsel and other third parties to analyze BOI reporting requirements and file reports, clarity will be required from FinCEN regarding the degree of due diligence that will be required to identify data to be reported, as well as the degree of reliance that a third party (e.g., a law firm or accounting firm) may rely upon when analyzing the BOI and assisting in the preparation of an initial report and amended reports.

*       *       *

As noted in this Alert, the Final Rule is only the first in a series of three regulatory rules that will restructure the U.S. AML compliance scheme for BOI. In addition, other provisions of the CTA have not yet been proposed by FinCEN, but are likely to also radically modify current AML compliance obligations by banks and other financial institutions.

Future Alerts will address these and related regulatory initiatives that should be expected in 2023 and 2024. Among other things, we are aware that FinCEN has indicated that it is considering issuing interpretative guidance regarding compliance with the Final Rule that already have been raised. 

1 Public Law 116-283 (January 1, 2021).

3 Division F of the Defense Act is the Anti-Money Laundering Act of 2020, which includes the CTA.

4 The current customer due diligence requirements applicable to certain defined “financial institutions” will be modified in a rule-making to be issued by FinCEN and will remain in effect until modified. 31 C.F.R § 1010.230 (the “CDD Rule”).

5 87 Fed. Reg. 59498, 59508 (September 30, 2022).

6 This Alert addresses definitional terms included in the Final Rule, several of which in other regulatory contexts have different meanings (e.g., a “reporting company” under the Final Rule is markedly different in meaning from that term employed in federal securities laws and regulations).

7 The two additional proposed regulations to be issued by FinCEN will address: (i) the protocols for accessing the BOI database by permitted users; and (ii) revisions to existing CDD obligations by defined “financial institutions” pursuant to the CDD Rule.

8 31 C.F.R. § 1010.380(c)(1).

9 Id.

10 31 C.F.R. § 1010.380(c)(2).

11 A noteworthy omission from the list of exempted entities are law firms, whose members will frequently constitute “company applicants,” discussed below.

12 A large operating company is any entity that: (a) employs more than 20 full time employees in the United States; (b) has an operating presence at a physical office within the United States; and (c) has more than $5 million in reportable sales or operating revenue. (For a company that is part of an affiliated group of companies, the consolidated sales or revenues of the affiliated group may be used for this calculation.)

13 31 C.F.R. § 1010.380(c)(2)(xxii). (This exemption is not available for money services businesses and certain pooled investment vehicles.)

14 The CTA and the Final Rule include the authority for the Secretary of the Treasury (in consultation with other federal agencies) to exclude by regulation additional types of entities. (FinCEN has already indicated that it does not intend to consider additional exemptions at this time and has implied that granting new exemptions in the future is unlikely.)

15 31 C.F.R. § 1010.380(a)(1); 87 Fed. Reg. 59498, 59581(September 30, 2022).

16 31 C.F.R. § 1010.380(d).

17 31 C.F.R. § 1010.380(d)(2). The Final Rule exempts from the definition of beneficial owner: (a) a minor child (provided that the parent or guardian is identified); (b) a nominee or intermediary; (c) an employee (provided that the employee is not a senior officer of the reporting company); (d) an individual holding a future interest through inheritance; and (e) most creditors holding an interest to secure debt.

18 31 C.F.R. § 1010.380(d)(1).

19 Id. In an approach similar to the complexity associated with determining whether an individual holds an ownership interest, an individual may hold substantial control directly or indirectly through: (a) board representation; (b) ownership or control of a majority of the voting power or voting rights of the reporting company; (c) control exercised through an intermediary entity; (d) arrangements with individuals acting as nominees; (e) voting power or voting rights of the reporting company; and (f) any other contract, arrangement, understanding, relationship, or otherwise. 31 C.F.R. § 1010.380(d)(3).

20 31 C.F.R. § 1010.380(e).

21 31 C.F.R. § 1010.380(b)(2)(iv).

22 31 C.F.R. § 1010.380(e).

23 31 C.F.R. § 1010.380(a)(1)(iii).

24 31 C.F.R. § 1010.380(a)(1)(i), (ii).

25 31 C.F.R. § 1010.380(a)(2), (3).

26 31 C.F.R. § 1010.380(b)(2). (When a Foreign Reporting Company has not yet been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of the foreign jurisdiction may be used.)

27 31 C.F.R. § 1010.380((b)(1)(ii).

28 Id. Both a reporting company and an individual may elect to obtain a “FinCEN identifier,” which may be used in lieu of the information required to be submitted to FinCEN. 31 C.F.R. § 1010.380(b)(4). (It is unclear at this time whether the use of this alternative will be useful except for persons and entities that anticipate making frequent filings with FinCEN.)

29 31 C.F.R. § 1010.380(b); 31 C.F.R. § 1010.380(g).

30 Clarification of many nuanced corporate rights that might constitute substantial control may ultimately have to be addressed in clarifications to be issued by FinCEN (e.g., the holding of a contractual veto power over specified and limited significant corporate transactions). 

31 31 C.F.R. § 1010.380(d)(2)(iii).

 

 

Firm Highlights

Insights

SEC Proposes Expansion of Investment Adviser Performance-Based Compensation Rule

On September 30, 2026, the Securities and Exchange Commission (the “SEC”) proposed amendments to Rule 205-3 under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), which provides an exemption from the general prohibition under Section 205(a)(1) of the Advisers Act on registered investment advisers receiving performance-based compensation (the “Proposal”) so long as performance-based compensation is limited to “qualified clients”.1 Most notably for private fund sponsors, the Proposal would expand the definition of “qualified client” to include any investors that satisfy the “accredited investor” definition under Regulation D. The Proposal may also have implications for private fund managers that rely on exemptions from investment adviser registration under state law because certain state-level investment adviser registration exemptions incorporate or otherwise reference the federal qualified client definition. Expansion of the Qualified Client Definition Under the current Rule 205-3, an investor generally may qualify as a qualified client if, among other alternatives, the investor has at least $1.4 million under management with the adviser or has a net worth exceeding $2.7 million. These thresholds are higher than the financial thresholds applicable to many accredited investors under Regulation D. As a result, an investor may currently qualify as an accredited investor for purposes of investing in a private offering without qualifying as a qualified client for purposes of paying performance-based compensation. The Proposal would expand the qualified client definition to include any natural person or legal entity investor that satisfies the accredited investor definition under Regulation D. The Proposal would also remove the assets under management and net worth thresholds under the current Rule 205-3 qualified client test. For private funds relying on Section 3(c)(1) of the Investment Company Act of 1940, this change could reduce the need to apply a separate qualified client standard to investors that already qualify as accredited investors. Dorsey Observations and Next Steps If adopted as proposed, the expanded qualified client definition could be particularly significant for private fund managers. Most private fund offerings are already limited to accredited investors under Regulation D. However, the Proposal could expand the pool of prospective investors available to emerging private fund managers while reducing the regulatory burden associated with complying with Rule 205-3. The Proposal could also benefit advisers operating below the SEC registration threshold that rely on a state private fund adviser exemption. A number of states have adopted exemptions modeled on the North American Securities Administrators Association (“NASAA”) private fund adviser exemption, which may condition relief for advisers to certain funds relying on Section 3(c)(1) on each beneficial owner satisfying the federal qualified client definition. However, state requirements vary, and any effect of the Proposal would depend on the text of the applicable state exemption and how it incorporates Rule 205-3. Many emerging private fund managers may have a larger network of accredited investor relationships than qualified client relationships during the early stages of their investment advisory business. Currently, under Rule 205-3, private fund managers may receive performance-based compensation from investors who do not satisfy the qualified client definition if those investors were admitted to their private funds prior to registration with the SEC. Following registration with the SEC, however, managers may continue to permit investors that are not qualified clients to invest in future private funds but may not receive performance-based compensation from those investors with respect to such investments. In addition, because the net worth and assets under management thresholds for qualified client status are adjusted for inflation every five years, the pool of qualified client investors may diminish over time as previously eligible investors no longer satisfy the applicable thresholds. The Proposal could provide the dual benefit of greater flexibility for private fund managers to establish and maintain relationships with accredited investors as their businesses scale and they become registered with the SEC, and greater flexibility for certain accredited investors to participate in investment strategies that historically have been restricted to much larger institutional investors. Unless and until the Proposal is adopted, investment advisers should continue to comply with the existing qualified client requirements. If the Proposal is adopted, private fund sponsors should consider whether corresponding changes are appropriate for their subscription documents, investor questionnaires, and other offering materials. Advisers that are state-registered or rely on a state-level exemption should also consult the laws and regulations of each relevant jurisdiction before changing investor eligibility standards or performance-based compensation practices, because adoption of the federal amendments may not automatically modify state requirements. Comments on the Proposal will be due 60 days after publication in the Federal Register. 1 Investment Adviser Performance-Based Compensation Modernization, Investment Advisers Act Release No. IA-7022 (Sept. 30, 2026), available at https://www.sec.gov/rules-regulations/2026/09/s7-2026-28#33-11443proposed.

Insights

EPA Limits Title V Re-Litigation of NSR Permits

Overview On September 25, 2026, the U.S. Environmental Protection Agency (“EPA”) published a final rule that significantly limits the ability of third parties to use the Clean Air Act (“CAA”) Title V permitting process to revisit New Source Review (“NSR”) permitting decisions years after those decisions were made. The rule establishes that NSR permitting determinations generally must be challenged during the original permitting proceeding, thereby providing regulated sources with greater permitting certainty and finality for major capital projects. Published in the Federal Register titled Clarifying the Scope of “Applicable Requirements” Under State Operating Permit Programs and the Federal Operating Permit Program (Docket ID No. EPA-HQ-OAR-2023-0401), the rule amends 40 C.F.R. Parts 70 and 71 to codify EPA’s interpretation regarding when requirements established under other CAA programs may be reviewed, modified, or implemented through the Title V operating permit program. The rule becomes effective 30 days after publication. The rule addresses two principal issues: (1) the relationship between NSR preconstruction permitting and Title V operating permits, and (2) the treatment of the General Duty Clause under CAA section 112(r)(1). Most significantly, the rule provides greater certainty for sources navigating the NSR permitting process. EPA’s amendments are intended to ensure that NSR permitting decisions made through an approved public process are generally not revisited later through Title V permit proceedings. The rule responds to a circuit split between the U.S. Courts of Appeals for the Fifth and Tenth Circuits. In Environmental Integrity Project v. EPA, 969 F.3d 529 (5th Cir. 2020), the Fifth Circuit upheld EPA’s interpretation, concluding that it was consistent with the text, structure, and purpose of Title V. In contrast, the Tenth Circuit reached the opposite conclusion in Sierra Club v. EPA, 964 F.3d 882 (10th Cir. 2020), finding that the then-existing regulatory definition of “applicable requirement” did not support EPA’s position. By amending the regulatory language on which the Tenth Circuit relied and codifying the interpretation approved by the Fifth Circuit, EPA has established a nationwide framework governing the interaction between NSR and Title V. NSR and Title V: EPA Establishes a Uniform Nationwide Framework At the core of the rule is EPA’s effort to define the respective roles of NSR and Title V. The rule codifies the approach EPA has applied since 2017: once a source obtains an NSR permit under an EPA-approved permitting program, and that permit was issued following public notice with an opportunity for comment and judicial review, the permit establishes the NSR-related “applicable requirements” of the State Implementation Plan (“SIP”) or Federal Implementation Plan (“FIP”) for Title V purposes. Under this framework, Title V is not a vehicle for re-examining underlying NSR permitting decisions. EPA does not intend to use the Title V process to revisit applicability determinations, emissions calculations, control technology determinations, permit conditions, or other issues resolved through the NSR permitting process. This principle applies regardless of the stage of the Title V proceeding; whether the NSR permit was issued pursuant to a SIP or FIP; the type of NSR issue involved; or whether the NSR permit is incorporated into Title V sequentially or concurrently. Limited Exceptions EPA recognizes several circumstances in which NSR issues may still be reviewed through the Title V program: No NSR permit was issued at all; The permit was issued without public notice and an opportunity for comment and judicial review; or The issue involves substantive overlap between Title V and NSR requirements, such as the adequacy of monitoring provisions. As a result, the rule does not insulate unpermitted projects or foreclose review of matters that independently arise under Title V. Key Regulatory Amendments The rule revises the definition of “applicable requirement” in 40 C.F.R. §§ 70.2 and 71.2. Paragraph (1): Where an NSR permit is issued with public notice and an opportunity for comment and judicial review, the permit establishes and defines the applicable SIP or FIP requirements for Title V purposes. Paragraph (2): All NSR permit terms, including terms contained in minor NSR permits, constitute applicable requirements that must be incorporated into Title V permits. Paragraph (4): CAA section 112(r)(1) (the General Duty Clause) is expressly excluded from the definition of “applicable requirement,” while section 112(r)(7) Risk Management Program requirements remain included. EPA also amended 40 C.F.R. §§ 70.8 and 70.12 to clarify that alleged defects in requirements established outside the Title V process generally do not provide a basis for EPA objection to a Title V permit or for a Title V citizen petition. General Duty Clause Exclusion The rule also codifies EPA’s longstanding position that the General Duty Clause in CAA section 112(r)(1) is not an “applicable requirement” for Title V purposes. EPA points to several considerations supporting that conclusion, including the distinction between the General Duty Clause and Title V permit terms, the provision’s origins in the Occupational Safety and Health Act’s general duty clause, and the different enforcement structures applicable to the General Duty Clause and Title V permit requirements. Importantly, excluding section 112(r)(1) from the definition of “applicable requirement” does not eliminate EPA’s authority to enforce the General Duty Clause independently of the Title V program. The final rule instead clarifies that the General Duty Clause need not—and should not—be incorporated into Title V permits as an applicable requirement. Practical Implications for Regulated Sources Greater Finality for NSR Permits  For projects requiring PSD, nonattainment NSR, or minor NSR permits, the permitting process becomes the primary forum for resolving disputes regarding applicability determinations, emissions calculations, control technology requirements, offsets, and permit conditions. Once an NSR permit is issued through a qualifying public process, regulated sources should face substantially reduced risk that those same issues will be challenged years later through Title V permit proceedings. Reduced Risk of Collateral Permit Challenges Stakeholders have sometimes sought to use Title V permit issuance, renewal, revision, or citizen-petition proceedings to challenge underlying NSR determinations. The final rule makes clear that Title V is not the appropriate vehicle for challenging whether an applicable requirement was correctly established in the first instance. This should reduce the risk of permit delays and uncertainty associated with collateral challenges to previously issued NSR permits. The rule does not, however, eliminate all Title V challenges relating to an NSR permit. Challenges concerning the Title V permit itself—including whether it appropriately incorporates applicable requirements or contains adequate compliance provisions—remain possible. Increased Importance of the Initial NSR Proceeding Because Title V generally will not provide a second opportunity to challenge the substantive validity of an NSR determination, the administrative record developed during the NSR process becomes increasingly important. Permit applicants should ensure that applicability analyses, emissions calculations, control technology evaluations, modeling demonstrations, and supporting technical documentation are thoroughly developed during the original permitting proceeding. For significant projects, applicants may therefore have an additional incentive to identify and resolve potential permitting issues before the NSR permit is issued rather than assuming that unresolved issues can be addressed during a subsequent Title V proceeding. Potential Incentive for Broader Public Participation EPA also notes that permitting authorities may choose to provide public notice and an opportunity for comment for a broader range of NSR permits because permits issued through a qualifying public process receive the benefit of the finality framework established by the rule. Some permitting authorities may conclude that greater public participation at the NSR stage is preferable to uncertainty during subsequent Title V proceedings. Conclusion The final rule is principally a permitting-certainty measure. For sources that obtain NSR permits through a public process, EPA has substantially limited the ability of third parties to revisit underlying NSR determinations through the Title V program. As a result, regulated entities should benefit from greater finality regarding key permitting decisions, reduced risk of collateral permit challenges, and increased certainty when planning and implementing capital projects.

Regulatory Affairs Partner Randy Dann Joins Dorsey

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Regulatory Affairs Partner Randy Dann Joins Dorsey

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The Supreme Court Update - October 8, 2026

On September 29, 2026, the Supreme Court granted certiorari in one case: Department of Homeland Security v. D.V.D., No. 26-426: This case concerns the Trump Administration’s “third-country removal” procedures, where immigrants are deported to countries not listed in the removal orders. In granting certiorari, the Court granted the Government’s application to stay a lower court decision halting the practice, which will allow third-country removals to continue pending resolution of the case. The issues presented are: (1) Whether the district court had jurisdiction over respondents’ claims; (2) whether the district court had authority to enter class-wide declaratory relief and APA vacatur under 8 U.S.C. § 1252(f)(1); (3) whether the Government’s guidance on third-country removals is unlawful under 8 U.S.C. § 1231(b), the due process clause, or FARRA/CAT and its implementing regulations; and (4) such other questions that the Government determines are appropriate for the proper disposition of the case. On October 1, 2026, the Court granted certiorari in three additional cases: Rhoney v. Barbosa da Cunha, No. 26-104: Immigration officials detained Ricardo Aparecido Barbosa da Cunha—a Brazilian citizen who had lived in the United States for approximately twenty years after entering without inspection—and denied him a bond hearing under 8 U.S.C. § 1225(b)(2)(A). The Second Circuit held that his detention was instead governed by § 1226(a), which permits release on bond, because § 1225(b)(2)(A)’s mandatory-detention requirement applies only to noncitizens apprehended while entering the country or shortly thereafter. The question presented is: Whether 8 U.S.C. § 1225(b)(2)(A) mandates the detention pending removal proceedings of aliens who, like Barbosa da Cunha, are present in the United States without having been admitted. Missionaries of St. John the Baptist, Inc. v. Frederic, No. 25-113: A Catholic religious organization sought to build a shrine to the Virgin Mary on land the organization owned adjacent to its church in Park Hills, Kentucky. Local zoning restrictions prohibited the proposed construction. The question presented is: Whether a land-use regulation that prohibits a religious institution from building a religious structure on its own property constitutes a “substantial burden” on religious exercise under the Substantial Burden Provision of the Religious Land Use and Institutionalized Persons Act, 42 U.S.C. § 2000cc(a). Marschner v. Marschner, No. 25-1349: Under the Uniformed Services Former Spouses’ Protection Act (“USFSPA”), a veteran’s longevity-based retirement pay can be divided in a divorce, but retirement pay based on disability and retirement pay that was waived to receive disability pay are indivisible. The question presented is: Does the USFSPA require state courts to refuse enforcement of indemnification provisions in a divorce settlement agreement?

Attorney John Cooney Returns to Dorsey in the Finance & Restructuring Group in Minneapolis

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Attorney John Cooney Returns to Dorsey in the Finance & Restructuring Group in Minneapolis

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Energy Law: Month in Review - September 2026

Welcome to Dorsey’s Energy Law: Month in Review. We provide this update to our clients to identify significant developments in the previous month. Please reach out to any of the authors, listed above, to discuss these issues. Regulatory Developments Massachusetts Ratchets Up State and Local Regulation of AI Data Centers In early September, Governor Maura Healey of Massachusetts signed an executive order requiring that artificial intelligence data centers secure the approval of local communities as a precondition to proceeding with a given project. According to the terms of the order, data center developers will need to secure a “community benefits agreement” as a precondition to receiving permits from numerous state agencies, including the Department of Environmental Protection, the Energy Facilities Siting Board, and the Massachusetts Environmental Policy Act Office. Beyond requiring community benefits agreements, the order also mandates that developers mitigate utility costs to consumers, prohibits the use of nondisclosure agreements, and requires various state agencies to develop measures to limit data center impacts on the environment. North Carolina Regulators Decline Approval of Duke Energy Gas Turbine On September 18, 2026, North Carolina Utilities Commission (NCUC) denied Duke Energy’s application for a certificate of public convenience and necessity required to construct a gas-fueled combustion turbine at its Smith Energy Complex in North Carolina. The NCUC objected strongly to the $584 million price tag and noted that Duke appeared to be constructing the facility “based on anticipated data center customer additions.” The NCUC rejected that anticipated growth as “insufficiently reliable for the Commission to act at this point.” In rejecting Duke’s application, the NCUC also noted that Duke had signed the White House Ratepayer Protection Pledge, in which it represented that it would not shift data center costs to consumers. The NCUC observed that the record did not demonstrate how Duke “intends to adhere to its commitments under the Ratepayer Protection Pledge with regard to the Proposed Facility.” Notably, commission staff had actually supported the construction of the turbine, citing concerns about Duke’s reserve margins. The NCUC noted that it “understands the Public Staff’s expressed concerns,” but those concerns were outweighed by the NCUC’s reservations, including questions of demand. Department of Energy Approves Funds for Grid Improvement The U.S. Department of Energy (DOE) recently announced that it would fund 31 grid-improvement projects in 26 states. The funding initiative is part of the DOE’s “SPARK” initiative. The funding will include $1.9 billion in federal funding from DOE and $3.35 billion in recipient cost-sharing funding. The funds will go to projects designed to improve grid reliability and lower electricity costs. Recipients plan to reconductor over 1,500 miles of transmission lines and will deploy grid-enhancing technologies across approximately 21,000 miles. DOE stated that this initiative will make available over 23 additional gigawatts of electricity. Texas Moderates Rules Governing Data Center Interconnection The Texas Public Utility Commission adopted new regulations governing large-load interconnections. The rules impose a flat study fee of $100,000 for all proposed interconnections, which departs from the initial proposal to impose study fees using a tiered system based on project size. Additionally, the final rule eliminates the PUC’s previous proposal to impose a non-refundable interconnection fee of $50,000 per MW of contracted peak demand. The final rule also moderates the initially proposed regulations governing Electric Reliability Council of Texas (ERCOT) notifications for large-load customers’ non-utilized capacity. The proposed rules would have required notifying ERCOT within 30 days of missing a scheduled energization milestone by six months. The final rules, however, do not require informing ERCOT unless a scheduled energization milestone is missed by 24 months. FERC Denies TransAlta 202(c) Cost-Recovery Plan The Federal Energy Regulatory Commission (FERC) recently rejected TransAlta’s plan to recover $19.9 million in expenses stemming from a DOE order in which DOE prohibited TransAlta from retiring its coal-powered Centralia power plant. TransAlta had previously intended to retire the facility at the end of 2025. TransAlta’s cost recovery plan proposed spending an additional $23 million on repairs to continue operating the unit. FERC’s main objection had to do with geographic scope. TransAlta’s recovery plan called for recovering costs from California Independent System Operator (CAISO) and the Southwest Power Pool (SPP), but the DOE’s order requiring operation of the plant was designed to ensure reliability in the Northwest assessment area (Montana, Oregon, Washington, and parts of northern California and northern Idaho). Accordingly, FERC was unwilling to allow cost recovery from CAISO and SPP when the order that precipitated the additional costs only related to the Northwest assessment area. FERC informed TransAlta that it would only approve cost recovery from load-serving entities in the Northwest assessment area. FERC’s decision comes amid a rush of DOE emergency orders requiring the continued operation of coal-fired generating units. Litigation Appeals Court Upholds Washington Hydropower Plant With Caveats In a September 21, 2026, opinion, the Washington Court of Appeals largely upheld a Clean Water Act water quality certification by the Washington Department of Ecology for the Goldendale Energy Storage Project, a proposed pumped-water storage hydropower system adjacent to, but off-stream from, the Columbia River. A nonprofit (Columbia Riverkeeper) and the Confederated Tribes and Bands of the Yakama Nation appealed the certification, contending that it failed to impose necessary conditions and monitoring requirements to protect the water quality of the Columbia River. Most saliently, the plaintiffs argued that the project had the potential to leak 100 acre-feet of water per year into tributaries of the Columbia River. The Court of Appeals broadly rejected plaintiffs’ challenge to the state’s conclusion that “the project was designed not to leak.” That said, the Court of Appeals did reverse on one narrow issue. Specifically, the court determined that the state’s conclusion that “leakage from the project’s tunnels would be monitored and reported” was not supported by the evidence because the certification “does not explicitly require monitoring and reporting to determine whether there is any leakage.” Accordingly, the court remanded the matter to the state to impose monitoring and reporting requirements but otherwise affirmed the certification. Legislative Developments California Legislates Restrictions on Data Center Energy Use and Grid Costs On September 21, 2026, California Governor Gavin Newsom signed seven bills broadly regulating data centers in the state. SB 1168 directed the California Public Utilities Commission to assess the energy used by data centers. It also requires the PUC to pass costs of transmission and distribution upgrades and load increases on to data centers, rather than customers. SB 886 and SB 887 compel data centers to pay for infrastructure upgrade and generation costs, and wildfire mitigation costs, in addition to imposing environmental review. The statutes additionally increase local oversight of data centers. AB 1577 imposes a monthly reporting requirement that requires data centers to supply energy consumption and efficiency data to the California Energy Commission. AB 2383 contains incentives for data centers to use onsite clean energy generation. Finally, AB 2469 and AB 2619 require data center developments to assess water supply and develop a water scarcity plan. The statutes also mandate statewide water reporting as a precondition to obtaining and renewing business licenses.

Regulatory Affairs Partner Jeff Beelaert Joins Dorsey in Boise

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Regulatory Affairs Partner Jeff Beelaert Joins Dorsey in Boise

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Dorsey’s London Corporate Practice and Partners Earn Chambers UK 2027 Rankings

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Dorsey Recognized in Inaugural 2026 IAM/WTR Copyright 1000

Dorsey & Whitney LLP is pleased to announce its recognition in the inaugural edition of the Copyright 1000: The World’s Leading Copyright Professionals, published by IAM and World Trademark Review (WTR). Nine Dorsey attorneys were individually recognized, and the Firm’s Denver, Minneapolis, New York, Salt Lake City, and Seattle offices were recognized in the firm rankings. The following Dorsey attorneys were recognized in the inaugural guide: Lindsey Sadler Gregory Tamkin Charlene Krogh Evan Everist Jeffrey Cadwell Fara Sunderji Bruce Ewing Catherine Parrish Lake J. Michael Keyes The Copyright 1000 is the first dedicated ranking focused solely on the world’s leading copyright practitioners. The guide identifies leading copyright firms and practitioners across key jurisdictions worldwide. Dorsey’s intellectual property attorneys advise clients on a wide range of copyright matters, including protection, enforcement, licensing, litigation, transactions, and issues involving emerging technologies and digital content. The inaugural Copyright 1000 rankings are published by IAM and WTR.

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The Supreme Court Update - October 14, 2026