“It is worthwhile for financial institutions to have a working knowledge of the Final Rule in order to anticipate its effects on customer due diligence and anticipate the yet-to-be-issued regulations conforming the customer due diligence rules to the Final Rule.” BOI access and safeguards. As of this writing, no proposed rulemaking has been published about the conforming rule. It is worthwhile for financial institutions to have a working knowledge of the Final Rule in order to anticipate its effects on customer due diligence and anticipate the yet-to-beissued regulations conforming the customer due diligence rules to the Final Rule. The Final Rule, Proposed Access and Safeguard Rules, and Next Steps The Final Rule describes who must file a BOI report, what information must be reported, and when a report is due. The Final Rule requires reporting companies to file reports with FinCEN that identify two categories of individuals — the beneficial owners of the entity and the company applicants of the entity. Reporting Companies The Final Rule describes two types of reporting companies: foreign and domestic. A foreign reporting company is a corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office. A domestic reporting company is a corporation, limited liability company, or any entity created by the filing of a document with a secretary of state or any similar office. The Final Rule also lists 23 types of entities that are exempt from the definition of reporting company. Those exemptions are primarily designed to avoid duplication of reporting BOI in other forms. Exempt companies include financial institutions, bank holding companies and producers, most publicly traded entities, insurance companies, tax exempt entities, large operating entities (over 20 full-time employees in the U.S., and over $5 million in gross receipts in the aggregate reported on its most recent federal income tax return and has an operating presence and physical office in the U.S.), and inactive entities. FinCEN anticipates that, in addition to LLCs and corporations, reporting companies would include (subject to applicable exemptions) limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships since these are generally formed by filing with a secretary of state or similar office. FinCEN also has noted that some entities are not involved in filing a formation document with the secretary of state or similar office and therefore would be excluded from the definition of reporting company. For instance, in many states, trusts do not file a formation document. The author anticipates that general partnerships would also be excluded in those states that do not require them to file a formation document. It remains to be seen whether any states would change their filing requirements for such entities, though at this time FinCEN is not requiring that. Beneficial Owners The Final Rule defines a “beneficial owner” as any individual who, directly or indirectly, either exercises substantial control over a reporting company, or owns or controls at least 25% of the ownership interests of a reporting company. The Final Rule defines “substantial control”, in broad language, to capture anyone who is able to make important decisions on behalf of the entity. The Final Rule also provides standards and mechanisms for determining whether an individual owns or controls 25% of the ownership interests. There are also detailed rules for multi-tier entities, including those which may have exempt entities in the chain of ownership. Company Applicants The Final Rule requires the reporting company to identify the company applicant, which is defined to be (1) the individual who directly files the document that creates the entity or, in the case of a foreign reporting company, the document that first registers the reporting company to do business in the United States; and (2) the individual who is primarily responsible for directing or controlling the filing of the formation document by another. For instance, this could be the reporting company’s attorney and that attorney’s paralegal, or the relevant employee(s) of the reporting company. Given that there are millions of entities currently in existence, some of which are over 100 years old or older, FinCEN recognized that it could be overly burdensome or impossible to report the identity of many of those company applicants. Consequently, the Final Rule does not require reporting companies existing or registered at the time of the effective date of the Final Rule (Jan. 1, 2024) to report on their company applicants. BOI Reports The BOI reports will provide four pieces of information about each of its beneficial owners: name, birthdate, address, and a unique ID number and issuing jurisdiction from an acceptable ID document (and the image of that document). For reporting companies formed after the effective date (Jan. 1, 2024), these same four pieces of information and document image are required for company applicants. If any individual provides their four pieces of information directly to FinCEN, they will be given a “FinCEN identifier” which can be provided to FinCEN in a BOI report in lieu of repeating that information again on the report. 2023 Issue 1 | 15
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