Under the Corporate Transparency Act, each reporting company is required to submit information about its beneficial owners (often called beneficial owner information or BOI) to the Financial Crimes Enforcement Network (FinCEN). Specifically, the reporting company must identify each beneficial owner and then disclose their: (1) full legal name, (2) date of birth, (3) current residential address, and (4) a copy of an identifying document like a drivers license or passport, along with the unique identifying number associated with that document. (31 C.F.R. Sectuib 1010.380(b)(1)(ii).) In addition, for entities formed after Jan. 1, 2024 the reporting company must disclose the same information about up to two company applicants, who are the individuals that formed the entity, although a business address can be provided for a company applicant.
For individuals who will be reported as beneficial owners or company applicants by multiple reporting companies, there’s a better approach. Such individuals can provide BOI directly to FinCEN who will issue them a FinCEN identifier number, and that number can be provided to a reporting company in lieu of BOI. (31 C.F.R. Section 1010.380(b)(4).) This is helpful for the individual since it means their confidential information isn’t being disseminated as broadly.
There’s also a significant advantage to the reporting company, because use of a FinCEN identifier shifts the burden of reporting changes in the BOI from the reporting company to the individual who obtained the FinCEN identifier. (31 C.F.R. §1010.380(b)(4)(iii).) For example, if an individual with a FinCEN identifier moves they have 30 days to inform FinCEN. Without the FinCIN identifier each Reporting Company that had listed that individual as a beneficial owner would have only 30 days to learn of the change and submit an updated report. Civil fines of up to $500 a day can be imposed for failing to timely update FinCEN of changes to BOI. (31 U.S.C.Section 5336(h)(3)(A).)
New Regs Provide Little Relief
Reporting companies can also obtain a FinCEN identifier, but unfortunately, on Nov. 8, 2023, FinCEN issued final regulations that confirm the FinCEN identifier has limited utility. The final regs state that a reporting company can only report the FinCEN identifier of another entity if “The beneficial owners of the other entity and of the reporting company are the same individuals.” (31 C.F.R. Section 1010.380(b)(4)(ii)(B)(3).) The preamble makes clear this means the beneficial owners need to be identical. (88 Fed. Reg. 76995, 76996 (Nov. 8, 2023).)
This will minimize reporting for wholly owned subsidiaries, but will otherwise provide very little relief for reporting companies.
FinCEN could have taken a more helpful approach. The statute seemed to envision a system where a reporting company partially owned by an entity could simply disclose the FinCEN identifier of that entity instead of needing to look through and identify individual owners. (31 U.S.C.Section 5336(b)(3)(C).) That would have put a much smaller burden on reporting companies, and it’s what was originally contained in the December 2021 Proposed Regulations. (86 Fed. Reg. 69920, 69971 (Dec. 8, 2021.). Sadly, comments to those Proposed Regulations convinced FinCEN that approach could result in over disclosure or under disclosure and would make it more difficult to identify indirect ownership that in the aggregate made an individual a beneficial owner. (See 87 Fed. Reg. 77404, 77424 – 77425 (Dec. 16, 2022).
While FinCEN identifiers for individuals will be tremendously helpful in complying with the CTA, at the moment entity FinCEN identifiers will be of very little utility. Hopefully FinCEN will reconsider their approach in future guidance and return to what had been originally proposed.
Stephen Liss is a partner at Dungey Dougherty PLLC