FinCEN Finalizes Rule on Use of FinCEN Identifiers by Entities

Today, FinCEN released its final rule on the use of FinCEN Identifiers for reporting beneficial ownership information of entities. The final rule, which will be codified at 31 CFR 1010.380(b)(4)(ii)(B) leaves stand the rule that FinCEN had proposed in its NPRM. 

FinCEN Identifier Rule for Entities

In its final form, the rule allows a reporting company to report another entity's FinCEN identifier and full legal name in lieu of the information required under Section (b)(1)(ii) of the reporting rule if three requirements are met:

(1) The other entity has obtained a FinCEN identifier and provided that FinCEN identifier to the reporting company;
(2) An individual is or may be a beneficial owner of the reporting company by virtue of an interest in the reporting company that the individual holds through an ownership interest in the other entity; and
(3) The beneficial owners of the other entity and of the reporting company are the same individuals.

Importantly, the third prong of this rule requires that the beneficial owners of the other entity be the same as the beneficial owners of the reporting company. If they are not the same, then the reporting company may not rely on the other company's FinCEN identifier and must instead report the PII of the individual beneficial owners of the other entity.

Example of FinCEN Identifier Reporting

This ruling will complicate the ability of companies to use FinCEN identifiers and suggests a need for reporting companies (and their counsel) to adopt filing solutions (like www.fincenreport.com) that contemplate the segregation of data at the individual level to supplant the need to rely on a FinCEN identifier for intermediate holding companies.

For example, imagine that Larry, Moe and Curly are equal 1/3rd owners of LMC Holdo, LLC ("Holdco").  Holdo, in turn, owns 100% of the membership interest in LMC Opco, LLC ("Opco"). Assume that Larry, Moe and Curly are the only board members of Holdco and Opco and the only senior officers of Holdco and Opco (and that no other individual exercises substantial control over either entity).

On these facts, the beneficial owners of Holdco and Opco are identical.  When Opco is the reporting company, Opco could report Holdco's name and FinCEN identifier in lieu of identifying Larry, Moe and Curly by name.

Now imagine that the facts change slightly when Opco hires Shemp to act as CEO, but all other facts remain the same.

In this circumstance, the beneficial owners of Holdco and Opco are no longer identical.  Shemp is a beneficial owner of Opco (by virtue of his role as a senior officer) although Shemp is not a beneficial owner of Holdco.  Consequently, when Opco is a reporting company, Opco must identify all four of its beneficial owners by name (and may not report the FinCEN identifier of Holdco).  

If Opco had previously filed its initial beneficial ownership report before it hired Shemp as CEO, Shemp's hiring would constitute a change in beneficial ownership under 31 CFR 1010.380(a)(2) that would trigger a need for Opco to file an updated BOI report.