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Federal Register / Vol. 86, No. 233 / Wednesday, December 8, 2021 / Proposed Rules
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substantial control would provide law enforcement and others a much more complete picture of who makes important decisions at a reporting company.
FinCEN also considered but rejected a per se rule that would have deemed all officers of a reporting company to be in substantial control of the entity, and therefore, beneficial owners. While a per se rule is clear and easy to administer, FinCEN ultimately concluded that the CTAs consistent focus on individuals that are in actual substantial control of a reporting company argued against creating a definition of substantial control that relies on titles alone. Thus, while FinCEN has retained a per se element in its proposed definition of substantial controlrequiring the reporting of any senior officer as a person in substantial controlthis is only a part of the definition in proposed 31 CFR 1010.380d1. Despite comments from some that FinCEN
should adopt a definition of substantial control drawn from another BOI
disclosure regime, such as the UKs PSC
Register, FinCEN believes that its proposed definition of substantial control, which, as discussed above, is based on established legal principles and usages of this term in other contexts, provides specificity to the regulated community while being flexible enough to account for unique ways in which individuals can exercise substantial control over an entity.
FinCEN seeks comments on the overall proposed approach to substantial control as well as on the specific indicators and examples, including whether they are clear and useful. FinCEN welcomes additional suggestions for possible indicators and specific language in this regard.
ii. Ownership or Control of Ownership Interests The other component of the definition of beneficial owner concerns individuals who own or control 25
percent of a reporting companys ownership interests. The CTA defines a beneficial owner to include an individual who . . . owns or control not less than 25 percent of the ownership interests of the entity. 110 Proposed 31
CFR 1010.380d3i provides that ownership interests, for the purposes of this rule, would include both equity in the reporting company and other types of interests, such as capital or profit interests including partnership interests or convertible instruments, warrants or rights, or other options or privileges to acquire equity, capital, or 110 31

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other interests in a reporting company.
Debt instruments are included if they enable the holder to exercise the same rights as one of the specified equity or other interests, including the ability to convert the instrument into one of the specified equity or other interests. This is similar to the U.S. Securities and Exchange Commissions definition of equity security in 17 CFR 230.405.111
FinCEN proposes to adopt this understanding as a way of ensuring that the underlying reality of ownership, not the form it takes, drives the identification of beneficial owners. The approach also thwarts the use of complex ownership structures and ownership vehicles other than direct equity ownership to obscure a reporting companys real owners.
Proposed 31 CFR 1010.380d3ii identifies ways in which an individual may own or control interests. It restates statutory language that an individual may own or control an ownership interest directly or indirectly. It also gives a non-exhaustive list of examples to further emphasize that an individual can own or control ownership interests through a variety of means. FinCENs proposed approach requires reporting companies to consider all facts and circumstances when making determinations about who owns or controls ownership interests.
FinCEN believes that the specific examples will illustrate what FinCEN
believes to be relevant to an ownershipinterests analysis. For example, with proposed 31 CFR 1010.380d3iiA
joint ownership, FinCENs objective is to highlight that an individual may reach the 25 percent threshold by jointly owning or controlling with one or more other persons an undivided ownership interest in a reporting company.
Proposed 31 CFR 1010.380d3iiC
specifies that an individual may directly or indirectly own or control an ownership interest in a reporting company through a trust or similar arrangement. The proposed language aims to make clear that an individual may own or control ownership interests by way of the individuals position as a grantor or settlor, a beneficiary, a trustee, or another individual with authority to dispose of trust assets. In relation to trust beneficiaries in particular, FinCEN believes that it is appropriate to consider an individual as owning or controlling ownership interests held in trust if the individual is the sole permissible recipient of both income and principal from the trust, or has the right to demand a distribution of, or withdraw substantially all of the 111 Securities
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assets from, the trust. Other individuals with authority to dispose of trust assets, such as trustees, will also be considered as controlling the ownership interests held in trust, as will grantors or settlors that have retained the right to revoke the trust, or to otherwise withdraw the assets of the trust. FinCEN believes that these circumstances comport with the general understanding of ownership and control in the context of trusts and furthers the CTAs objective of identifying true beneficial owners regardless of formalities that may vary across different jurisdictions. However, FinCEN acknowledges that these concepts do not map easily onto every trust or similar arrangement.
Accordingly, FinCEN is seeking comment on its general approach to the attribution of ownership interests held in trust to certain individuals, as well as the particular circumstances in which individuals may be considered to own or control ownerships interests held in trust. More broadly, FinCEN seeks comments on whether these and the other proposed examples of how one might own or control ownership interests are clear and useful, and which, if any, require elaboration.
Proposed 31 CFR 1010.380d3iii concludes the ownership interest section with general guidance on determining whether an individual owns or controls 25 percent of the ownership interests of a reporting company. An individuals ownership interests of the reporting company shall include all ownership interests of any class or type, and the percentage of such ownership interests that an individual owns or controls shall be determined by aggregating all of the individuals ownership interests in comparison to the undiluted ownership interests of the company. FinCEN believes this approach would further the CTAs objective of identifying true beneficial owners by accounting for complex ownership or investment structures.
FinCEN seeks comments on this approach to the 25 percent calculation, including any issues that FinCEN
should consider in relation to reporting companies with more complex ownership structures.
FinCEN considered alternative approaches to identifying beneficial owners according to their ownership interests, in particular the approach laid out in the ownership prong of the CDD
Rule. In that approach, only equity interests are relevant, joint ownership is not explicitly addressed, and assets in trust are deemed to be owned by their
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