(b) identification and verification. With respect to customers of legal entities, the financial institution`s customer due diligence measures must enable the institution to: On May 11, 2018, a new rule, commonly referred to as the beneficial ownership rule, came into effect to establish additional customer due diligence measures for banks and other financial institutions. The Financial Crimes Enforcement Network (FinCEN) has published the rule under the Bank Secrecy Act as part of its anti-money laundering framework. This article serves as a reminder for banks as they continue to work on beneficial ownership requirements. For decades, a company`s anonymous assets have been misused for illicit profit, whether it be money laundering, tax evasion, terrorist financing or other criminal activities. The United States, in particular, has long been considered one of the largest money laundering ports in the world, due to its anonymous business formation laws, legal use of appointed directors/shareholders (by proxy), and business services agents who provide a physical address and response service for businesses that exist only on paper. The client of the legal entity must identify a person under the control pliers, whether or not the beneficial owners exist under the point of ownership. In other words, a customer of a legal entity may not have beneficial owners under the ownership clamp, but always one under the control clamp. A financial institution`s policies and risk appetite play a role in choosing the type of legal entity for a commercial client. There are several options with a variety of shades. In addition, the lawful use of designated shareholders is another obstacle for law enforcement agencies and financial institutions to identify true beneficial owners.
When analyzing beneficial ownership data, financial institutions should pay attention to the repeated use of the same shareholder names, as it is common for the same person to allow their name to be used hundreds of times as a candidate. Some beneficial owners may be cautious about providing the required personal information. CFIs can promote transparency by providing clear information about the requirements and underlying purpose of the new regulations and hopefully ensuring collaboration between owners and management of legal entities. The number of persons who meet the definition of “beneficial owner” and who must therefore be identified and verified in accordance with this section may vary. Point (d)(1) of this section requires that up to four persons be identified, depending on the factual circumstances. According to paragraph (d)(2) of this article, only one person must be identified. It is possible that, in certain circumstances, the same person(s) may be identified in accordance with paragraphs (d)(1) and (2) of this section. A covered financial institution may also designate other persons as part of its customer due diligence obligations if it considers it appropriate for the risk to do so.
The customer due diligence rule states that 25% is the minimum ownership threshold. However, financial institutions are free to require ownership information at a lower threshold based on risk. For example, an institution may determine that non-U.S. business customers located in certain countries are at higher risk and therefore require that all beneficial owners, say, of 15% or more be identified. Vendor solutions to identify beneficial ownership of legal entities are now popping up everywhere now that the CDD rule has come into effect. Since ownership information for unlisted companies (the majority of companies in the U.S. today) is not collected or stored by most states, this information was likely obtained indirectly and may be out of date. Be careful and ask for an actual demo before purchasing a company-owned system or database.
1. The financial institutions concerned shall be exempted from the requirements for the identification and verification of the identity of the beneficial owner(s) set out in points (a) and (b)(1) and (2) of this Section only to the extent that the financial institution opens an account for a customer of a legal person, namely: It is essential that the financial institution require the customer to: Provide the names and identification information of the beneficial owners. under both teeth. In the United States today, most states do not collect this information, so it is not available in public records. The institution`s client/account holder/borrower is the legal entity itself, not the individuals who control it. The legacy databases and systems of most financial institutions are not designed to capture information about individuals that can be removed multiple times from the legal entity itself, as is often the case with tiered ownership structures. Beneficial ownership identification information may be obtained either from a person who wishes to open a new account in the name of a client of a legal entity (whether or not that person is a beneficial owner as defined above) or from another CFI that collected the information, provided that the trust is reasonable; the other CFI is also subject to compliance with the new regulations and is regulated by a functioning federal regulator. and the CFI has entered into a contract setting out certain conditions.