What?

In May 2016, the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) proposed and Congress approved the gathering of certain beneficial owner information as part of explicit Customer Due Diligence (CDD) requirements under the BSA.

•     • The rule requires all Financial Institutions (FIs) subject to the BSA to collect from legal entity (commercial) customers beneficial ownership information (BOI) and to identify those owners using standard Customer Identification Program (CIP) procedures.
•     • Consistent with existing customer identification processes, FIs must obtain, reasonably verify, and document BOI collected for the beneficial owners of legal entity customers.

Why?

FinCEN asserts this change to CDD requirements will advance the purpose of the BSA as follows:

•     • Enhance the ability of law enforcement to access beneficial ownership information;
•     • Increase the ability of stakeholders to identify assets associated with criminals and terrorists, strengthening sanctions programs;
•     • Assist FIs to assess and mitigate potential risks and comply with legal requirements;
•     • Facilitate tax compliance, especially as it relates to Foreign Account Tax Compliance Act (FATCA) and reciprocity with other jurisdictions; and
•     • Promote consistency in implementing and enforcing CDD expectations.

Who?

All new legal entity (commercial) customers and their beneficial owners.

The definition of “beneficial owner” has two components or “prongs” and can be applied on an either/or basis:

•     • Ownership prong: Each individual, if any, who owns, directly or indirectly, 25 percent or more of the equity interests of the legal entity. Note: In certain situations, the bank may obtain BOI at lower equity thresholds
•     • Control prong: An individual with significant responsibility to control, manage or direct a legal entity customer, such as an executive officer, senior manager or individual who performs similar functions.

Note: FinCEN recognizes that FIs lack an ability to verify the status of an individual as a beneficial owner. As such, FIs are permitted to rely on customer representations and certification to determine the beneficial owners of a legal entity customer.

Existing Customer Requirements

•     • FIs are not required to retroactively obtain BOI for existing customers.
•     • Existing customers are subject to the requirements only upon certain “trigger” events. A trigger event includes:
•         o Opening a new account;
•         o A previously exempt legal entity is no longer exempt;
•         o The bank has reasonable belief that the legal entity ownership has changed; and
•         o The customer residual AML risk is assessed during certain BSA/AML monitoring activities.

Exceptions?

The rule applies to all types of legal entity business types registered by a state registering authority such as incorporations, limited liability companies, partnerships and others. A legal entity does not include natural persons, personal trusts, sole proprietorships and unincorporated associations.

The rule also does not apply to the following:

•     • An issuer of securities under SEC rules;
•     • Any majority owned domestic subsidiary of a company listed on a U.S. stock exchange;
•     • An investment company;
•     • A registered investment adviser;
•     • An exchange or clearing company or other entity registered with the SEC;
•     • A public accounting firm; or
•     • A charity or nonprofit entity (subject to the control prong only).

When?

The mandatory compliance date for all FIs is May 11, 2018.