The Financial Crimes Enforcement Network (FinCEN) and the Department of Treasury (Treasury) issued proposed rules for covered financial institutions that contain explicit customer due diligence (CDD) requirements and would include a new regulatory requirement to identify beneficial owners of legal entity customers, subject to certain exemptions. FinCEN is responsible for administering the Banking Secrecy Act, which authorizes the Secretary of the Treasury to require financial institutions to file reports that will be useful in criminal, tax, or regulatory investigations or proceedings. The key elements of the explicit CDD requirements are: (i) identifying and verifying the identity of customers (covered under the existing customer identification program (CIP)); (ii) identifying and verifying the identity of beneficial owners of legal entity customers; (iii) understanding the nature and purpose of customer relationships; and (iv) conducting ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions.
The new CDD rules are intended to dovetail with other efforts to create greater transparency, such as the tax reporting provisions under FATCA. Pursuant to many of the intergovernmental agreements executed in connection with FATCA, the United States has committed to pursuing reciprocity with respect to collecting and reporting to the authorities of the other contracting state information on the US accounts of residents of such state. The general requirement of covered financial institutions to identify and verify the identity of beneficial owners of legal entity customers is intended to advance these commitments.
A financial institution must satisfy this requirement by obtaining, at the time a new account is opened, a standard certification form directly from the individual opening the new account on behalf of the legal entity customer that identifies natural persons who ultimately own or exercise effective control over a customer and/or the person on whose behalf a transaction is being conducted. While financial institutions would not be required to verify that such natural persons are in fact the beneficial owners, they would be required to verify the identity of such natural persons, consistent with their existing CIP practices.
The notice of proposed rulemaking can be accessed here.