The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) has issued a proposed rule that would amend existing Bank Secrecy Act (“BSA”) regulations to help prevent the use of anonymous companies to engage in or launder the proceeds of illegal activity through U.S. financial institutions. The proposed rule published in the Federal Register on August 4 would add a new due diligence requirement applicable to banks and other covered financial institutions requiring verification of the identities of the beneficial owners who own or control a business entity customer. The beneficial ownership due diligence requirements would apply to any individual who owns 25% or more of a business entity customer and any individual who controls the business entity. The proposed rule would require covered financial institutions to collect beneficial ownership information in a standardized format. The proposed rule would also clarify that customer due diligence procedures must cover the following four core elements: identifying and verifying the identity of customers, identifying and verifying the beneficial owners of business entity customers, understanding the nature and purpose of customer relationships, and conducting ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions. Public comments on the proposed rule are due by October 3.
Nutter Notes: The proposed rule would define a controlling person of a business entity customer as an individual with significant responsibility for controlling, managing, or directing a business entity customer, including an executive officer or senior manager (e.g., chief executive officer, chief financial officer, chief operating officer, managing member, general partner, president, vice president or treasurer) or any other individual who regularly performs similar functions. The beneficial ownership and control tests would be independent, meaning that a financial institution must identify each individual who owns 25% or more of the equity interests and at least one control person. FinCEN’s customer due diligence rules do not currently require covered financial institutions to collect beneficial owner information on the natural persons associated with business entity customers. FinCEN said that the proposed rule’s requirements that financial institutions understand the nature and purpose of customer relationships and conduct ongoing monitoring to maintain and update customer information would not necessarily require modifications to existing practice or customer onboarding procedures. FinCEN said that these amendments to the BSA rules are intended to clarify existing expectations for financial institutions to understand and monitor the customer relationship for purposes of identifying transactions in which the customer would not normally be expected to engage.