On March 5, the primary agencies responsible for anti-money laundering (AML) regulation issued guidance to clarify the regulatory expectations for obtaining beneficial ownership information for certain accounts and customer relationships in connection with a financial institution’s AML compliance program. The guidance is being issued jointly by the Securities and Exchange Commission, the Financial Crimes Enforcement Network (FinCEN), the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the National Credit Union Administration, in consultation with the Commodity Futures Trading Commission. Under FinCEN rules, financial institutions, including banks, broker-dealers, futures commission merchants and investment companies, are required to adopt and implement a customer identification program. The guidance issued recently notes that a financial institution’s customer due diligence (CDD) should include procedures reasonably designed to identify and verify the identity of beneficial owners of an account (i.e., the individual(s) who have a level of control over, or entitlement to, the funds or assets in the account that enables such individual(s), directly or indirectly, to control, manage or direct the account), as appropriate, based on an evaluation of the risk pertaining to the account. CDD procedures may include:

  • determining whether the customer is acting as an agent, and if so, obtaining information regarding the capacity in which and on whose behalf the customer is acting;
  • obtaining information about the structure or ownership of accounts opened by a customer organized as a legal entity not publicly traded in the United States, such as an unincorporated association, a private investment company, trust or foundation; and
  • obtaining information about trust structures, where applicable, to determine the provider of funds and any persons or entities with control over the funds or the power to remove the trustees.

Where a financial institution’s CDD identifies an account posing heightened risk, the account should be subjected to enhanced due diligence (EDD). EDD procedures may include steps to:

  • identify and verify beneficial owners;
  • determine the sources and uses of account funds; and
  • understand the relationship between the nominal customer and the beneficial owner.

The guidance identified private investment companies, certain trusts, corporate entities and shell entities as examples of customers that may pose heightened risk requiring EDD. The guidance also suggests enterprise-wide implementation of beneficial ownership procedures, including sharing of such information across businesses within an enterprise and cross-checking of beneficial ownership information with data held for other purposes (e.g., marketing).

The guidance does not alter existing FinCEN regulations requiring financial institutions to take reasonable steps, including EDD where appropriate, e.g., to identify accounts opened on behalf of senior foreign political figures, to identify nominal and beneficial owners of private banking and foreign correspondent accounts.

The full text of the guidance may be found here.