On April 25, 2016, the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, proposed a rule that would require all banks, regardless of whether they are subject to regulation by a “Federal functional regulator,” to establish and implement written AML programs, conduct ongoing customer due diligence, and identify and verify the identity of the beneficial owners of their legal entity customers. The proposal would also extend customer identification program requirements to banks not covered under existing rules.
Under current FinCEN regulations, banks that lack a “Federal functional regulator” are exempt from AML program requirements. FinCEN estimates that there are approximately 740 such banks nationwide – these include state-chartered non-depository trust companies, non-federally insured credit unions, private banks, non-federally insured state banks and savings associations, and international banking entities.
The proposal would impose the following uniform regulatory requirements on all banks:
- AML Program Requirements. They would be required to establish and maintain a written AML program that, at a minimum, includes (1) a system of internal controls to insure ongoing AML compliance, (2) independent testing for compliance, (3) the designation of an individual or individuals responsible for coordinating and monitoring compliance, (4) training for appropriate personnel, and (5) appropriate risk-based procedures for conducting ongoing customer due diligence.
- Customer Identification Program Requirements. They would be required to establish programs for new customers that, at a minimum, include (1) verifying the identity of any person seeking to open an account, (2) collecting and maintaining certain identifying information from new customers, and (3) determining whether new customers appear on any lists of known or suspected terrorists or terrorist organizations.
- Beneficial Ownership Requirements. They would be required to identify and verify the identity of each beneficial owner from each legal entity customer that opens a new account. The proposed rule would also require banks to maintain certain records related to the verification process for a period of five years.
According to FinCEN, “[b]anks without a Federal functional regulator may be as vulnerable to the risks of money laundering and terrorist financing as banks with one.” Thus, the proposed rule is designed “eliminate the present regulatory ‘gap’ in AML coverage between banks with and without a Federal functional regulator.” FinCEN believes that the proposal, if adopted, would “reduce the opportunity for criminals to seek out and exploit banks subject to less rigorous AML requirements.”
The proposed rule is subject to a 60-day comment period. Written comments must be submitted to FinCEN on or before October 24, 2016.