May 23, 2016 3:31 pm

By Elva Coffey-Sears

FinCEN published its final Customer Due Diligence Requirements for Financial Institutions rule in the Federal Register on May 11, 2016. While the rule is effective July 11, 2016, covered institutions have until May 11, 2018 to comply.

The new rule requires covered institutions (including banks and various brokers or dealers) to expand the Customer Identification Program (CIP) section of their AML Programs to include written procedures that are reasonable designed to identify and verify beneficial owners of legal entity customers at the time a new account is opened.

The rule provides certain clarifications and exemptions, but generally defines:

  • A legal entity as a corporation, limited liability company or other entity that is created by filing a public document with a Secretary of State or other similar office, a general partnership, and any similar entity formed under the laws of a foreign jurisdiction.
  • A beneficial owner as each individual who, directly or indirectly, owns 25% or more equity interest, and any single individual with significant responsibility to control, manage, or direct a legal entity, such as an executive officer or other individual performing similar functions.

To assist in identifying beneficial owners, the rule includes a model Certification Regarding Beneficial Owners of Legal Entity Customers; however, institutions are permitted to collect the required information by another means, provided they have the individual certify the accuracy of the information. Verification is required to be accomplished in accordance with risk-based procedures which parallel existing customer information required for CIP [31 CFR 1020.220(a)(2)]. An institution is permitted to rely on the information supplied by the customer provided that it has no knowledge of facts that would reasonably call into question the reliability of the information.

The rule requires that written procedures address record retention requirements, which are five years after account closure for identifying information and five years after making the record for verification records. And, consistent with existing CIP, institutions are permitted to rely on another financial institution to perform the identification and/or verification provided that such reliance is reasonable, the other institution is subject to CIP and regulated by a Federal functional regulator, and the other institution has a contractual obligation to certify annually to the institution that it has implemented its anti-money laundering program and will perform specified requirements to comply with the rule.

For questions or more on FinCEN, call ABS at (405) 607-7000.