Posts tagged ‘Customer Due Diligence’

FINCen Issues Q&A On Beneficial Owner Regulation

My time for posting a blog today is running a little short, courtesy of Albany’s woefully inconsistent  transportation system. For me,  Uber can’t come soon enough.  But I wanted to give you a heads-up on a Q&A guidance issued by FINCEN  yesterday  clarifying  the Customer Due Diligence requirements obligations of financial institutions that open accounts for entities such as corporations  and trusts  with beneficial owners. The rule has taken effect but you have until May 11 , 2018 to comply.

To demystify this regulation it’s important to put it in context. There have been a series of articles in the New York Times reporting on how corporations often act as fronts for shall we say, individuals with questionable backgrounds. Setting  up corporations to open up accounts where   ill-gotten gains can be stored and from which  a Manhattan  penthouse can be purchased is a classic form of money laundering.  After all, public  pensions  only go so far and  any prudent  dictator has to put aside funds for safe keeping in the event of an ill- timed coup. In addition, businesses  can be controlled by persons not  readily  identifiable.

It didn’t get all that much attention in the compliance world but in May FINCen finalized regulations requiring  credit unions and banks to extend account opening customer identification  due diligence procedures to the beneficial owners of legal entities.  The Q & A is intended to further clarify these obligations.

By the way, a beneficial owner is:

“each individual, if any, who, directly or indirectly, owns 25% or more of the equity interests of a legal entity customer (i.e., the ownership prong); and  a single individual with significant responsibility to control, manage, or direct a legal entity customer, including an executive officer or senior manager (e.g., a 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 (i.e., the control prong). This list of positions is illustrative, not exclusive, as there is significant diversity in how legal entities are structured. ”

Hoping your journey to work was better than mine,  your faithful blogger wishes you all a good day.

July 21, 2016 at 8:51 am Leave a comment

The Next Big Mandate?

Fin CEN recently held a public hearing on its Advance Notice of Proposed Rulemaking (ANPR) suggesting additional requirements being imposed on financial institutions under BSA.  While I wouldn’t suggest watching the video, which is a great cure for insomnia, I would suggest taking a look at the ANPR if you haven’t already done so.  While I know that credit unions have an almost Pavlovian dislike of the BSA, we really should hold our fire before we start criticizing where Fin CEN is going with these proposals.

First, Fin CEN is broaching the idea of codifying a Customer Due Diligence requirement.  The basic idea is that financial institutions would have to have policies in place to show not only that they have a name and address for a person when opening an account, but that they are monitoring the account on an ongoing basis consistent with the risk it poses for potential money laundering activity.  Fin CEN argues that this requirement has been implicit in BSA regulations for years.  Frankly, they have a point on this one.  How can you know whether to file a suspicious activity report (SARS) if you don’t have at least basic information about the normal baseline of activity on an account.  So long as any regulation in this area continues to stress that the extent of a credit union’s obligations are consistent with the size of the credit union and the nature of the accounts being serviced, this regulation might actually be helpful to financial institutions that should be doing due diligence but are not.

A second component of the proposal is to require financial institutions to identify the “beneficial” owner of an account.  This is the aspect of the proposal that got the most attention at Fin CEN’s hearing.  The argument is that as money laundering is getting more sophisticated, financial institutions have to be made responsible for knowing who actually is benefitting from an account.  For example, it is becoming increasingly common for trusts and shell companies to be account holders for assets which are actually controlled by other unnamed parties.  So long as regulation in this area is clearly written, it should not have to have an impact on credit unions, which typically don’t deal with the type of accounts that are the major thrust behind this proposal. 

Still, this is the type of regulation, if poorly drafted, that could ensnare credit unions in fixing a problem that they don’t have by complying with regulations they don’t need.

August 2, 2012 at 7:08 am Leave a comment


Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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