The Financial Crimes Enforcement (FinCEN) Network issued its Final Rule for Customer Due Diligence (CDD) under the Bank Secrecy Act (BSA) on May 11, 2016 with an implementation date of May 11, 2018.

Covered financial institutions must identify at least a beneficial owner under the control criterion for each legal entity customer.

Covered financial institutions may identify beneficial ownership by either obtaining a certification from the individual opening the account on behalf of the legal entity customer, or by obtaining the information from the customer through other means (so long as the individual certifies the accuracy of the information).

WHO QUALIFIES AS A BENEFICIAL OWNER?

According to FinCEN, the definition of beneficial owner is:

1. Each individual, if any, who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, owns 25 percent or more of the equity interests of a legal entity customer;
2. 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.
3. If a trust owns directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, 25 percent or more of the equity interests of a legal entity customer, the beneficial owner shall mean the trustee.

Note, there are two prongs of beneficial ownership, the Ownership Prong and the Control Prong. There needs to be at least one person under the Control Prong (definition #2). There’s not necessarily an Ownership Prong, as there might not be one person with an ownership level of 25 percent or more.

ARE MONEY SERVICES BUSINESSES (MSBs) CONSIDERED A COVERED ENTITY?

The Rule generally applies to covered financial institutions that are subject to CIP requirements; however, FinCEN has indicated future applicability for casinos, money services businesses (MSBs) and insurance companies.

For financial services or products established before May 11, 2018, covered financial institutions must obtain certified beneficial ownership information of the legal entity customers. Therefore, MSBs may be required to provide additional information to their bank partners for their due diligence.

For questions or assistance complying with FinCEN’s new CDD rule, contact us.

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