In May 2016, the Financial Crimes Enforcement Network (FinCEN), the U.S. agency tasked with issuing anti-money laundering (AML) regulations, issued a final rule requiring that certain categories of financial institutions identify the beneficial owners of their legal entity customers and incorporate customer due diligence procedures into their required AML compliance programs. The regulation was effective July 2016, but only applicable to accounts opened on or after May 11, 2018.
The regulation is limited to certain categories of financial institutions: banking organizations, securities broker-dealers, mutual funds, futures commission merchants and introducing brokers in commodities (“covered financial institutions”). Subject to certain exemptions, the covered financial institution must identify the beneficial owner(s) of each legal entity customer at the time a new account is opened, and obtain an executed form from the individual opening the account certifying to such beneficial ownership information, or obtain the information through other means so long as the individual certifies, to the best of his or her knowledge, that the information is accurate.
Our previous blog post describing the rule’s requirements can be accessed here.
Shortly after publishing the final rules, FinCEN issued an initial set of Frequently Asked Questions regarding the beneficial ownership requirements.
On April 3, 2018, FinCEN issued another set of Frequently Asked Questions providing more detailed guidance. Subjects include what to do in instances where legal entity customers have complex ownership structures, when to update beneficial ownership information already on file and clarifying the various exemptions from the rule for certain legal entity customers.
FinCEN also added a cautionary note to this guidance that if a covered financial institution has notice of or a reasonable suspicion that a customer is evading or attempting to evade the beneficial ownership rule or other customer due diligence requirements, it should consider whether it should (i) not open an account, (ii) close an account or (iii) file a suspicious activity report.