PDF FinCEN's Customer Due Diligence Final Rule Highlights of the long This commenter asserted that we should have given additional consideration in the RIA to the impact of the CDD rule on small and mid-sized banks, provided additional data from mid-sized banks regarding the expected costs of implementing the CDD rule, and identified additional expected sources of costs not included in the RIA. as well as to require financial institutions to maintain procedures to ensure compliance with the BSA and the regulations promulgated thereunder or to guard against money laundering.[10]. FinCEN's actions today fall squarely within the scope of its statutory delegation of authority from the Secretary and the plain language of Section 5318(h)(1). there is robust evidence that crime responds to increases in police manpower and to many varieties of police redeployments. See Chalfin, Aaron and Justin McCrary, Criminal Deterrence: A Review of the Literature, forthcoming, Journal of Economic Literature (2016). . Additionally, as stated in the NPRM, the Administration supports the collection of this information at both the time of company formation and at the time an account is opened. https://www.whitehouse.gov/the-press-office/2013/06/18/united-states-g-8-action-plan-transparency-company-ownership-and-control (accessed October 8, 2015). As a result of the limited information received from these discussions, Treasury prepared a preliminary Regulatory Impact Assessment (RIA) that was made available for comment on December 24, 2015 (80 FR 80308). If a vendor selling the same platform (with individual customizations) to multiple clients can make all of these IT systems conform to the final rule by just upgrading the core platform's software once, then there are economies of scale in producing CDD-compliant IT systems. Some commenters also requested an exclusion for supranational organizations. (i) Additional time at account opening. Some commenters urged FinCEN to permit covered financial institutions to take a risk-based, rather than categorical, approach to the identification and verification requirements. For example, we can envision a situation where an unexpected transfer of all of the funds in a legal entity's account to a previously unknown individual would trigger an investigation in which the bank learns that the funds transfer was directly related to a change in the beneficial ownership of the legal entity. Each mutual fund's anti-money laundering program must be approved in writing by its board of directors or trustees. In the proposal, FinCEN sought comment on the approach that it should take towards pooled investment vehicles that are operated or advised by financial institutions that are not proposed to be excluded from the definition of legal entity customer, i.e., whether they should also be excluded from this requirement, or, if such vehicles are not excluded, whether covered financial institutions should be required to identify beneficial owners of such vehicles only under the control prong of the beneficial ownership definition. Therefore, while FinCEN anticipates that the certifying individual would generally be able to provide accurate beneficial ownership information, it is appropriate that it be provided to the best of such person's knowledge, rather than without qualification. It is through CDD that financial institutions are able to understand the risks associated with their customers, to monitor accounts more effectively, and to evaluate activity to determine whether it is unusual or suspicious, as required under suspicious activity reporting obligations. (c) Complies with the rules, regulations, or requirements of its self-regulatory organization governing such programs; provided that the rules, regulations, or requirements of the self-regulatory organization governing such programs have been made effective under the Securities Exchange Act of 1934 by the appropriate Federal functional regulator in consultation with FinCEN. As discussed later, illicit proceeds that are involuntarily transferred from victims to offendersfor example, via fraudare naturally counted among external costs of crime. The Customer Due Diligence (CDD) rule is a set of regulatory guidelines put forth by the US Treasury's Financial Crimes Enforcement Network (FinCEN) that requires financial institutions to identify their customers and verify their identities to prevent money laundering and terrorist financing. Under the PRA, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid OMB control number. are not part of the published document itself. Beneficial ownership requirements for legal entity customers. We reiterate that the 25 percent threshold is the baseline regulatory benchmark, but that covered financial institutions may establish a lower percentage threshold for beneficial ownership (i.e., one that regards owners of less than 25 percent of equity interests as beneficial owners) based on their own assessment of risk in appropriate circumstances. Expressly stating the requirements facilitates the goal that financial institutions, regulators, and law enforcement all operate under the same set of clearly articulated principles. Such a change would also come at higher costs in terms of more financial institution and client onboarding time (in some instances, up to twice as much, since the maximum number of beneficial owners would be more than doubled from a maximum of five to a maximum of eleven) and additional data storage. economic information available. 91. From the perspective of society's overall wellbeing, the existence of a positive spillover implies that fewer transactions are taking place in the market in question than is socially optimal. FinCEN believes that the RIA provides the analysis required by the Unfunded Mandates Act. Accordingly, covered financial institutions are exempt from the beneficial ownership requirement with respect to accounts solely used to finance the purchase of postage and for which payments are remitted directly by the financial institution to the provider of the postage products. Under paragraph (d)(1) of this section, depending on the factual circumstances, up to four individuals may need to be identified. for more than 10 years, and the proposed rule utilizes CIP rule procedures, small institutions would be able to leverage these procedures in complying with this requirement. 151. In addition, States require public accounting firms to register and to file annual reports identifying their members (e.g., partners, members, or shareholders). Relevant documentation may include unexpired government-issued identification evidencing nationality or residence and bearing a photograph or similar safeguard, such as a driver's license or passport. A direct benefit of the final rule would be the reduction in the cost to law enforcement agencies of obtaining beneficial ownership information. 179. See U.S. Dep't of the Treasury, National Money Laundering Risk Assessment at 43. As described in greater detail below, covered financial institutions' procedures for identifying and verifying beneficial owners must contain all the elements of the applicable CIP rule, including the address, date of birth, and Taxpayer Identification Number requirements as set forth therein. 38. The Treasury Department believes that the final rule will reduce illicit activity by a greater amount than this. 11. The same changes are being made to the ongoing monitoring provisions of the AML program rules for the other covered financial institutions. We believe the proposed CDD rule is unlikely to provide appreciable reputational effects on covered financial institutions. We note generally that FinCEN received comments from institutions not subject to CIP (nor therefore to the proposal), urging us to engage in dialogue before determining whether to expand the beneficial ownership and CDD requirements to their industries. FinCEN anticipates that, in the overwhelming majority of cases, a covered financial institution should be able to rely on the accuracy of the beneficial owner or owners identified by the legal entity customer, absent the institution's knowledge to the contrary. This commenter also expressed concern about subjecting all account relationships to the requirement to monitor to identify and report suspicious transactions, contending that this implied a uniform requirement for monitoring transactions that was inconsistent with the risk-based approach. The fourth small bank is a niche lender that provides primarily small business equipment leasing, and explained that because many of its competitors will not be subject to the final rule, it will put them at a significant competitive disadvantage. Implementing the CDD rule would advance compliance by the United States with the FATF CDD standards and fulfill outstanding public commitments. However, we agree with the commenters that this element as presented in the proposal could be construed in this fashion. Financial Crimes Enforcement Network (FinCEN), Treasury. First, FinCEN reaffirms, as described above, its general statutory authority to amend the AML program rules by adding elements beyond those specifically listed in the statute. Given that these institutions are several times larger than the largest small credit unions, it would seem that the IT upgrade costs for small entities could be expected to generally be less than $10,000. Such a provision was initially discussed in the ANPRM for this rulemaking but not included in the NPRM in response to concerns expressed by numerous commenters that the approach was impracticable. The information was provided by the NCUA as of June 30, 2015. FinCEN also notes that a legal entity customer is defined as one that opens an account, but that the NPRM did not define the term account. Several commenters requested that FinCEN provide a definition for this term and suggested using the definition from the CIP rules. Requiring financial institutions to perform effective CDD so that they understand who their customers are and what type of transactions they conduct is a critical aspect of combating all forms of illicit financial activity, from terrorist financing and sanctions evasion to more traditional financial crimes, including money laundering, fraud, and tax evasion. On Dec. 7, 2021, the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) issued a notice of proposed rulemaking (NPRM) to implement the beneficial ownership information reporting provisions of the Corporate Transparency Act (CTA). The commenters addressed many aspects of the proposed beneficial ownership requirement, including the use of the proposed certification form; the extent to which a covered financial institution may rely on the information provided by the customer; the meaning of verification and the extent to which it would be required; the application of the requirement to existing customers; the extent to which the information would need to be updated; and the definitions of beneficial ownership and legal entity customer and the proposed exclusions from those definitions. Such reductions have the potential to yield significant benefits. ), while the benefits accrue to the members of society as a whole. The low-cost estimates assume one-third of employees are trained, the initial training takes 30 minutes, and the annual refresher trainings run 10 minutes. Beneficial owners include any individual who, directly or indirectly, owns 25 percent or more of the equity interests of a legal entity, and one individual with significant responsibility to control, manage, or direct a legal entity customer.