Financial Crime World

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Banks Must Obtain Beneficial Owner Information to Avoid SAR Filing Threshold

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The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued regulations requiring banks to obtain identifying information for each beneficial owner of a legal entity customer opening a new account. The rules aim to prevent money laundering and terrorist financing by ensuring that banks have accurate information about their customers.

What is Beneficial Ownership Information?

Beneficial ownership information includes the name, date of birth, address, and identification number of each individual with significant control over the legal entity customer. For individuals, this includes a residential or business street address, while for non-individuals (such as corporations), it includes a principal place of business.

How to Obtain Beneficial Ownership Information

Banks can obtain beneficial ownership information through a completed certification form from the individual opening the account. The form must include the required identifying information and be signed by each beneficial owner. Banks are also permitted to rely on another financial institution that has implemented similar procedures for verifying beneficial ownership information.

Verification of Beneficial Owner Information

Once obtained, banks must verify the identity of each beneficial owner within a reasonable period of time after the account is opened. This can be done through documentary verification, such as reviewing identification documents, or non-documentary methods, such as contacting the individual or their representative. Banks are not required to establish the accuracy of every element of identifying information, but must verify enough information to form a reasonable belief that they know the true identity of each beneficial owner.

Lack of Identification and Verification

If a bank cannot form a reasonable belief that it knows the true identity of each beneficial owner, it must establish policies, procedures, and processes for handling such situations. This includes circumstances in which:

  • The bank should not open an account
  • Terms under which a customer may use an account while attempting to verify beneficial ownership information
  • When to close or file a Suspicious Activity Report (SAR)

Recordkeeping and Retention

Banks must maintain recordkeeping procedures for beneficial ownership identification and verification information for a period of five years after the account is closed. This includes:

  • Maintaining any identifying information obtained
  • Descriptions of documents relied upon
  • Non-documentary methods used

Reliance on Another Financial Institution

Banks are permitted to rely on another financial institution that has implemented similar procedures for verifying beneficial ownership information, provided that:

  • The reliance is reasonable under the circumstances
  • The relied-upon financial institution is subject to a rule implementing 31 USC 5318(h) and is regulated by a federal functional regulator

By following these regulations, banks can ensure compliance with anti-money laundering and combating the financing of terrorism (AML/CFT) requirements and avoid filing thresholds for suspicious activity reports.