Enhanced Customer Due Diligence Measures Mandated by FinCEN

In a move to combat money laundering and terrorist financing, the Financial Crimes Enforcement Network (FinCEN) has issued new guidelines requiring businesses to implement enhanced customer due diligence measures.

Verifying Identity of Customers’ Representatives and Beneficial Owners

Under the new regulations, businesses must verify the identity of their customers’ representatives and beneficial owners. This includes:

• Checking power of attorney documentation, appointment certificates, or corresponding authorization documents for representatives of legal persons
• Verifying power of attorney documentation, appointment certificate, or corresponding authorization document for natural person customers
• Investigating if a customer has one or multiple beneficial owners and verifying their identity in the same way as for natural person customers

Investigations and Exemptions

Businesses must investigate the beneficial ownership structure of their customers. However, exceptions to this investigation obligation apply to:

• Limited companies whose shares are traded on regulated markets in Sweden, the EU Economic Area (EEA), or corresponding markets outside the EEA
• Companies that have publicly disclosed information about their beneficial owners

Identifying Alternative Real Principals and Politically Exposed Persons

Businesses must also identify and verify the identity of alternative real principals if:

• The investigation clarifies that their customer does not have a real principal, or
• They have reasons to believe that the identified real principal does not ultimately own or control the customer

Additionally, businesses must determine whether their customers or their real principals are:

• Politically exposed persons (PEPs) or family members or known co-workers of PEPs
• Take adequate actions to determine the origin of assets and apply a continuous and enhanced evaluation of the business relation if a customer is a PEP

Gathering Information about Business Relationship

The guidelines emphasize the importance of gathering information about:

• The purpose and nature of the business relationship before establishing it
• Understanding the customer’s business and how they will use the products or services provided by the business

Risk-Based Approach

The scope of investigation depends on the assessed risk attributed to the business relationship, with higher-risk customers requiring more in-depth investigations. Businesses must adjust their due diligence measures based on their risk assessment of a single customer.

Continuous Evaluation

Finally, businesses must continuously evaluate their existing business relationships to ensure that their customer due diligence is current and adequate to handle the assessed risks for money laundering and terrorist financing.

Consequences of Non-Compliance

Failure to comply with these guidelines may result in severe consequences, including fines and even criminal prosecution. As such, it is crucial for businesses to prioritize customer due diligence and implement robust measures to prevent illicit activities.