Financial Institutions Required to Identify and Verify Beneficial Owners

The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has implemented rules requiring financial institutions to identify and verify the beneficial owners of legal entity customers. This rule is aimed at preventing money laundering, terrorist financing, and other financial crimes.

Identification and Verification Requirements

Financial institutions are required to establish and maintain written risk-based procedures for verifying the identity of each beneficial owner within a reasonable period after the account is opened. These procedures must contain elements similar to those used for verifying individual customers’ identities under 31 CFR 1020.220(a)(2).

• The bank’s procedures must describe when it uses documents, non-documentary methods, or a combination of methods.
• The bank need not establish the accuracy of every element of identifying information obtained but must verify enough information to form a reasonable belief that it knows the true identity of the beneficial owner(s).

Circumstances Where Identification and Verification May Not Be Possible

In cases where the bank cannot form a reasonable belief that it knows the true identity of the beneficial owner(s), the bank should establish policies, procedures, and processes for dealing with these circumstances. These policies, procedures, and processes should describe the terms under which a customer may use an account while the bank attempts to verify the identity of the beneficial owner(s).

Recordkeeping and Retention Requirements

Financial institutions must establish recordkeeping procedures for beneficial ownership identification and verification information. At a minimum, the bank must maintain any identifying information obtained, including certifications (if obtained), for a period of five years after the date the account is closed.

Reliance on Another Financial Institution

A financial institution is permitted to rely on another financial institution’s performance of the Beneficial Ownership Rule with respect to any legal entity customer that is opening or has opened an account or established a similar business relationship with the other financial institution, provided that:

• 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.
• The other financial institution enters into a contract requiring it to certify annually to the bank that it has implemented its anti-money laundering (AML) program and will perform or cause its agent to perform the specified requirements of the bank’s procedures to comply with the requirements of the Beneficial Ownership Rule.

Conclusion

The Beneficial Ownership Rule requires financial institutions to identify and verify the beneficial owners of legal entity customers. Failure to comply with these rules may result in serious consequences, including fines and penalties. Financial institutions should ensure that their policies, procedures, and practices are adequate to meet these requirements and avoid any potential violations.