Proposed regulation with 60 day comment period.

July 30, 2014 WASHINGTON – The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) today issued a Notice of Proposed Rulemaking (NPRM) to amend existing Bank Secrecy Act (BSA) regulations to help prevent the use of anonymous companies to engage in or launder the proceeds of illegal activity in the U.S. financial sector. The proposed rule would clarify and strengthen customer due diligence obligations of banks and other financial institutions (including brokers or dealers in securities, mutual funds, futures commission merchants, and introducing brokers in commodities). The proposed amendments would add a new requirement that these entities know and verify the identities of the real people (also known as beneficial owners) who own, control, and profit from the companies they service.


“The beneficial ownership requirement is intended to provide us with an important new tool to track down the real people behind companies that abuse our financial system to secretly move and launder their illicit gains,” said David S. Cohen, Under Secretary for Terrorism and Financial Intelligence. “Along with meeting our international commitments, this rule would make our financial system more transparent by exposing the activities of illicit actors who will no longer be able to hide behind their anonymity.”


The proposed rule benefits from extensive outreach and discussion with financial institutions and regulatory agencies. These proposed amendments represent significant enhancements to the BSA and build upon post-9/11 augmentation of the regulations designed to protect the U.S. financial system. They would make valuable information needed to disrupt illicit finance networks available to law enforcement. The resulting increase in financial transparency would enhance the ability of financial institutions and law enforcement to identify the assets and accounts of criminals and national security threats. The rule also would further the United States commitments in the G-8 Action Plan for Transparency of Company Ownership and Control published in June 2013.


The rulemaking clarifies that customer due diligence includes four core elements: identifying and verifying the identity of customers; identifying and verifying the beneficial owners of legal entity customers; understanding the nature and purpose of customer relationships; and conducting ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions. The proposed requirement to identify and verify the identity of beneficial owners is addressed through the proposal of a new requirement for covered financial institutions to collect beneficial ownership in a standardized format. Those financial institutions will have to identify and verify any individual who owns 25 percent of more of a legal entity, and an individual who controls the legal entity.

This would bring the US standards into line with EU standards.

So, did a Law amending the BSA get passed? If not, is it legal to write regulations that are not covered in the Law? I'm a process-oriented guy and don't necessary disagree with the proposal. Just trying to understand how FinCEN can issue rulemaking without, in this case a Law being amended first.

Regulatory agencies are often given leeway in adopting additional regulatory requirements. There is also the murky area of whether the U.S. is forced into adapting to stricter anti-money laundering rules adopted in the international community.

On the upside, it does appear that they are trying to level the playing field a bit by clarifying some requirements. That argument that "The bank down the street doesn't do this" hopefully will no longer apply.

I was also glad to see that we only responsible for identifying the named owners and are not responsible (yet) for actually verifying the ownership information. It will be interesting to see how examiners handle that one, I am guessing that our responsibilities may evolve thorough the exam process.

It was nice to see that they provided a standard certification form. I wish this were the case more often where something was standardized and not left for individual institutions to try to develop.

I actually agree with FinCEN on something for once. Rule 2 doesn't really change anything: most of us are already doing the stuff they've added.

I'm not as concerned with Rule 1 as I was during the ANPRM; however, I still do not feel they are completely clear on the issue of determining ownership percentage where you have legal entities that own legal entities.

In one part, they say "For instances where legal entities are held by other legal entities, determining ownership may require several intermediate analytical steps. FinCEN’s expectation is that a financial institution will identify the natural person or persons who exercise control of a legal entity customer through a 25% or greater ownership interest, regardless of how many corporate parents or holding companies removed the natural person is from the legal entity customer."

Then, they go on to say:

"Moreover, the phrase “directly or indirectly” in the ownership prong of the definition is intended to make clear that where a legal entity customer is owned by (or controlled through) one or more other legal entities, the proposed rule requires customers to look through those other legal entities to determine which natural persons own 25 percent or more of the equity interests of the legal entity customer. FinCEN recognizes that identifying such individuals may be challenging where the legal entity customer has a complex legal structure with multiple levels of ownership, but FinCEN does not expect financial institutions – or customers – to undergo complex and exhaustive analysis to determine with legal certainty whether an individual is a beneficial owner under the definition. Instead, FinCEN expects financial institutions to be able to rely generally on the representations of the customer when answering the financial institution’s questions about the individual persons behind the legal entity, including whether someone identified as a beneficial owner is in fact a beneficial owner under this definition."

Is it me, or do they contradict themselves a few times there?

First, financial institutions need to ID the BO's "regardless" of how many layers are involved.

Then, they it seems like they're saying the customer can do it, but if it's too difficult, they just "guesstimate" it. And the FI can just take their word for it.

Which one is it? Do they want us getting Standard Certification Forms for every layer, and aggregating the ownership percentage on the main form for all BO's over the threshold; or, can we just take the customer's word for it?

Clean it up FinCEN.

Patsfan, I've only read half of the proposed rule and I've seen already many contradictions.

I'm also concerned about the record retention and storage of the beneficial ownership information and the system changes that our core processors may have to make. Most of our systems will allow a Customer Information File to be created for the legal entity creating the account, and for 'authorized signers' to be associated with the account. Now we would have to somehow associate 'beneficial owners' to the customer (CIF), as opposed to the account itself, since the beneficial owners may not be signatories to the account. That is, presuming you don't want to have to manage a paper file just for beneficial ownership.

All the contradictions will do is create a minefield for violations.

I have no problem drilling down through the layers; however, it sure would be helpful if there was some transparency with the states records of beneficial owners at the time of formation.

We hear over and over again that Delaware is a corporate tax haven. Bankers Toolbox did a webinar today and the presenter stated that there were 285,000 separate businesses associated with one street address that is a drop box. If states are lax in their requirements for establishing legal entities and crooks lie on the certification form (and you know they will) then all of this is for nothing.

I have no idea if this is true, but I've heard that some banks will not open accounts for entities formed in Delaware.

Our policy requires that we 'CIP' all authorized signers on business accounts. What I am now trying to figure out is, if a signer is also a beneficial owner would the new requirements require us to identify the individual as both a signer and beneficial owner, or would we only have to identify beneficial owners who are not signers on the account? This has technical implications for how our IT system is configured. Any opinions would be appreciated.

That's the type of question that should be posed in a comment letter. My gut reaction is that if you have identified the individual through your CIP which probably requires that you see actual documentation of identity (rather than just a photocopy as the certification form indicates) you have probably exceeded the requirements for identifying a beneficial owner.

However, the issue will be raised every time an entity opens a new account. There is no provision that would allow a bank to exclude an existing, previously certified customer from the certification requirement; as it reads, a new certification and identification of beneficial owners would be required each time a legal entity customer opens a new account.

I agree with devsfan that there may be some "technical implications."

Is there any requirement for us to continually perform an OFAC verification on beneficial owners? If so, this might require that the beneficial owners information be entered on the core system.

That would depend on your OFAC policy.

Ed - you are right.

Noting, "OFAC is risk based," there is a much more powerful rationale for including beneficial owners in your OFAC checks than there is in vendors, payees on over the counter checks, mere signatories on entity accounts, etc...

Wouldn't be at all surprised if at some point we'll also need to include beneficial owners in our 314(a) searches ...

Yes -I do find humor when I open a loan file and find pages of OFAC check print-outs on entities such as First American Title and Bank of America.

"Yes -I do find humor when I open a loan file and find pages of OFAC check print-outs on entities such as First American Title and Bank of America."

Ok. I just have to say that is just dumb.

And that's why it's funny.

Comment period ended earlier this month and all comments can be found here:

http://www.regulations.gov/#!docketBrowser;rpp=50;po=0;D=FINCEN-2014-0001

Is anyone else having trouble opening ACAMS' attachment?

FWIW, I can't open it either...

Same here.

FWIW, FinCEN is projecting final action on this NPRM in August. Their public statements regarding time frames have been more guarded, but it would be understandable if they wanted something they can point to as a response to the 2006 FATF criticisms before the organization conducts its next "evaluation" in 2016.

P.S. Hmmm, if this publication is anything other than a beaurocratic game of kick the can, they are going to issue a 2nd NPRM on reporting international wire transfers in August was well. It will be a hot time for sure.

Thanks, Ken. Been wondering when those particular shoes would drop...

I will give us all something to do after we get TRID out of the way