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#2150322 - 10/18/17 06:32 PM Beneficial Ownership - Owned by another entity?
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If a legal entity is owned by another legal entity, are we required to identify the natural owners of that entity? I'm so confused.

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#2150327 - 10/18/17 06:50 PM Re: Beneficial Ownership - Owned by another entity? Reserved
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My understanding is you will drill down until you get to the owners that have a heartbeat.
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#2150351 - 10/18/17 07:55 PM Re: Beneficial Ownership - Owned by another entity? bcompliance
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I thought that too but I just read a whitepaper published by a BSA management software company that says the following:

"If an entity is an owner, you are not required to identify/verify natural persons behind the entity."

I just don't know any more.

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#2150355 - 10/18/17 08:01 PM Re: Beneficial Ownership - Owned by another entity? Reserved
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I read that a while back, too, and came to the conclusion that I would not accept such a statement without a confirming citation to the regulation.
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#2150358 - 10/18/17 08:08 PM Re: Beneficial Ownership - Owned by another entity? John Burnett
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The preamble to the proposed regulation was abundantly clear: You are to drill down until you get to the name of an individual. The final regulation does not include a specific instruction, but it does indicate that ownership may be direct or "indirect." Most readers take that to mean if Corporation X is owned by Corporation Y and Corporation Y is owned by Bubba then Bubba indirectly owns Corporation X.

FinCEN knows that banks are starving for affirmation on this issue. They have time to provide it. You have lots of other decisions to make in the interim.

If anyone is so certain that "drilling down" is unnecessary, they should provide you with some source for the statement. Call them.
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#2150365 - 10/18/17 08:20 PM Re: Beneficial Ownership - Owned by another entity? Reserved
John Burnett Offline
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If the individual opening the account certifies there are no 25% owners, direct or indirect, you can accept that, however.
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#2150374 - 10/18/17 08:41 PM Re: Beneficial Ownership - Owned by another entity? Reserved
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The Q & A of this particular white paper also said the following:

Q)To identify beneficial owners for the ownership prong, how far down will we be expected to research to find the natural person?
A) If the natural person is not 25% or more, you are not required to drill down at all. For example, if an individual person owns 75% and a company owns 25% of an entity, you will only need to list the individual.

And

Q) Where does it say that if a beneficial owner of 25% or more is an entity, we are not required to identify/verify the natural persons behind the entity?
A) It states in the preamble to the rule: We reiterate that it is generally the responsibility of the legal entity customer (and its personnel) to identify the beneficial owners, and not front-line employees at the financial institution, unless the employees have reason to question the accuracy of the information presented...... FinCEN notes that covered financial institutions are not required under the ownership prong to identify and verify the identities of a natural person behind these entities; this is because the definition of “beneficial owner” under the ownership prong refers to “[e]ach individual, if any,...”, and in such a case there would not be any individual who is the ultimate owner of such entity.

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#2150400 - 10/18/17 09:41 PM Re: Beneficial Ownership - Owned by another entity? Reserved
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Originally Posted By Reserved
The Q & A of this particular white paper also said the following:

Q)To identify beneficial owners for the ownership prong, how far down will we be expected to research to find the natural person?
A) If the natural person is not 25% or more, you are not required to drill down at all. For example, if an individual person owns 75% and a company owns 25% of an entity, you will only need to list the individual.



And if the company is solely owned by one person...? You still need to ask. That Q&A is flawed IMO.
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#2150456 - 10/19/17 02:21 PM Re: Beneficial Ownership - Owned by another entity? #Just Jay
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Reserved,

Thank you for sharing that. You did not imply that FinCEN was the source, but I want to make certain that everyone realizes that FinCEN was not the source.

My reactions are 1) the same as Just Jay's, the portion he highlighted is obviously wrong and 2) Peachy, another personal opinion has been offered as the gospel.

FinCEN has acknowledged that they are working on a second Q & A. If they publish it in a timely fashion it will resolve this question for all involved. Then, some people will say: "I was right!" No, even a blind hog finds an acorn once in awhile.
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#2150482 - 10/19/17 03:27 PM Re: Beneficial Ownership - Owned by another entity? Reserved
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Thank you all for responding.

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#2150541 - 10/19/17 06:27 PM Re: Beneficial Ownership - Owned by another entity? Reserved
StevenD Offline
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But, FinCEN is the source of this document, and it seems to be sending conflicting signals. This is on page 4 of 9.

FIN-2016-G003
Issued: July 19, 2016

Question 12: Nominee owners

Q: May a legal entity provide the identification of a nominee owner in response to a financial institution’s request for the identification of a beneficial owner?

A: No. As stated in the preamble to the Rule, FinCEN intends that the legal entity customer identify its ultimate beneficial owner or owners and not “nominees” or “straw men.” FinCEN reiterates that it is the responsibility of the legal entity customer to identify its ultimate beneficial owners and that the financial institution may rely upon the information provided, unless the institution has reason to question its accuracy.
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#2150544 - 10/19/17 06:37 PM Re: Beneficial Ownership - Owned by another entity? StevenD
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That's saying that someone that owns 25% or more can't get joe smith off the street to say he's the owner of the company.
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#2150546 - 10/19/17 06:41 PM Re: Beneficial Ownership - Owned by another entity? Reserved
StevenD Offline
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It also says, "FinCEN reiterates that it is the responsibility of the legal entity customer to identify its ultimate beneficial owners and that the financial institution may rely upon the information provided, unless the institution has reason to question its accuracy."
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#2150557 - 10/19/17 07:36 PM Re: Beneficial Ownership - Owned by another entity? Reserved
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I read that to deal with taking the entity's word about who owns it, not about the responsibility to drill down.

If Company A says we're owned by John (50%), Billy (25%), and Company B (25%). You can rely on the accuracy of that unless you have reason not to. That doesn't mean you don't have to ask about Company B's ownership. At least that's how I read it.

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#2150563 - 10/19/17 08:39 PM Re: Beneficial Ownership - Owned by another entity? Reserved
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That is how I read it too. Once we identify a natural person, we are not going to keep drilling down to find more. A comment was on another thread that I agree with. " Do not do more than required by this new requirement", you could really get more involved than you want too.
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#2150607 - 10/20/17 02:52 PM Re: Beneficial Ownership - Owned by another entity? Reserved
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The FAQ document "reiterated" that statement because it also appears in the rule itself. The last sentence of 1010.230(b)(2) says this.

"A covered financial institution may rely on the information supplied by the legal entity customer regarding the identity of its beneficial owner or owners, provided that it has no knowledge of facts that would reasonably call into question the reliability of such information."
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#2150680 - 10/20/17 06:50 PM Re: Beneficial Ownership - Owned by another entity? John Burnett
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Originally Posted By John Burnett
If the individual opening the account certifies there are no 25% owners, direct or indirect, you can accept that, however.


However you still need to identify an individual for the "Control" prong.
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#2150694 - 10/20/17 07:17 PM Re: Beneficial Ownership - Owned by another entity? StevenD
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Originally Posted By StevenD
The FAQ document "reiterated" that statement because it also appears in the rule itself. The last sentence of 1010.230(b)(2) says this.

"A covered financial institution may rely on the information supplied by the legal entity customer regarding the identity of its beneficial owner or owners, provided that it has no knowledge of facts that would reasonably call into question the reliability of such information."

That sentence is all about individuals who have been identified by the legal entity customer, not about a statement that 50% of the entity is owned by ABC Corporation. If the bank gets ABC Corporation listed as a 50% owner, it has to ask the entity to identify any individual owners of ABC Corporation who will indirectly own 25% or more of the new business entity customer.
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#2150736 - 10/20/17 10:48 PM Re: Beneficial Ownership - Owned by another entity? Reserved
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So let's say ABC Corp. is 50% owner of the legal entity customer and ABC Corp. is owned by 4 individuals, each with 25% ownership. Does this mean that those individuals do not need to be identified because by extension they only own 12.5% (25% of 50%) of the legal entity customer? But if an individual also owns 25% of XYZ Corp, and XYZ owns 50% of the legal entity customer, that individual has 25% (12.5% + 12.5%) ownership and must be identified? confused
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#2150740 - 10/21/17 02:55 AM Re: Beneficial Ownership - Owned by another entity? Reserved
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That's how the math works.
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#2152005 - 11/01/17 08:55 PM Re: Beneficial Ownership - Owned by another entity? Reserved
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We have FDIC Examiners on site this week conducting a BSA Exam. I asked the Examiner whether banks are required to "drill down" to an individual in situations where an entity owns another entity. My exact example was: ABC Corp is owned by A Jones (25%), B Jones (25%), and D LLC (50%). D LLC is owned by Jon Smith (50%) and Jane Smith (50%).

Does Jon Smith and Jane Smith meet the definition of Beneficial Owner as defined by 1010.230(d)(1)?

Our Examiner passed the question onto our their Regional Office and the response was (almost verbatim but they wouldn't send an email to me): That is the million dollar question. Additional FAQs are expected to be issued prior to the May 2018 deadline. Tell the bank to pick a side and go with it. However, if the FAQs disagree with their choice, they will need to change the process to align with the new FAQs.

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#2162446 - 01/30/18 08:03 PM Re: Beneficial Ownership - Owned by another entity? Reserved
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Still waiting to see if this has been resolved, has anyone heard?

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#2162531 - 01/31/18 02:55 PM Re: Beneficial Ownership - Owned by another entity? Rae
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Nothing.

If you want immediate notice of the Q&A's publication, sign up for notification of FinCEN pronouncements at the Federal Register. If you want to be notified when the Exam Manual is updated, sign up for your federal functional regulatory agency's e-mail service.

Checking BOL's Top Stories will also bring the information to your attention.
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#2162590 - 01/31/18 06:45 PM Re: Beneficial Ownership - Owned by another entity? Elwood P. Dowd
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Thank you

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#2173466 - 04/13/18 05:58 PM Re: Beneficial Ownership - Owned by another entity? Reserved
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Based on the FinCEN FAQs issued April 3, 2018 and the ABA's Staff Analysis of the FAQs, I read these to say that if the bank's customer is owned by a legal entity that has 25% or more ownership, banks are not required to drill down to determine the individual that has ownership of the owning legal entity. Does everyone agree? And, if this is true, how would the information for the owning business be collected since the certification form does not contain information for a business, only for an individual? Do you anticipate this form being revised or would banks have to modify the forms being used on their own?

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