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#2170160 - 03/26/18 07:47 PM Ownership Breakdowns
banker1976 Offline
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For the purposes of a Beneficial Ownership example, you have a legal entity who is owned by "John and Jane Doe, husband and wife, with a right of survivorship 100%". Conversation at account opening says ownership transfers to the other upon death. For ownership percentages, would we list both individuals as owning 50%?

In another example, you have a legal entity owned by "Jack and Diane Brown, Tenants by the Entirety 100%". For ownership percentages, would we list both individuals as owning 50%?
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#2170168 - 03/26/18 08:04 PM Re: Ownership Breakdowns banker1976
Elwood P. Dowd Offline
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TMI.

You are not required to reflect any percentage of ownership. If this is something you have chosen to do voluntarily, put them down for 50/50.
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#2170179 - 03/26/18 08:38 PM Re: Ownership Breakdowns banker1976
Wildcat Rampage Offline
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I'm probably thinking too hard about this, but...

In Kentucky partnerships aren't necessarily formal organizations documented with legal agreements and recorded with the Secretary of State. In many (most) cases they are more akin to sole proprietorships than they are to LLCs or corporations. Intuitively, I want to believe that since they are not created by legal statue that they are not a legal entity customer. However, the part of me that has read, over and over "...a general partnership and any similar entity formed under the laws...." believes what it reads and I'm conflicted.

So, if I'm in an area where partnerships are not formalized, are they legal entity customers to whom the Beneficial Ownership rules apply or not?
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#2170183 - 03/26/18 08:46 PM Re: Ownership Breakdowns banker1976
bcompliance Offline
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If they have not filed with the secretary of state to be registered as a legal entity, the regulation doesn't apply. From the definitions in the reg(https://www.federalregister.gov/d/2016-10567/p-614):

(1) Legal entity customer means a corporation, limited liability company, or other entity that is created by the filing of a public document with a Secretary of State or similar office, a general partnership, and any similar entity formed under the laws of a foreign jurisdiction that opens an account.
Last edited by bcompliance; 03/26/18 08:48 PM. Reason: add link to reg
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#2170199 - 03/26/18 09:10 PM Re: Ownership Breakdowns banker1976
John Burnett Offline
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The way the rule is worded, the fact that as partnership isn't created by filing with a state office is irrelevant. They are covered as legal entities under the rule, regardless, along with limited partnerships.
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#2170207 - 03/26/18 10:05 PM Re: Ownership Breakdowns Wildcat Rampage
Elwood P. Dowd Offline
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In any state that has adopted the Uniform Partnership Act (that includes Kentucky) if two or more people enter into a for profit business enterprise without registering as a creature of statute, the law classifies them as a general partnership. That is true regardless of whether they have a written agreement. Banks should treat them as such for all purposes; i.e. requiring an EIN, obtaining resolutions, and, of least importance, obtaining beneficial ownership information.

As John indicates, general partnerships are covered simply because the regulation says they are.
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#2170227 - 03/27/18 12:13 PM Re: Ownership Breakdowns John Burnett
bcompliance Offline
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Originally Posted By John Burnett
The way the rule is worded, the fact that as partnership isn't created by filing with a state office is irrelevant. They are covered as legal entities under the rule, regardless, along with limited partnerships.


I guess I should have read what I was posting
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#2170280 - 03/27/18 02:45 PM Re: Ownership Breakdowns banker1976
CountryBanker Offline
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Since I'd like to exclude as many non-formalized business customers as I can for BO Certification, do you have a suggestion for how I can train staff to recognize a general partnership after they've excluded them by searching a Sec'y of State's website and finding nothing?
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#2170286 - 03/27/18 03:08 PM Re: Ownership Breakdowns banker1976
rlcarey Online
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They give you a business name and you find nothing - you ask them what they are doing. If they say it is a partnership - there you go. If not, what do you do now - just let them open an account or borrow money regardless of what they might be doing?
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#2170290 - 03/27/18 03:20 PM Re: Ownership Breakdowns banker1976
CountryBanker Offline
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We do a fair amount of Ag lending. Husband & wife, father & son, family operations. Some are formalized, others are not. They might not think of it as a partnership, but especially the father/son operations commingle assets. We know both derive income from the Ag operations of all kinds.

Can you point to them as really being partnerships based on who signs the loan docs or signs for the operating accounts?
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#2170313 - 03/27/18 03:50 PM Re: Ownership Breakdowns banker1976
rlcarey Online
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If Joe and Jim come in an open an account or borrow money, they are doing so jointly - regardless of what their relationship might be.

If they come in a want to open an account or borrow money as "Joe and Sons" - then you have a partnership.
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#2170430 - 03/27/18 06:56 PM Re: Ownership Breakdowns banker1976
CountryBanker Offline
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I read back through the thread, and see the point I missed is that there still needs to be a partnership agreement, even though it's unfiled with any Sec'y of State, that defines how things work for the partners. I read a little too much into John's comment about coverage. Even though you can ACT like you're in a partnership, it isn't formal until there's a document.
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#2170432 - 03/27/18 07:07 PM Re: Ownership Breakdowns banker1976
John Burnett Offline
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There is nothing in the regulation that says that informal partnerships -- those for which there isn't a formal agreement -- get a pass. There doesn't need to be a document to form the partnership in some states. As Ken points out, it happens in those states when Joe and Jim agree to go into business together with the goal of making money. Joe and Jim might have started out as a couple of guys who liked showing off their hobby of carving wooden animals out of tree trunks with chain saws at the county fair. No partnership there. But when Joe and Jim agree to sell their art out of Jim's shop (because his has plumbing and Joe's doesn't), they've formed a partnership even if they haven't gone the "formal" route of spit and a handshake.
Last edited by John Burnett; 03/27/18 07:10 PM.
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#2170475 - 03/27/18 08:53 PM Re: Ownership Breakdowns banker1976
CountryBanker Offline
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As much as I don't like the implications, I understand what you're saying. We have many such groups in my 6 subsidiaries, mostly family groups engaged in small to large Ag operations.

And now I've got more work to do preparing for May 11.
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#2170526 - 03/28/18 12:57 PM Re: Ownership Breakdowns CountryBanker
Elwood P. Dowd Offline
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It has always fascinated me that acquaintances, friends, families, and spouses enter into ongoing business relationships without knowingly establishing a business entity to protect both themselves and the enterprise. Banks that point out the logic fault and literally refuse to do business with a "make believe" operation perform a valuable service.

Running a "clean up" operation for existing customers on general principle would be difficult. Doing it as a result of this regulation is going to be a mess.
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#2170557 - 03/28/18 01:57 PM Re: Ownership Breakdowns banker1976
CountryBanker Offline
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Like I said, most groups are family groups, and from experience I can tell you some see this as extra paperwork, others as legal (government) intrusion. They want to run things like their parents ran them, regardless of the size of the operation. If there's any good news, it is that there's a trend to 'do something' with legal agreements for estate planning and trusts when the principals reach their 60's or 70's.

I can see the meeting in the branch with the Loan Officer and 15-year customer Joe & Joan Farmer. LO puts a BO Certification in front of them with names of daughter (maybe) and son-in-law (for sure) on it as beneficial owners due to the UPA. No matter how they describe it, it won't get signed, since the implication is that the kids have either 1/3 or 1/2 beneficial ownership (compared to Joe & Joan) in an unnamed general partnership. The LO will see he risks losing Joe & Joan as customers and will not attempt that again, with ANY customer. That's what I'm up against.
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#2170777 - 03/29/18 12:12 PM Re: Ownership Breakdowns banker1976
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I am also concerned about this and I see it as possibly being an area where examiners will find issues. We also have an Ag division at our bank and I expect that we will have similar issues with informal partnerships.

I'm going to have to revise my training materials to explain that informal partnerships are covered under the rule. I had also been focusing on a filing with the SOS as this would have made it easier for employees to understand. Ugh!
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#2171212 - 03/30/18 08:20 PM Re: Ownership Breakdowns CountryBanker
Wildcat Rampage Offline
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Amen.

Then when you try to say something about it, management will look at you and say one of the following:


  • "The rule doesn't make sense. "
  • "That's not what community banking is about."
  • "The _____ across town doesn't require that, are you sure you know what you're talking about?"
  • "I heard if they're not registered with the Secretary of State, the rule doesn't apply."


We need bingo cards with our "favorite" management sayings.
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#2171568 - 04/03/18 05:15 PM Re: Ownership Breakdowns banker1976
CountryBanker Offline
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While everyone is perusing the new FinCEN FAQs on the subject, I still need to get off the fence on the idea of identifying general partnerships.

I understand the arguments made previously for calling something that acts like a business partnership 'a partnership.' I have in-laws to which this could apply. But I still dig in my heels at the idea that bank personnel should be responsible for identifying them.

Excerpts from pages 52-53 of the 2016 Final Rule:
By the same token, we also decline to provide a formal guidance document listing the types of documents that front-line employees should rely upon to demonstrate the existence of an equity interest over the triggering threshold. We reiterate that it is generally the responsibility of the legal entity customer (and its personnel) to make this determination and 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.
Some commenters noted that while they approved of FinCEN’s general approach to determining indirect ownership of legal entity customers— i.e., that FinCEN does not expect financial institutions or customers to undertake analyses to determine whether an individual is a beneficial owner under the definition—they nevertheless thought that FinCEN should provide additional guidance and examples of how legal entity customers should calculate ownership interests when natural persons have indirect equity interests. As an initial matter, as described above, we emphasize that FinCEN expects that financial institutions will generally be able to rely on the representations of the customer when it identifies its beneficial owners.

If my customer says they don't have a partnership, they don't have a partnership, general - unregistered - informal or otherwise.
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#2171570 - 04/03/18 05:22 PM Re: Ownership Breakdowns banker1976
rlcarey Online
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Go back to my post #2170313 - how are these accounts titled. That will tell you if you need to do any digging.

If John B and I have an account and it is titled in our names - it is a joint account. You are done - you don't care. If we come in and want to open an account as J&R Farms - then you have a partnership or other entity, no matter what they say.
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#2171627 - 04/03/18 07:47 PM Re: Ownership Breakdowns banker1976
CountryBanker Offline
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I got that, that's what we're prepared to do. Where it heads into the weeds is when it was suggested informal partnerships without written agreements need to be scoped out, identified, and tracked for BO. Dad, Mom, & son participate in farming together. Livestock, grain, custom field work, maybe more. Son uses Dad's equipment, Dad pays son for his work, son might even own some machinery himself.

They don't come to us with a business name. Family farming operations have been operating for decades like this without a peep from any auditors and regulators, which makes me reluctant to begin now. We're not training front-line staff to make determinations of how close they are to being a partnership. They say they are not, and we exclude them. I am done, I don't care to dig deeper.
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#2171628 - 04/03/18 07:51 PM Re: Ownership Breakdowns banker1976
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What type of signature card are you using and how are you classifying these on your system? If you are booking as a joint account, then I would not request a COB.
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#2171631 - 04/03/18 07:59 PM Re: Ownership Breakdowns banker1976
CountryBanker Offline
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The accounts are not the issue, everybody has their own accounts. Father & Mother, brother & sister-in-law, Son & daughter in law, etc. It's the fact they sign together on loans, use each other's farm equipment, and get paid from the operations that makes it look like it's organized (maybe a partnership).
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#2171639 - 04/03/18 08:38 PM Re: Ownership Breakdowns banker1976
bcompliance Offline
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The question still goes back to what Randy indicated. If they are in operation together, using their own names, the rule doesn't apply because you have already identified them. If they are using something other than their names, it applies because you don't truly know who the owners are.
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#2171675 - 04/03/18 10:56 PM Re: Ownership Breakdowns banker1976
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I agree.
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