I am a bit confused and am looking for clarification regarding the necessary steps to take with trusts when it comes to beneficial ownership.

In reading the regulation, I came across two sections which discuss trusts. The first one says "The definition (legal entity customer) would also not include trusts (other than statutory trusts created by a filing with a Secretary of State or similar office."

Further down it the regulation it states, "(3) If a trust owns directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, 25 percent or more of the equity interests of a legal entity customer, the beneficial owner for purposes of paragraph (d)(1) of this section shall mean the trustee. If an entity listed in paragraph (e)(2) of this section owns directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, 25 percent or more of the equity interests of a legal entity customer, no individual need be identified for purposes of paragraph (d)(1) of this section with respect to that entity’s interests.

So is this saying that if an account is established for a trust, the only time CIP information needs to be collected is on statutory trusts created by a filing with a Secretary of State or similar government office but if a trust owns 25% or more of the entity for which the account is established, the trustees of that trust must have CIP conducted on them?

Thank you in advance!

If a trust that is not registered with the state is opening an account, the regulation does not apply. Question 22

If a trust that is registered with the state; e.g. Massachusetts business trust, is opening an account, the regulation applies and you will identify the beneficial owners.

If a legal entity customer is opening an account and one of the 25%+ owners is a trust then the trustee(s) of the trust are among the beneficial owners of the legal entity customer.

Thank you Ken.

I was just in a meeting with experienced commercial lenders and they have never seen a trust that was registered with the state. Could the requirement to register a business-purpose trust be based on the state? At this point, I will need to implement a procedure to look on the Secretary of State website to verify the trust is not registered, which seems like an extra step for minimal benefit.

I'll help you if you promise never to look to commercial lenders as a source of advice again. They have lots of opinions, but they rarely actually know anything.

Bankers who are just now starting this project (there are plenty) should note the reference to "Massachusetts" business trust above. Any requirement for a trust to register with the state would be specific to that state. Then, they should go to the website for their state's SOS. Wade through the registration process, look at the forms, etc. Oftentimes states assume the user of the website is setting up a business and needs advice about what types of businesses are available. So, they include a list of possibilities. Here's the cheat sheet for WA. (No trusts.) You have the incentive to learn about each type of business entity and make your own decisions based on real research.

Develop a list of entities required to register in your state. (It will not include trusts, but you need to add general partnerships.) Give it to the people who open new accounts so they know when to look and when not to look. In candor, the CIP process should have given your new accounts people some insight into what types of entities are required to register, but they still need your list to know when to get the beneficial owners'

Add limited partnerships, too. They aren't mentioned in the regulation, but are included in the FinCEN FAQ.

Limited partnerships are listed on the Wa web site as being required to file with the state...

Our BSA Officer has decided we need to create a procedure to check every trust in order to confirm they are NOT registered and therefore exempt from the beneficial ownership rule. Is this a standard practice? Doesn't the customer have to tell us?

Guess it depends on your state and how many you think might meet the requirement. You are allowed a risk based program.

Look at the cheat sheet for the WA SOS web site. At the bottom it acknowledges MA business trusts, no other kinds. Checking other types is a complete and total waste of time, like looking for a Schwinn on the Department of Motor Vehicles website.

We have a number of agency agreements that are managed by our Trust Department. There is an agreement between our Trust Department and the legal covered entity to collect interest and to buy and sell. Am I correct in assuming this type of agreement will require CDD procedures as it is not technically a trust?

Yes, agency agreements will fall under the CDD rules.

I have spoken to FinCen about these agency agreements under the Trust Department. They have FAQs drafted that answer these questions and hope to have them released soon.

You can take a look at 1010.230(d)(3) to help who to identify.