After reading the complimentary post above from TryingToComply, I thought it might be helpful to give some more Beneficial Owner info. The following came from our April 2017 Newsletter ("Banking on BCC")
https://store.bankerscompliance.com I hope this is helpful.
Beneficial Owner Scenarios
By now you should all be aware of the new Beneficial Owner rules that are mandatory on May 11, 2018. On the surface, it sounds pretty simple. You just ask the person opening an account for a legal entity, who the “individual†beneficial owner(s) are that have 25% or more ownership in that entity. How hard can that be, right? After all, FinCEN expects “that a legal entity that has a complex structure would have personnel who necessarily have a general understanding of the ownership interests of the natural persons behind it for operational, management, accounting, and other purposes.†The bank doesn’t have to confirm the status of the beneficial owner(s), you just “rely on the beneficial ownership information supplied by the customer, provided you have no knowledge of facts that would reasonably call into question the reliability of the information.†Let’s just say, it’s not as easy as it may seem. We’ve put together some pretty typical scenarios that will prove this point.
Not only should employees who open accounts have an understanding of who an “individual†beneficial owner is and how deep into the web you have to go to identify them, you may also need to train your customers. Does that person sitting in front of you opening the account really know who the entity’s beneficial owners are, as defined by the new rule? This isn’t something they will want to just guess at or assume, because their word is on the line. They must sign and certify that the information they are providing you, about the entity’s beneficial owners, is true and accurate to the best of their knowledge. If they are not truthful, or knowingly provide you with inaccurate information, that signed certification gives law enforcement the right to go after them for “fraudulent applicationâ€. Falsifying documents is a very serious offense and is generally classified as a felony.
Does your action plan for implementing the new beneficial owner rules include training appropriate personnel on the definition of and various examples of, “beneficial owners� The following scenarios provide examples of the potential layers involved in identifying those 25% beneficial owners. In every scenario, the “control prong†will always apply. We will start with the most basic scenario and build from there.
1. General Examples:
In each of the following scenarios Jack’s Donuts, Inc. is requesting some type of a new account (new loan, new deposit account, etc.):
a. General Scenario 1:
Jack’s Donuts, Inc. is owned 100% by Jack. Jack is the President and primary person with management control over the company.
Beneficial Owner(s): Jack (100% ownership)
Control Person: Jack
b. General Scenario 2:
Jack’s Donuts, Inc. is owned 100% by Jack. Jack has hired Candy, as Chief Operating Officer, to manage the company.
Beneficial Owner(s): Jack (100% ownership)
Control Person: Candy
c. General Scenario 3:
Jack’s Donuts, Inc. is owned 50% by Jack and 50% by Jill. Candy is the Chief Operating Officer and has management control over the company.
Beneficial Owner(s): Jack (50% ownership) and Jill (50% ownership)
Control Person: Candy
d. General Scenario 4:
Jack’s Donuts, Inc. is owned 50% by Jack; 25% by Jill; and 25% by Candy. Candy is the Chief Operating Officer and has management control over the company.
Beneficial Owner(s): Jack (50% ownership), Jill (25% ownership) and Candy (25% ownership)
Control Person: Candy
e. General Scenario 5:
Jack’s Donuts, Inc. is owned 20% by Jack; 20% by Jill; 20% by Sally; 20% by Bill; and 20% by Candy. Candy is the Chief Operating Officer and has management control over the company.
Beneficial Owner(s): Not Applicable (No individual owns at least 25% of Jack’s Donuts)
Control Person: Candy
f. General Scenario 6:
Jack’s Donuts, Inc. is owned 50% by Jack and 50% by Jill’s Coffee Company, L.L.C. Candy is the Chief Operating Officer of Jack’s Donuts, Inc. and has management control over the company.
Assume Jill’s Coffee Company, L.L.C is not an exempt legal entity. Jill’s Coffee Company, L.L.C. is owned 100% by Jill.
Beneficial Owner(s): Jack (50% ownership) and Jill (50% ownership through Jill’s Coffee Company, L.L.C.)
Control Person: Candy
g. General Scenario 7:
Jack’s Donuts, Inc. is owned 50% by Jack and 50% by Jill’s Coffee Company, L.L.C. Candy is the Chief Operating Officer of Jack’s Donuts, Inc. and has management control over the company.
Assume Jill’s Coffee Company, L.L.C. is not an exempt legal entity. Jill’s Coffee Company, L.L.C. is owned 50% by Jill and 50% by Jane.
Beneficial Owner(s): Jack (50% ownership), Jill (25% ownership through Jill’s Coffee Company, L.L.C.) and Jane (25% ownership through Jill’s Coffee Company, L.L.C.).
Control Person: Candy
h. General Scenario 8:
Jack’s Donuts, Inc. is owned 50% by Jack and 50% by Jill’s Coffee Company, L.L.C. Candy is the Chief Operating Officer of Jack’s Donuts, Inc. and has management control over the company.
Assume Jill’s Coffee Company, L.L.C. is not an exempt legal entity. Jill’s Coffee Company, L.L.C. is owned 50% by Jill, 25% by Jane and 25% by Bill.
Beneficial Owner(s): Jack (50% ownership) and Jill (25% ownership through Jill’s Coffee Company, L.L.C.)
Jane and Bill are not considered beneficial owners since they each only have 12.5% ownership in Jack’s Donuts, Inc. (through Jill’s Coffee Company, L.L.C.)
Control Person: Candy
i. General Scenario 9:
Jack’s Donuts, Inc. is owned 50% by Jack and 50% by Jill’s Coffee Company, L.L.C. Candy is the Chief Operating Officer of Jack’s Donuts, Inc. and has management control over the company.
Assume Jill’s Coffee Company, L.L.C. is not an exempt legal entity. Jill’s Coffee Company, L.L.C. is owned 25% by Jill, 25% by Jane, 25% by Bill and 25% by Sally.
Beneficial Owner(s): Jack (50% ownership)
Jill, Jane, Bill and Sally are not considered beneficial owners since they each only have 12.5% ownership in Jack’s Donuts, Inc. (through Jill’s Coffee Company LLC)
Control Person: Candy
j. General Scenario 10:
Jack’s Donuts, Inc. is owned 50% by Jack and 50% by Jill’s Coffee Company. Candy is the Chief Operating Officer of Jack’s Donuts, Inc. and has management control over the company.
Assume Jill’s Coffee Company is a publicly traded company (exempt legal entity). Beneficial Owner(s): Jack (50% ownership)
Jill’s Coffee Company is an exempt legal entity and therefore free from any further 25% beneficial ownership identification.
Control Person: Candy
2. Charity/Non-ProfitExample:
In this example Jane, Secretary for ABC Church, is requesting some type of new account (new loan, new deposit, etc.). Jane has managerial control for the church.
BeneficialOwner(s): Not Applicable (Non-profits are exempt from the 25% beneficial ownership requirements)
Control Person: Jane
3. TrustasaBeneficialOwnerExamples:
In each of the following scenarios, Jack’s Donuts, Inc. is requesting some type of a new account (new loan, new deposit account, etc.):
a. TrustScenario1:
Jack’s Donuts, Inc. is owned 100% by Jack’s Trust. Jack is the only Trustee (100% ownership). Jack is also the President of Jack’s Donuts, Inc. and has management control over the company.
Beneficial Owner(s): Jack (as the 100% trustee through Jack’s Trust) Control Person: Jack
b. TrustScenario2:
Jack’s Donuts, Inc. is owned 100% by Jack and Jill’s Trust. Jack and Jill are the Trustees (each have 50% ownership). Candy is the Chief Operating Officer of Jack’s Donuts, Inc. and has management control over the company.
Beneficial Owner(s): Jack and Jill (each is a 50% trustee through Jack and Jill’s Trust)
Control Person: Candy
c. Trust Scenario 3:
Jack’s Donuts, Inc. is owned 100% by J & J Trust. Jack, Jill, John, Jane and Sally are the Trustees (each have a 20% ownership). Candy is the Chief Operating Officer of Jack’s Donuts, Inc. and has management control over the company.
Beneficial Owner(s): Not Applicable (No individual owns at least 25% of Jack’s Donuts)
Control Person: Candy
d. Trust Scenario 4:
Jack’s Donuts, Inc. is owned 100% by J & J Trust. ABC Bank is the Trustee (100% ownership). Candy is the Chief Operating Officer of Jack’s Donuts, Inc. and has management control over the company.
Assume ABC Bank is an exempt legal entity as a federal or state regulated financial institution.
Beneficial Owner(s): Not Applicable (No individual owns at least 25% of Jack’s Donuts)
ABC Bank is an exempt legal entity and therefore free from any further 25% beneficial ownership identification.
Control Person: Candy
As you can see, it can get pretty complicated! While the bank is not required to research and confirm the status of the beneficial owners, it’s a good idea for appropriate employees and the customer to understand the basics of who is and is not an “individual†beneficial owner.