Beneficial Owners

In response to the most recent joint guidence I reviewed the OCC comments and the FRB comments. I am opening this up for discussion. The way I read this, since it pertains to CDD, we would need to know the true owners of all account holders and somehow identify them on the account (not necessarily CIP them).

Thus, articles of incorporation, partnership agreements, trust agreements etc. would be needed for all accounts. This seems a bit invasive for accounts where we have no reason to suspect criminal activity (low risk).

As far as I'm aware, we do ask for these types of documents when opening accounts for corporations, partnerships, etc. Otherwise, how would you know that the persons who are on the signature cards are actually authorized to act on behalf of the entity?

I agree with Doug. How would you know who was authorized to open the accounts or who owns the funds without proper documentation. We require this and more on all business accounts. It only takes one case of who you "think" is a Sole Proprietor ending up actually being in a Partnership for you to be sure you always know who owns the funds.

Ask your commercial lending what they have been doing for years, pre-CIP, pre-BSA. Without these types of documents you have no idea who your borrower is or if your collateral is perfected.

For deposit accounts, how do you know with whom you are dealing, who is authorized to act?

The beneficial owner issue always brings to mind an OFAC case where CVS was fined. They were doing business with a drug store chain in South America. Turned out an owner a few layers down was a member of a drug cartel.

That is fair, however that is not the real issue. The real issue is that you do (not accusing just never seen an FI that does this)not put beneficiaries on an account. Thus, when it comes time to file a SAR or research suspicious activity, you would not likely reference any loan documents or any agreements to determine the beneficiary. The new guideance really says you have to do this.

It comes from knowing who the bank is really doing business with. There are banks (more than a few) who go down the chain to find a "real person" under the chain of LLCs, partnerships and corporations, and not just in South Florida where it has been common for quite some time.

It is not on the bank's system, but it is in the due diligence file (or customer file)

As a relationship manager back in the 90s I was expected, for business purposes, to know who were the members of the entities that showed up in complex charts of ownership. On the one hand, we didn't want to be involved with anyone of questionable reputation. On the other, we viewed them as prospects for new business.

Drilling down to identify actual persons was a policy at my prior bank. Many staff members wondered why, since we were a "community" bank, we would ever need to do that. Heard lots of grumbling through the years...until the day the loan officer found an LLC owned in the form of bearer shares in the country of Panama. Now THAT will settle down your loan officers in a New York minute.

Good example!

"This seems a bit invasive for accounts where we have no reason to suspect criminal activity (low risk)."

Forgive me, but that seems like a dangerous statement to make to justify not doing CDD. I don't think most banks would open an account for a customer if they had reason to suspect criminal activity when they opened the account.

Also, if you don't know who they are, how can they be deemed low risk?

So what is everyone doing or going to be doing to identify the actual persons benefiting from the account?

Request the documents that are required in order to drill down to the first level.

I am agree with everyone else that unless you have entity documents identifying ownership, why would you open an account. We open a lot of LLC or LP accounts and if the general partner is another corporation, we also get those documents.
Sometimes it takes a couple of trys to get what we need but you have to be diligent with the new accounts staff and the officers to make sure they understand we have to "KNOW" who we are doing business with.

When I interviewed staff at my bank, I was pleased to find out we do obtain alot of layers of documentation. My question is in what document do you typically find the named beneficial owners? I could tell both our retail and lending operations assure they know who has authority to sign on behalf of the company (for example via articles of incorporation and even minutes or bylaws).

I just want to be sure we're not missing a step in trying to identify the beneficial owners since those owners may not actually sign on the account.

Any input or examples would be greatly appreciated.

This is interagency guidance, they are all supposed to be singing out of the same hymn book; I do not think you will find any supplementary analysis from individual agencies. It is my fervent hope that they knew they were going to do this and there will be some relevant commentary in the long anticipated BSA/AML Examination Handbook update.

Drilling through the corporate veil is not required due diligence on all entity customers. The guidance suggests it is necessary for "higher" risk customers. While that limitation may be helpful in some respects, it assumes that a bank risk rates customers at account inception. If so, checklists notwithstanding, how many CSR's are competent to make a decision about when to dig and where to dig? You may have to do it all the time to assure that it gets done when it is necessary.

Identifying the existing customers who should provide this information will be easier. However, any experienced CSR will tell you that the day to get documentation is the day the account is opened. It's going to be tough to squeeze all of this out of existing customers.

Just like everything else, the amount of due diligence required is driven by the individual bank's risk assessment. In relevant circumstances, banks do not need a list of shareholders, they need to know who the major shareholders are. Once you drill down to get the name of the human being(s) actually running the show the standard will not be "Did you perform CIP on them?" What good would that do?

The week after it came out I used it as a handout as a seminar in Miami. It was generally greeted with a shrug. It's a already a common practice, not an innovation there. It's just another adaptation for everyone else.

I've reread some of the earlier comments...you are not looking for the names of the people empowered to act on behalf of the company. It's assumed you already have that. You are looking for the true owners; i.e. individuals, not another entity. They may not be the same as the people empowered to act.

I for one would like to hear from some of the BSA officers and bankers from Miami on their processes - is it all done at account opening, do you limit activity to an account until documents are received and reviewed, is documentation kept in the branch or elsewhere, for information on major stockholders - do you obtain independently or from the customer, etc.

We currently get these documents to identify who is truly behind the business account, however we do not gather CIP information for these individuals. Is this something we should be doing?

Your level of due diligence may not drill down to all requirements of CIP. For example, you may want to obtain name, physical address, SSN and citizenship, but not ID such as driver's license for individuals that own 25% or more of a company. That may enable you to conduct sufficient due diligence and verification through a non-documentary process. Your procedures should be specific enough to know the client and anticipated usage of the account. Your policy should define your definition of "know" and steps to be taken by your staff to comply with your policy statement.

Is this effective immediately?

Technically, it has always been effective. The guidance is just a "reminder" of sorts.