Beneficial Ownership - Who do you CIP?

if a business entity opens an account and you determine an owner is ANOTHER business - do you need to core down thru the business owner to get to the actual person(s)? is what the bank chooses to do, a risk based decision, or is determining the actual person what the regulation is asking us to do?

You must identify the beneficial owners whether their ownership is direct or indirect. If John owns 25 percent of the legal entity customer opening the account, then his ownership is direct. If the other 75 percent of the legal entity customer opening the account is ABC, Inc. and Randy owns all of ABC's stock, then his ownership is indirect, but he still owns more than 25 percent of the legal entity customer opening the account.

"Drilling down" is required; i.e. it is not a risk based decision.

[So as not to mislead, you are actually just required to write down what people tell you. You have no proof as to how much of an equity interest either person has. You are not even required to verify that ABC, Inc. even exists.]

perfect thanks.

In a webinar by Banker's Toolbox yesterday, she said "Look for the heartbeat". I think that was very helpful.

yeo I was in on the some webinar - and too thought the "heartbeat" analogy was perfect! I had however attended a seminar in March where they indicated there wasn't a need to core down thru a "business owner" so it was contradicting information, that's why I thought it was a risk based approach

thanks

JennKK2,

I heard that same speaker say that several months ago and it planted a seed of doubt in my mind, although I could find no basis for it. Subsequent correspondence with the Helpline, both my own and that shared by others, convinced me that it was incorrect.

What the webinar worth it? I have been looking for a good webinar to find on demand.

i think any opportunity we have to get insight on the BO rule coming out helps plan the work needed to do. coring it down to reflect your bank size will be the challenge. the powerpoint provided will be good for staff review

I agree with JennKK2, any information I can get on this subject, I watch an especially since it was free. Our BSA department and Compliance Department are going to go over the power point to make sure we are on point. There was also a good checklist to make sure all bases are covered.

on another note - we OFAC the BO(s) but are we required to OFAC the Control Prong?

OFAC is a bank decision based on your identified OFAC risks.

Anyone listed under either prong is a "beneficial owner." Commenters pointed out that it is possible that the person listed on the control or management prong had no ownership interest at all. No adjustments were made in response to the criticism.

rlcarey is simply correct; whether you check the OFAC list is an entirely risk based decision. However, banks should take note of this language in the preamble to the due diligence regulation:

“For example, the Office of Foreign Assets Control (OFAC) requires covered financial institutions to block accounts (or other property and interests in property) of, among others, persons appearing on the Specially Designated Nationals and Blocked Persons List (SDN List), which includes any entity that is 50 percent or more owned, in the aggregate, by one or more blocked persons, regardless of whether the entity is formally listed on the SDN List. Therefore, institutions should use beneficial ownership information to help ensure that they do not open or maintain an account, or otherwise engage in prohibited transactions or dealings involving individuals or entities subject to OFAC-administered sanctions.” (Emphasis supplied)

That doesn't sound "risk based" to me; it sounds like an instruction. So, compliant banks will do the search and if it turns out that Abril Cortez is one of the beneficial owners for ABC Inc., the next thing the bank must know is whether he owns at least 50% of the stock. Unfortunately, the off the shelf version of Appendix A doesn't require that information.

I have been reading so much information I believe my head is spinning - I found in my notes (but no notation as to where) the following statement:
(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.

I thought if an entity is identified as the BO of my business customer, we had to core down to a "heartbeat" of the entity-owner, above states we do not. thus going back to what I was told in a March seminar - that we were not required to identify the BO of the entity-owner.

some CLEAR clarification is requested - thanks!

A "trust" does not fit the definition of a "legal entity customer."

If one legal entity customer is owned by another legal entity customer, drill. If a legal entity customer is owned by a trust, list the trustee as the beneficial owner.

ok

How would we handle a situation where ABC, Inc. (who owns 75% of Business A, our customer) has 10 owners, each with a 10% stake in the company? Since their total indirect ownership of Business A is 7.5%, are they left off of the form?

EDIT: I came up with an "indirect ownership percentage" calculation, where you take the natural person's ownership in a business multiplied by the percentage that business owns in the customer to determine if CIP is required. In the example above, any owner of ABC, Inc. will have a 7.5% stake (10% x 75% = 7.5%). It can be expanded for as many businesses are involved.

Thoughts?

If legal entity customer A owns 75 percent of legal entity customer B and A has ten equal owners, there is no chance that any one of those individuals indirectly owns 25% of legal entity customer B. You stop right there, noting on Appendix A "Not Applicable."

All the person across the desk has to do is assert a cockamamie ownership structure and your queries will stop.

If they were unequal though, say one of them owned 90% of A, would that person be written down?

I guess my point in all of this is how deep do we need to drill down? There's a million scenarios, but how far will examiners want us to go before they're happy?

I see this actually harming honest businesses who will try to fill the form out accurately. All a scam business has to do is have literally anyone come in and say there are no BO's and lie about a controller/manager, right?

the sarcasm the drips from statements never ceases to make me a laugh....I just hope I can explain our process to the auditors and examiners without being so obvious.

that said......has anyone thought it necessary to put on their website or social media outlets the new regulation requirements - like we all did for the CIP rules. Do you think all banks will have signs required to explain what we are now asking for? as we open business accounts we are going thru a mock process of completing the BO Certificate, and more than once the person opening the account isn't prepared with answers to the "ownership" question; certainly not the percentage angle, though they may truly know the owners.