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Collecting Beneficial Ownership Info for Trustees

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Question: 
Based on the following, it sounds as though we only have to worry about collecting beneficial ownership information for trustees of statutory trusts created by a filing with a Secretary of State or similar office. Does that sound accurate to you? Here is the specific language I found regarding Trusts. Beneficial Owner 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 shall mean the trustee. Trusts The definition of a “legal entity customer” would also not include trusts (other than statutory trusts created by a filing with a Secretary of State or similar office). This is because, unlike the legal entities that are subject to the final rule, a trust is a contractual arrangement between the person who provides the funds or other assets and specifies the terms (i.e., the grantor or settlor) and the person with control over the assets (i.e., the trustee), for the benefit of those named in the trust deed (i.e., the beneficiaries). Formation of a trust does not generally require any action by the state. As FinCEN noted in the NPRM, identifying a “beneficial owner” from among these parties, based on the definition in the proposed or final rule, would not be possible. FinCEN emphasizes that this does not and should not supersede existing obligations and practices regarding trusts generally. The preamble to each of the CIP rules notes that, while financial institutions are not required to look through a trust to its beneficiaries, they “may need to take additional steps to verify the identity of a customer that is not an individual, such as obtaining information about persons with control over the account.” Moreover, as FinCEN noted in the proposal, it is our understanding that where trusts are direct customers of financial institutions, financial institutions generally also identify and verify the identity of trustees, because trustees will necessarily be signatories on trust accounts (which in turn provides a ready source of information for law enforcement in the event of an investigation). Furthermore, under supervisory guidance for banks, “in certain circumstances involving revocable trusts, the bank may need to gather information about the settlor, grantor, trustee, or other persons with the authority to direct the trustee, and who thus have authority or control over the account, in order to establish the true identity of the customer.” We reiterate our understanding that, consistent with existing obligations, financial institutions are already taking a risk based approach to collecting information with respect to various persons associated with trusts in order to know their customer, and that we expect financial institutions continue these practices as part of their overall efforts to safeguard against money laundering and terrorist financing.
Answer: 

The definition of legal entity customer in the new CDD regulation only applies to those entities that must register with a Secretary of State’s office or its equivalent. Unless a trust is registered with the state; e.g. a business trust, this regulation does not apply when a trust opens an account. In the NPRM, FinCEN announced the decision not to draft the regulation in such a way that in would be applicable to trusts:

There are many types of trusts. While a small proportion may fall within the scope of the proposed definition of legal entity customer (e.g.,statutory trusts), most will not. Unlike the legal entity customers that are subject to the proposed beneficial ownership requirement (corporations, limited liability companies, etc.), a trust is generally a contractual arrangement between the person who provides the funds and specifies the trust terms (i.e., the settlor or grantor) and the person with control over the funds (i.e., the trustee) for the benefit of those who benefit from the trust (i.e., the beneficiaries). This arrangement does not generally require the approval by or other action of a state to become effective. FinCEN notes that in order to engage in the business of acting as a fiduciary it is necessary for a trust company to be federally- or state chartered. As the comments noted, identifying a ‘‘beneficial owner’’ among the parties to such an arrangement for AML purposes, based on the proposed definition of beneficial owner, would not be practical. At this point, FinCEN is choosing not to impose this requirement. (Emphasis supplied)

FR Vol 79, No 149, August 4, 2014, page 45160,

First published on 04/30/2017

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