We use cookies to give you the best online experience. By using our website you agree to our use of cookies in accordance with our cookie policy. Learn more here.Close Me
Coming soon to a financial institution near you: the requirement
that all financial institutions identify individuals who own,
control or benefit from a legal arrangement (corporations, etc.)
and verify their identities before opening an account, dealing in
securities, selling a used car or originating a mortgage.
This will be a burdensome, time-consuming and expensive
requirement, no matter the final definition of "beneficial
owner," or the types of "legal arrangements" to
which it applies. Given that approval of this obligation is
being orchestrated outside of the normal bank regulatory channels,
unless financial institutions ("FI"s) act in concert,
adoption of this rule is a matter of when, not whether, in order to
satisfy law enforcement and international regulatory
pressure.
On March 5, 2012, the Financial Crimes Enforcement Network
("FinCEN"), part of the U.S. Treasury exercising
regulatory authority over the U.S. anti-money laundering
("AML") laws, published an Advanced Notice of Proposed
Rulemaking ("ANPRM").1 It has one
principal objective: to write into AML regulations a
requirement that Customer Due Diligence ("CDD") programs
include identifying beneficial owners before a legal relationship
is established.
FinCEN paints with a broad brush why beneficial ownership
information is necessary. It bases its rationale on improving
cross-border tax reporting, compliance with the Foreign Account Tax
Compliance Act ("FATCA"), and promoting the
"integrity of the international financial system as a
whole." The upshot of FinCEN's far-reaching –
and not very quantifiable – justification for obtaining
beneficial ownership information is that the requirement will
probably apply to almost all FI customers, not just those
considered "high risk."2
The ANPRM is part of an orchestrated set of actions among
FinCEN, the Financial Action Task Force ("FATF") (an
inter-governmental body, including the U.S., established to set AML
standards), and the G20, which includes the U.S. and the E.U. and
is known as "the premier forum for international cooperation
on the most important aspects of the international economic and
financial agenda." As FinCEN has been building its case
for beneficial ownership identification, FATF has been revising its
"FATF Standards" in time for presentation to, and
adoption by, the most recent G20 meeting. These standards
include:
Customer due diligence, meaning the identification of customers
and verification of their identities; and
Beneficial ownership, meaning the identification of the
individual(s) who truly own or control legal persons or legal
arrangements (such as trusts) and verification of their
identities.
While FATF identifies several potential sources for beneficial
ownership information, FinCEN identifies and promotes only one
– financial institutions. In view of the G20's
declaration of support for the FATF standards, and the leading role
of the U.S. in establishing AML standards, obtaining
"beneficial ownership" information is coming to your
bank, broker or dealer, mutual fund, futures commission merchant,
introducing broker in commodities, and, thereafter, to MSBs
(including prepaid access providers), insurance companies, casinos,
dealers in precious metals, dealers in stones and jewels, non-bank
mortgage lenders or originators and any other entity eventually
defined as a "financial institution" by FinCEN.
On Friday, July 13, 2012, FinCEN noticed a public hearing for
July 31, 2012, at the Treasury Department.3 This is
apparently the first of "an intended series of public
hearings," but FinCEN will control the agenda and choose the
speakers. If your FI has an interest in this rule –
and all FIs should – now is the time to impact the scope
and application of the CDD beneficial ownership rule that is
currently under consideration.
Footnotes
1. Customer Due Diligence Requirements for Financial
Institutions. 77 Fed. Reg. 13046.
2. Compare Guidance on Obtaining and Retaining Beneficial
Ownership Information. FIN-2010-G001. There FinCEN
defined obtaining beneficial ownership information as necessary to
meet an FI's "comprehensive" CDD responsibilities,
particularly as to "high risk customers." FinCEN focused
on private banking and foreign correspondent accounts as examples
of high risk customers.
3. 77 Fed Reg. 41334 (July 13, 2012).
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
A senior SEC lawyer has recently encouraged the private equity and hedge fund communities to consider whether certain practices of private fund managers could subject these firms to SEC registration as broker-dealers.
In November 2012, the U.S. District Court for the Eastern District of New York preliminarily approved a settlement agreement in the In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation.
Federal bank regulatory agencies have served notice that deposit advance products will soon be subject to significant new restrictions and heightened supervisory scrutiny.
