On April 3, the Financial Crimes Enforcement Network (FinCEN) published a long-awaited update to Frequently Asked Questions Regarding the Customer Due Diligence Requirements for Financial Institutions. The questions are about Customer Due Diligence Requirements for Financial Institutions, published on May 11, 2016, as amended on September 29, 2017. FinCEN is labeling it the CDD Rule.
The CDD Rule requires financial institutions to identify and verify a legal entity’s “beneficial owners” when an accounts is opened. The CCD Rule’s mandatory compliance date is only a month away – May 11, 2018.
The significant change is for legal ownership of entities. The CDD Rule requires the identification of anyone who directly or indirectly owns more than 25% of the equity interest in the entity and at individuals who have managerial control of the entity. The new FAQ makes it clear that a financial institution can dig deeper than 25%.
For banks, the CDD process has to be run each time a new account is opened. Each time a loan is renewed or a certificate of deposit is rolled over, the bank is establishing another banking relationship and a new account is established. Covered financial institutions are required to obtain beneficial ownership information of a legal entity that opens a new account or renews a product, even if the legal entity is an existing customer. For financial services or products established before May 11, 2018, covered financial institutions must obtain certified beneficial ownership information of the legal entity customers of the new or renewed products.
The update also is prefaced with an opening caveat that:
covered financial institution with notice of or a reasonable suspicion that a customer is evading or attempting to evade beneficial ownership or other customer due diligence requirements should consider whether it should not open an account, close an account, or file a suspicious activity report, regardless of any interpretations below.
There are 37 new FAQs, and they cover many important points, as well as address major questions and concerns that have been looming since the Rule was first introduced. Reviewing the FAQs in depth can help financial institutions think about how they should amend AML procedures.