In May of 2016, the U.S. Department of the Treasury issued final rules under the Bank Secrecy act (BSA) to clarify and strengthen customer due diligence (CDD) requirements. As expected, with the new rule, financial institutions will be required to establish and maintain written procedures that incorporate the identification of beneficial owners of legal entity customers. This may sound like foreign language to most and for most business owners they just want to know how is this new rule going to affect me?
To try and make sense of this new regulation change, we will try and break it down for you so you can understand this regulation change and how it may affect your business going forward.
Key elements to the new rule will require financial institutions to do the following:
- Identify and Verify the identity of new customers
- Identify and Verify the identity of beneficial owners with 25% or more equity interest
- Identify and Verify the identity of individual with significant responsibility to control, manage, or direct the legal entity.
- Understand nature and purpose of the business relationship
- Conduct ongoing monitoring of businesses to maintain and update customer information and report suspicious activity.
As an existing business customer at a financial institution this rule is not retroactive, meaning you will need to provide your bank the required verification on a go forward basis to update your account file.
What information will you need to provide?
The new regulation requires legal entities to provide the name, address, date of birth and social security number (or passport number or other similar information, in the case of foreign persons) for the following individuals (the beneficial owners):
- Each individual, if any, who owns, directly or indirectly 25 percent or more of the equity interests of the legal entity customer and
- An individual with significant responsibility for managing the legal entity customer
Ultimately, this rule was established to help the American government fight financial crime and unfortunately in this day and age, we are seeing crime surface in many new ways. Legal entities can be abused to disguise involvement in terrorist financing, money laundering, tax evasion, corruption, fraud, and other financial crimes. By requiring the disclosure of key individuals who own, or control a legal entity, (ie. The beneficial owners) this helps law enforcement investigate and prosecute crimes. A small price to pay for legitimate business owners, don’t you think?
If you have further questions on how this change may affect you and your business, please contact a banker today or the entire ruling can be found here
Source of content: Bankers Toolbox “The New Rule on Customer Due Diligence.”
