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Fighting Crime by Changing Business Account Openings

Written by Emily Elbert, Sr. Bank Secrecy Act Specialist

Fighting financial corruption, such as money laundering and terrorist financing, is an ongoing, ever-changing battle that requires new regulations in the financial services industry. In 2016, the Financial Crimes Enforcement Network (FinCEN) issued a new Customer Due Diligence (CDD) rule for banks to help the government and law enforcement agencies fight financial crimes.

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This new rule comes into effect in May. As it affects many of our business clients, I thought I’d explain what’s involved and offer tips to help make the process easier and efficient.

CDD RULE EXPLAINED

As of May 1, 2018, each time a business or covered legal entity opens a new deposit, loan, brokerage, or investment management account, First Business will obtain certain identifying information from the beneficial owners of the legal entity.

The new rule defines a legal entity as a/n:

  • Corporation
  • Limited Liability Company
  • General Partnership
  • Entity created by filing documents with a Secretary of State or similar office.*

The rule also defines a beneficial owner as:

  • Any individual who owns, directly or indirectly, 25% or more equity interest in the legal entity (if a beneficial owner is another legal entity, you will be required to look through to that entity for any individuals who indirectly own 25% or more); AND
  • One person who has the authority to exercise significant control of the legal entity, such as an executive officer, senior manager, or treasurer.

For non-profit businesses, the beneficial owner is defined as only the one individual who has significant control over a non-profit legal entity.

Each time you open a new account or update an existing account, banks are required to ask for the following information identifying the beneficial owners:

  • Name
  • Address
  • Date of birth
  • Social Security number

Under the new rule, you will also certify that the information you provided is true and accurate to the best of your knowledge. We may also ask for additional information, such as a driver’s license, to verify the identities of these individuals.

BEST PRACTICES FOR OUR CLIENTS

Each time you open a new account or update an existing account, this rule requires us to ask you for this documentation and certify that the information is true and accurate to the best of your knowledge. We are aware this change might feel like more paperwork to you, but it’s important to conform to these new regulations. Prior to the CDD Rule, banks were not required to know the identity of beneficial owners that own or control legal entity clients. This new rule should help strengthen attempts to identify people using banks to launder money or to finance terrorist activity.

For the most efficient experience, we recommend:

  • Obtaining all current documentation listed above for each of the identified beneficial owners of your business.
  • Maintaining and updating these records on a regular basis if you open new accounts frequently.

If you have any questions or would like more information, please do not hesitate to contact us.

* A legal entity does not include sole proprietorships, unincorporated associations, U.S. publicly traded companies (American, NY, NASDAQ) and municipalities. Other exclusions may apply.

 

 

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