March 2, 2012 –
FinCEN seeks comments on proposed rule on how financial institutions collect account ownership info

The U.S. Treasury Department, through the Financial Crimes Enforcement Network (FinCEN), has just issued an Advance Notice of Proposed Rulemaking (ANPRM) through which FinCEN solicits comments in advance of its issuance of an express rule that will require by regulation that financial institutions perform specific customer due diligence (CDD), including the obligation to categorically obtain beneficial ownership information for all account holders, subject to some limited exceptions for lower risk customers.

In the ANPRM FinCEN expresses its concern that there is a lack of uniformity and consistency in the way various financial institutions address their CDD obligations and collect beneficial ownership information within and across industries.  The scope of the ANPRM includes all industries that have anti-money laundering (AML) compliance program requirements under FinCEN regulations.  At this time, FinCEN considers that the proposed rule would cover banks, broker-dealers in securities, mutual funds, future commission merchants and introducing brokers in commodities.  Nevertheless, FinCEN believes that such a CDD rule may be appropriate for all financial institutions subject to FinCEN regulations, and would likely consider extending the proposed rule to such other financial institutions in the future.

FinCEN believes that there is a need for a broad definition of the term “beneficial ownership,” together with an obligation to verify the beneficial owner’s identity pursuant to a risk-based approach (that can be applied across lines of business and customer categories).  In particular, regarding legal entities, FinCEN is considering that beneficial ownership information would include:

(a)  each of the individual(s) who, indirectly or indirectly, through any contract, arrangement, understanding, relationship, intermediary, tiered entity, or otherwise, owns more than 25 percent of the equity interests in the entity; or

(b) if there is no individual who satisfies (a), then the individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, intermediary, tiered entity, or otherwise, has at least as great an equity interest in the entity as any other individual, and

(2) the individual with greater responsibility than any other individual for managing or directing the regular affairs of the entity.

FinCEN would include in the proposed rule an express obligation requiring financial institutions to understand the nature and purpose of the account or customer relationship as an element of a CDD program.

The proposed rule would apply to all new customers.  With respect to existing customers, FinCEN is seeking comment on how a beneficial ownership identification requirement could be phased into an ongoing CDD.

FinCEN is seeking general comments about such a proposed rule.  Furthermore, to better understand the current types of CDD information collected by financial institutions (specifically in relation to beneficial ownership) and to under what circumstances it is collected, FinCEN sets out in the ANPRM a list of the (10) questions on which it seeks response.

Interestingly, FinCEN states in the ANPRM that requiring U.S. financial institutions to obtain ultimate beneficial ownership information would put the U.S. in a better position to work with foreign governments to combat offshore tax evasion and other financial crimes.

Written comments on this AMPRM must be received by FinCEN on or before sixty (60) days from the date of publication of the ANPRM in the Federal Register.  Comments may be submitted (identified by regulatory identification number 1506-AB15, either through FinCEN’s Internet portal http://trk.cp20.com/Tracking/t.c?Qpus-RHjo-14EM3v1 or by mail to P.O. Box 39, Vienna, Virginia 22183.

Read a complete copy of the ANPRM.