Identifying Beneficial Owners Gaye DeCesare October 5, 2017
Identifying Beneficial OwnersGaye DeCesareOctober 5, 2017
DisclaimerThis program is designed to provide accurate and authoritative information. It is done with the express understanding that CU Service Network and its employees are not engaged in rendering legal advice. If legal advice is required, consult an attorney.
FinCEN Customer Due Diligence (CDD) Rule
•2 Main Provisions• Beneficial Ownership Requirements•Anti-money Laundering Programs
•Effective date – May 11, 2018
Fifth Pillar•CDD becomes 5th “pillar” of AML program• Internal Controls•AML Officer• Training • Independent Review•Customer Due Diligence
CDD Obligations• Identify and verify identity of “customers”• Identify and verify identity of “beneficial owners” of legal entity customers•Understand nature of customer relationship•Ongoing monitoring
Identify & Verify Customers•Already required as part of your CIP/MIP process• Individuals • Legal entities• Corporations, LLCs, partnerships,
other similar business entities
New Requirements under CDD• Identify beneficial owners of legal entity members•Verify identity of beneficial owners of legal entity members•Procedures for identifying and verifying beneficial owners•Recordkeeping•Record retention
Legal Entity Account
•Accounts owned by legal entities rather than natural person accounts• Includes• Corporation, LLC, general partnership, other
entity created by filing of public document •Does not include• Government agencies, sole proprietorships,
unincorporated associations, natural persons opening accounts on own behalf
Identify Beneficial Owners•Beneficial owner – 2 prongs•Ownership – Each individual who
owns 25% or more of the equity interests•Control – at least one person who
has significant managerial control• CEO, CFO, COO, General Partner,
President, VP, Treasurer
Identify Beneficial Owners
•Collect information from party opening account•Name•Address• Birthdate• SSN/other gov’t ID number
Identify Beneficial Owners
•Method of collecting information•Certification form – Appendix A of
final rule•Credit union’s forms•Any other means
•Verify identity of beneficial owners via CIP procedures
Written Procedures•How credit union will identify beneficial owners•How credit union will verify identity of beneficial owners•Make and maintain records of identification and verification information•Ongoing due diligence
Recordkeeping Requirements•Certification form•Any identification information
obtained, including certification form, if applicable•A description/copy of document used
to verify identity•Any non-documentary methods used•Measures taken to resolve information
discrepancies and results of those actions
Record Retention Requirements
• Identification records – 5 years after account is closed•Verification records – 5 years after the record is made
Customer Due Diligence•Objective of CDD• Predict kinds of transactions• Identify suspicious transactions
•CDD should address• Verifying identity of customer•Assessing risk with that customer• Enhanced due diligence for higher-risk
customers•Ongoing due diligence of customer
base
Customer Due Diligence•CDD guidelines should• Be commensurate with BSA/AML risk
assessment• Contain statement of management’s
expectations and establish staff responsibilities• Ensure credit union gets enough customer
info for suspicious activity monitoring• Document analysis of due diligence process• Ensure credit union maintains customer
information
Account Opening
EDDCDDCIP/MIP
Due Diligence For High Risk Members• Information at account opening AND
throughout account relationship• Purpose of account• Source of funds• Owners/signers/guarantors• Occupation/type of business• Proximity of account holder’s
residence/place of employment/place of business to CU• Anticipated volume of activity
•Monitoring accounts
High-Risk Businesses• Non-bank financial
institutions• Casinos,
securities/commodities firms, MSBs, insurance companies, precious metal dealers, pawnbrokers
• Professional service providers• Lawyers, accountants
investment brokers
• Nongovernmental organizations• Nonprofits
• Business entities• Corporations, trusts,
LLCs• Cash-intensive
businesses• Convenience
stores, restaurants, liquor stores, parking garages
CDD Basic Questions for Businesses•Who are owners?•What kind of business? What products/services?•Where are offices of business? How many offices?•What is source of funds?
CDD/EDD Questions for Businesses• What are banking
needs?• How many checks
per month?• What are cash
needs?• How often will
deposits/withdrawals be made?• What electronic
services will be used?
• Does business provide any of the following services?• Cash checks and/or
money orders• Issue monetary
instruments• Exchange currency• Serve as a money
transmitter• Internet gambling
transactions• Marijuana related
business
CDD Basic Questions for Individuals•High Risk Individuals•Nonresident aliens•Other foreign individuals
• Info about customer• Residency status•Country of origin• Type of documentary and/or
nondocumentary identification
CDD Monitoring
• Two key components• Keeping information up to date• Scrutinizing transactions
CDD Monitoring• Low risk• Regular suspicious activity
monitoring
•Higher risk•More frequent basis, more specific
examination
CDD Monitoring
•Manual monitoring•Currency Activity Reports• Funds Transfer Records•Monetary Instrument Records
•Automated account monitoring• Establish filtering criteria
CDD Monitoring•Determine when to review and/or “refresh” data•During trigger event – change to CU
policy, change in transaction patterns, change in business ownership• Higher risk – review on periodic cycle• How often to review? Risk based
Documents for Non-Natural Person ID Verification• Sole proprietor – Personal ID, fictitious
business name statement, DBA• Partnership – Partnership agreement•Corporation – Certificate of
incorporation, business license• LLC – Operating agreement•Nonprofit organization or club – bylaws,
charter• Formal trusts – trust documents
CDD Guidelines•CDD guidelines should• Be commensurate with BSA/AML risk
assessment• Contain statement of management’s
expectations and establish staff responsibilities• Ensure credit union gets enough customer
info for suspicious activity monitoring• Document analysis of due diligence
process• Ensure credit union maintains customer
information
CIP vs. CDD•What they have in common:• Explicit legal requirement•Must be addressed in written, board-
approved policy(ies)• Record retention 5 years
•Where they differ:•CIP not required for established
customer opening new account•CDD required every time a legal
entity opens an account
Beneficial Owners and Other AML Rules• Transaction aggregation for beneficial owners•Maybe
•OFAC• Yes
• Section 314(a) requirements•No
CDD & Beneficial Ownership Steps•Develop business owner certification form•Develop checklist/form for information gathering•Data processor• BSA software• Forms provider• Policy(ies) and Procedures
CDD & Beneficial Ownership Steps•Document procedures•Determine system adjustments• Train staff• Help them understand WHY they
are doing something• Critical aspect of combatting illegal
financial activity• Required by regulation and CU’s
policies
Speaker Information
Gaye DeCesareVP Compliance Services
• 274 Union Blvd, Ste 320• Lakewood, CO 80228• www.cusn.com