International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Friday, August 29, 2014

FinCEN Proposes New Customer ID Rules

UnknownAccording to a Treasury press release and ThinkAdvisor, "The Treasury Department’s Financial Crimes Enforcement Network (FinCEN), recently issued proposed rules under the Bank Secrecy Act to clarify and strengthen customer due diligence requirements — including anti-money laundering rules — for banks, brokers or dealers in securities, mutual funds, and futures commission merchants as well as introducing brokers in commodities."

"FinCEN’s proposed amendments to the Bank Secrecy Act for broker-dealers, banks and mutual funds would add a new requirement that these entities 'know and verify the identities of the real people (also known as beneficial owners) who own, control, and profit from the companies they service.'

Comments on that proposal are due Oct. 3."

"The proposed new regulation would require, when an account is opened, that banks and other financial institutions identify and verify the identity of the “real people behind the businesses who are their customers,” Cohen said. “While this may sound rather technical, it nonetheless is a critically important step forward in the fight against dirty money.”

Treasury says that the proposal will not only increase the ability of financial institutions, law enforcement and the intelligence community to identify the assets and accounts of terrorist organizations, money launderers, drug kingpins and other national security threats, but also facilitate reporting and investigations in support of tax compliance, and advance national commitments made to foreign counterparts in connection with the provisions of the Foreign Account Tax Compliance Act (FATCA)."

"As Fisher explains, in defining what constitutes a “beneficial owner,” each of the above mentioned financial institutions would have to identify:

  • Each individual who owns 25% or more of the equity interests in the juridical entity that is the customer of the covered financial institution; and
  • One individual who exercises significant managerial control over that customer

'If no individual owns 25% or more of the equity interests, the covered financial institution may identify a beneficial owner under the second prong only,' Fisher says. 'The same individual (or more than one) may be identified under both prongs.'"

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