Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions

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FIN-2018-G001

Issued:

April 3, 2018

Subject: Frequently Asked Questions Regarding Customer Due Diligence

Requirements for Financial Institutions

The Financial Crimes Enforcement Network (FinCEN) is issuing these Frequently

Asked Questions to assist covered financial institutions in understanding the

scope of the Customer Due Diligence Requirements for Financial Institutions,

published on May 11, 2016, as amended on September 29, 2017 (“CDD Rule”

or “Rule”), available at https://www.fincen.gov/resources/statutes-regulations/

federal-register-notices/customer-due-diligence-requirements. On July19, 2016,

FinCEN published FAQs, available at https://www.fincen.gov/resources/statutes-

regulations/guidance/frequently-asked-questions-regarding-customer-due-

diligence. FinCEN may issue additional FAQs, guidance, or grant exceptive relief

as appropriate.

A covered financial institution with notice of or a reasonable suspicion that

a customer is evading or attempting to evade beneficial ownership or other

customer due diligence requirements should consider whether it should not open

an account, close an account, or file a suspicious activity report, regardless of any

interpretations below.

Frequently Asked Questions (FAQs)

Question 1: Beneficial ownership threshold

Can a covered financial institution adopt and implement more stringent written

internal policies and procedures for the collection of beneficial ownership

information than the obligations prescribed by the Beneficial Ownership

Requirements for Legal Entity Customers (31 CFR 1010.230)?

A. Yes. Covered financial institutions may choose to implement stricter written

internal policies and procedures for the collection and verification of beneficial

ownership information than the requirements prescribed by the Rule.

lection of beneficial ownership

information than the obligations prescribed by the Beneficial Ownership

Requirements for Legal Entity Customers (31 CFR 1010.230)?

A. Yes. Covered financial institutions may choose to implement stricter written

internal policies and procedures for the collection and verification of beneficial

ownership information than the requirements prescribed by the Rule.

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Question 2: Interaction of the beneficial ownership threshold with

other AML program obligations

Are there circumstances where covered financial institutions should consider

collecting beneficial ownership information at a lower equity interest threshold

under the anti-money laundering (AML) program rules with regard to certain

customers?

A. There may be circumstances where a financial institution may determine that

collection and verification of beneficial ownership information at a lower threshold

may be warranted, based on the financial institution’s own assessment of its risk

relating to its customer.

Transparency in beneficial ownership, however, is only one aspect of a covered

financial institution’s customer due diligence obligations. A financial institution

may reasonably conclude that collecting beneficial ownership information at a

lower equity interest than 25 percent would not help mitigate the specific risk

posed by the customer or provide information useful to the financial institution

in analyzing the risk. Rather, any additional heightened risk could be mitigated

by other reasonable means, such as enhanced monitoring or collecting other

information, including expected account activity, in connection with the particular

legal entity customer.

In all cases, however, it is important that covered financial institutions establish

and maintain written procedures that are reasonably designed to identify and

verify the identity of beneficial owners of legal entity customers and to include

such procedures in their AML compliance program.1

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n, including expected account activity, in connection with the particular

legal entity customer.

In all cases, however, it is important that covered financial institutions establish

and maintain written procedures that are reasonably designed to identify and

verify the identity of beneficial owners of legal entity customers and to include

such procedures in their AML compliance program.1

1.

See 31 U.S.C. § 5318(h); 31 CFR 1010.230(a).

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Question 3: Collection of beneficial ownership information for

direct and indirect owners: Legal entity customers with complex

ownership structures

When a legal entity is identified as owning 25 percent or more of a legal entity

customer that is opening an account, is it necessary for a covered financial

institution to request beneficial ownership information on the legal entity

identified as an owner?

A. Under the Rule’s beneficial ownership identification requirement, a covered

institution must collect, from its legal entity customers, information about any

individual(s) that are the beneficial owner(s) (unless the entity is excluded or the

account is exempted). Therefore, covered financial institutions must obtain from

their legal entity customers the identities of individuals who satisfy the definition,

either directly or indirectly through multiple corporate structures, as illustrated in

the following example.

For purposes of the Rule, Allan is a beneficial owner of Customer because he

owns indirectly 30 percent of its equity interests through his direct ownership

of Company A. Betty is also a beneficial owner of Customer because she owns

indirectly 20 percent of its equity interests through her direct ownership of

Company A plus 16⅔ percent through Company B for a total of indirect ownership

interest of 36⅔ percent. Neither Carl nor Diane is a beneficial owner because each

owns indirectly only 16⅔ percent of Customer’s equity interests through their

direct ownership of Company B

beneficial owner of Customer because she owns

indirectly 20 percent of its equity interests through her direct ownership of

Company A plus 16⅔ percent through Company B for a total of indirect ownership

interest of 36⅔ percent. Neither Carl nor Diane is a beneficial owner because each

owns indirectly only 16⅔ percent of Customer’s equity interests through their

direct ownership of Company B.

Customer

Company A

owns 50%

Allan owns

60%

Betty owns

40%

Company B

owns 50%

Betty owns

33⅓%

Carl owns

33⅓%

Diane owns

33⅓%

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Question 4: Identification and Verification: Methods of verifying

beneficial ownership information

What means of identity verification are sufficient to reliably confirm beneficial

ownership under the CDD Rule?

A. Covered financial institutions must verify the identity of each beneficial owner

according to risk-based procedures that contain, at a minimum, the same

elements financial institutions are required to use to verify the identity of

individual customers under applicable Customer Identification Program (“CIP”)

requirements. This includes the requirement to address situations in which the

financial institution cannot form a reasonable belief that it knows the true identity

of the legal entity customer’s beneficial owners.2

2.

Under the CIP rules, a financial institution’s CIP must include procedures for responding to

circumstances in which the financial institution cannot form a reasonable belief that it knows the true

identity of a customer. These procedures should describe: (1) when the institution should not open

an account; (2) the terms under which a customer may use an account while the institution attempts

to verify the customer’s identity; (3) when it should close an account, after attempts to verify a

customer’s identity have failed; and (4) when it should file a Suspicious Activity Report in accordance

with applicable laws and regulations. See, e.g., 31 CFR 1020.220(a)(2)(iii)

n should not open

an account; (2) the terms under which a customer may use an account while the institution attempts

to verify the customer’s identity; (3) when it should close an account, after attempts to verify a

customer’s identity have failed; and (4) when it should file a Suspicious Activity Report in accordance

with applicable laws and regulations. See, e.g., 31 CFR 1020.220(a)(2)(iii).

Although the CDD Rule’s

beneficial ownership verification procedures must contain the same elements

as existing CIP procedures, they are not required to be identical to them.3

3.

See 31 CFR 1020.220(a)(2); 31 CFR 1023.220(a)(2); 31 CFR 1024.220(a)(2); or 31 CFR 1026.220(a)(2).

For

example, a covered financial institution’s policies and procedures may state that

the institution will accept photocopies of a driver’s license from the legal entity

customer to verify the beneficial owner(s)’ identity if the beneficial owner is not

present, which is not permissible in the CIP rules. (See Question 6.)

A financial institution’s CIP must contain procedures for verifying customer

identification, including describing when the institution will use documentary,

non-documentary, or a combination of both methods for identity verification.4

4.

See 31 CFR 1020.220 (a)(2)(ii).

Covered financial institutions may use the same methods to verify the identity

of the beneficial owner of a legal entity customer. In addition, in contrast to the

CIP rule, the CDD Rule expressly authorizes covered financial institutions to use

photocopies or other reproduction documents for documentary verification.5

5.

See 31 CFR 1010.230(b)(2).

ation.4

4.

See 31 CFR 1020.220 (a)(2)(ii).

Covered financial institutions may use the same methods to verify the identity

of the beneficial owner of a legal entity customer. In addition, in contrast to the

CIP rule, the CDD Rule expressly authorizes covered financial institutions to use

photocopies or other reproduction documents for documentary verification.5

5.

See 31 CFR 1010.230(b)(2).

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6.

See 31 CFR 1020.220 (a)(2)(ii)(A).

Non-documentary

methods of verification may include contacting a beneficial owner; independently

verifying the beneficial owner’s identity through the comparison of information

provided by the legal entity customer (or the beneficial owner, as appropriate)

with information obtained from other sources; checking references with other

financial institutions; and obtaining a financial statement.7

7.

See 31 CFR 1020.220 (a)(2)(ii)(B).

Question 5: Collection of beneficial ownership information:

Required addresses

What address should be obtained for a legal entity customer’s beneficial owner(s)

to comply with the certification requirement – residential or business?

A. The address requirements for certification under the CDD Rule are the same

as those outlined in the CIP rule. For an individual beneficial owner, covered

financial institutions must obtain either a residential or a business street address.

If neither is available, acceptable substitutes may include an Army Post Office

(APO) or Fleet Post Office (FPO) box number, or the residential or business street

address of next of kin or of another contact individual.8

8.

See 31 CFR 1020.220(a)(2)(i)(3); 31 CFR 1023.220(a)(2)(i)(3); 31 CFR 1024.220(a)(2(i)(3)); 31 CFR

1026.220(a)(2)(i)(3)

either a residential or a business street address.

If neither is available, acceptable substitutes may include an Army Post Office

(APO) or Fleet Post Office (FPO) box number, or the residential or business street

address of next of kin or of another contact individual.8

8.

See 31 CFR 1020.220(a)(2)(i)(3); 31 CFR 1023.220(a)(2)(i)(3); 31 CFR 1024.220(a)(2(i)(3)); 31 CFR

1026.220(a)(2)(i)(3).

Question 6: Identification and verification: Legal entity customer

representative

What process should a covered financial institution use to identify and verify the

identity of a beneficial owner of a legal entity customer when the beneficial owner

is unavailable to appear in person during the opening of a new account and chooses

to provide to the legal entity’s representative a copy of a driver’s license?

A. A covered financial institution may identify the beneficial owner(s) of a legal

entity customer either by obtaining a completed Certification Form or equivalent

information from the legal entity customer’s representative and may rely on such

information, provided that it has no knowledge of facts that would reasonably call

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into question the reliability of such information.9

9.

See 31 CFR 1010.230(b)(1).

Furthermore, covered financial

institutions may verify the identity of a beneficial owner who does not appear in

person, through a photocopy or other reproduction of a valid identity document,

or by non-documentary means described in response to Question 4 above

d reasonably call

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into question the reliability of such information.9

9.

See 31 CFR 1010.230(b)(1).

Furthermore, covered financial

institutions may verify the identity of a beneficial owner who does not appear in

person, through a photocopy or other reproduction of a valid identity document,

or by non-documentary means described in response to Question 4 above.

Question 7: Identification and verification: Existing customers as

beneficial owners of new legal entity customer accounts

If an individual named as a beneficial owner of a new legal entity account is

an existing customer of the covered financial institution subject to the financial

institution’s CIP, is a covered financial institution still required to identify and

verify the identity of this individual, or may it rely on the CIP identification and

verification of the individual that it previously performed?

A. In general, covered financial institutions must identify and verify the identity of

the beneficial owner(s) of legal entity customers at the time each new account is

opened. However, if the individual identified as the beneficial owner is an existing

customer of the financial institution and is subject to the financial institution’s

CIP, a financial institution may rely on information in its possession to fulfill the

identification and verification requirements, provided the existing information

is up-to-date, accurate, and the legal entity customer’s representative certifies or

confirms (verbally or in writing) the accuracy of the pre-existing CIP information.

For example, a representative of X Corp opens a new account for the company at a

covered financial institution and identifies John Doe, who has a personal account

at the institution, as a 25 percent equity owner of X Corp. As required under the

CIP rule, the institution identified and verified John Doe’s identity at the time the

personal account was established

e-existing CIP information.

For example, a representative of X Corp opens a new account for the company at a

covered financial institution and identifies John Doe, who has a personal account

at the institution, as a 25 percent equity owner of X Corp. As required under the

CIP rule, the institution identified and verified John Doe’s identity at the time the

personal account was established. In this situation, a covered financial institution

may rely on the pre-existing CIP identification and verification information it

maintains for John Doe, provided that X Corp’s representative certifies or confirms

(verbally or in writing) the accuracy of the pre-existing information on John Doe

in order to comply with the Rule. The covered financial institution’s records of

beneficial ownership for the new account could cross-reference the relevant CIP

records and the verification of information would not need to be repeated.

Question 8: Location of Certification Form or Appendix A to the

final rule

Are covered financial institutions required to use the beneficial ownership Certification

Form (Appendix A to the Rule) and if so, how can they obtain a copy of the Form?

F I N C E N G U I D A N C E

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A. There is no requirement that covered financial institutions use the Certification

Form. Rather, the form is optional and provided for the convenience of covered

financial institutions as one possible method to obtain the required beneficial

ownership information. Financial institutions may choose to comply with

the requirements of the Rule by using another method, such as through the

institutions’ own forms, or any other means that comply with the substantive

requirements of this obligation. Covered financial institutions should retain the

form and not file it with FinCEN.

Covered financial institutions may obtain a fillable and non-fillable copy of the

optional Certification Form in Appendix A of the CDD Rule at

https://www.fincen.gov/resources/filing-information

the

institutions’ own forms, or any other means that comply with the substantive

requirements of this obligation. Covered financial institutions should retain the

form and not file it with FinCEN.

Covered financial institutions may obtain a fillable and non-fillable copy of the

optional Certification Form in Appendix A of the CDD Rule at

https://www.fincen.gov/resources/filing-information.

Question 9: Retention of beneficial ownership information: Multiple

sets of beneficial ownership certification documents

If a covered financial institution has updated the beneficial ownership information

on the account(s) of a legal entity customer, and subsequently a new account is

opened on behalf of the same legal entity customer, is the institution required to

retain all sets of beneficial ownership documentation, thereby retaining up to three

sets of information: the original set collected at account opening, the updated set,

and a third, a duplicate of the second (updated) set for the new account?

A. Yes. Covered financial institutions are required to retain all beneficial ownership

information collected about a legal entity customer. Identifying information,

including the Certification Form or its equivalent, must be maintained for a period

of five years after the legal entity’s account is closed.10

10. See 31 CFR 1010.230(i)(2).

However, all verification

records must be retained for a period of five years after the record is made.11

11. Id.

Therefore, whether a financial institution must retain a set of identification or

verification records is dependent upon the date an account is opened and closed,

or the date a record is made

five years after the legal entity’s account is closed.10

10. See 31 CFR 1010.230(i)(2).

However, all verification

records must be retained for a period of five years after the record is made.11

11. Id.

Therefore, whether a financial institution must retain a set of identification or

verification records is dependent upon the date an account is opened and closed,

or the date a record is made. For example, if a covered financial institution relies

on pre-existing beneficial ownership information in its possession as true and

accurate identification information when opening a new account for a legal entity

customer, the financial institution should maintain the original records, and any

updated information, including a record of any verbal or written confirmation

of pre-existing information (for example, as described in Questions 7 and 10),

until five years after the closing of the new account in order to comply with the

recordkeeping requirements in the regulation. Covered financial institutions must

also retain a description of every document relied on for verification, any non-

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documentary methods and results of measures undertaken for verification, as well

as the resolution of any substantive discrepancies discovered in identifying and

verifying the identification information for five years after the record is made.

Question 10: Identification and verification: Certification when a

single legal entity customer opens multiple accounts

If a legal entity customer opens multiple accounts at a covered financial institution

(whether or not simultaneously), must the financial institution identify and verify

the customer’s beneficial ownership for each account?

A. Generally, covered financial institutions must identify and verify the legal entity

customer’s beneficial ownership information for each new account opening,

regardless of the number of accounts opened or over a specific period of time

nancial institution

(whether or not simultaneously), must the financial institution identify and verify

the customer’s beneficial ownership for each account?

A. Generally, covered financial institutions must identify and verify the legal entity

customer’s beneficial ownership information for each new account opening,

regardless of the number of accounts opened or over a specific period of time.

However, an institution that has already obtained a Certification Form (or its

equivalent) for the beneficial owner(s) of the legal entity customer may rely on

that information to fulfill the beneficial ownership requirement for subsequent

accounts, provided the customer certifies or confirms (verbally or in writing) that

such information is up-to-date and accurate at the time each subsequent account

is opened and the financial institution has no knowledge of facts that would

reasonably call into question the reliability of such information. The institution

would also need to maintain a record of such certification or confirmation,

including for both verbal and written confirmations by the customer.

Question 11: Identification and verification: Accounts for internal

recordkeeping or operational purposes

FinCEN understands that after a covered financial institution (particularly in the

securities and futures industries) opens a new account for a legal entity customer

and identifies its beneficial ownership, the financial institution may subsequently

open one or more additional accounts or subaccounts for that customer – for the

institution’s own recordkeeping or operational purposes and not at the customer’s

specific request – so that the customer may, for example invest in particular products

or implement particular trading strategies. Would such accounts fall within the

definition of “new accounts” for purposes of the beneficial ownership requirement?

A

dditional accounts or subaccounts for that customer – for the

institution’s own recordkeeping or operational purposes and not at the customer’s

specific request – so that the customer may, for example invest in particular products

or implement particular trading strategies. Would such accounts fall within the

definition of “new accounts” for purposes of the beneficial ownership requirement?

A. The beneficial ownership requirement applies to a “new account,” which is

defined to mean “each account opened … by a legal entity customer”12

12. See 31 CFR 1010.230(g). In addition, the term “account” is defined by reference to the definition in

the CIP rules. 31 CFR 1010.230(c).

[emphasis

added]. An account (or subaccount) relating to a legal entity customer will

not be considered a “new account” or an “account” for purposes of the Rule

when a financial institution creates such an account (or subaccount) for its own

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administrative or operational purposes and not at the customer’s request—such

as to accommodate a specific trading strategy—and the financial institution has

already collected beneficial ownership information on such legal entity customer.

The distinction between such accounts opened by customers and those opened

solely by the financial institution is consistent with the Rule’s purpose to mitigate

the risks related to the obfuscation of beneficial ownership when a legal entity tries

to access the financial system through the opening of a new account.13

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collected beneficial ownership information on such legal entity customer.

The distinction between such accounts opened by customers and those opened

solely by the financial institution is consistent with the Rule’s purpose to mitigate

the risks related to the obfuscation of beneficial ownership when a legal entity tries

to access the financial system through the opening of a new account.13

13. See 68 FR at 25093 (The preamble to the CIP rules provides that “Treasury and the Agencies note

that the [USA PATRIOT] Act provides that the regulations shall require reasonable procedures for

‘verifying the identity of any person seeking to open an account.’ Because these transfers are not

initiated by customers, these accounts do not fall within the scope of section 326.”)

This interpretation is limited to accounts (or subaccounts) created solely to

accommodate the business of an existing legal entity customer that has previously

identified its beneficial ownership. Thus, the following accounts (or subaccounts)

would not fall within this interpretation:

o accounts (or subaccounts) created to accommodate a trading strategy being

carried out by a separate legal entity, including a subsidiary of the existing legal

entity customer; and,

o accounts (or subaccounts) through which the customer of a financial

institution’s existing legal entity customer carries out trading activity directly

through the financial institution without intermediation from the existing legal

entity customer.

Question 12: Collection of beneficial ownership information:

Product or service renewals

Are financial institutions required to have their legal entity customers certify the

beneficial owners for existing customers during the course of a financial product

renewal (e.g., a loan renewal or certificate of deposit)?

A. Yes. Consistent with the definition of “account” in the CIP rules and subsequent

interagency guidance,14

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eficial ownership information:

Product or service renewals

Are financial institutions required to have their legal entity customers certify the

beneficial owners for existing customers during the course of a financial product

renewal (e.g., a loan renewal or certificate of deposit)?

A. Yes. Consistent with the definition of “account” in the CIP rules and subsequent

interagency guidance,14

14. See “Interagency Interpretive Guidance on Customer Identification Program Requirements under

Section 326 of the USA PATRIOT Act, FAQs: Final CIP Rule,” p. 8 (April 28, 2005).

each time a loan is renewed or a certificate of deposit

is rolled over, the bank establishes another formal banking relationship and

a new account is established. Covered financial institutions are required to

obtain information on the beneficial owners of a legal entity that opens a new

account, meaning (in the case of a bank) for each new formal banking relationship

established, even if the legal entity is an existing customer. For financial services

or products established before May 11, 2018, covered financial institutions must

obtain certified beneficial ownership information of the legal entity customers of

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such products and services at the time of the first renewal following that date. At

the time of each subsequent renewal, to the extent that the legal entity customer

and the financial service or product (e.g., loan or CD) remains the same, the

customer certifies or confirms that the beneficial ownership information previously

obtained is accurate and up-to-date, and the institution has no knowledge of

facts that would reasonably call into question the reliability of the information,

the financial institution would not be required to collect the beneficial ownership

information again

product (e.g., loan or CD) remains the same, the

customer certifies or confirms that the beneficial ownership information previously

obtained is accurate and up-to-date, and the institution has no knowledge of

facts that would reasonably call into question the reliability of the information,

the financial institution would not be required to collect the beneficial ownership

information again. In the case of a loan renewal or CD rollover, because we

understand that these products are not generally treated as new accounts by the

industry and the risk of money laundering is very low, if at the time the customer

certifies its beneficial ownership information, it also agrees to notify the financial

institution of any change in such information, such agreement can be considered

the certification or confirmation from the customer and should be documented and

maintained as such, so long as the loan or CD is outstanding.

Question 13: Collection of beneficial ownership information:

Existing accounts

Are covered financial institutions required to collect or update beneficial ownership

information on customers with accounts opened prior to May 11, 2018, the Rule’s

applicability date?

A. Financial institutions are not required to conduct retroactive reviews to obtain

beneficial ownership information from customers with accounts opened prior to

May 11, 2018. The obligation to obtain or update beneficial ownership information

on legal entity customers with accounts established before May 11, 2018, is

triggered when a financial institution becomes aware of information about

the customer during the course of normal monitoring relevant to assessing or

reassessing the risk posed by the customer, and such information indicates a

possible change of beneficial ownership.15

15. See 81 FR at 29421

ownership information

on legal entity customers with accounts established before May 11, 2018, is

triggered when a financial institution becomes aware of information about

the customer during the course of normal monitoring relevant to assessing or

reassessing the risk posed by the customer, and such information indicates a

possible change of beneficial ownership.15

15. See 81 FR at 29421.

Question 14: Obligation to solicit or update beneficial ownership

information absent specific risk-based concerns

Are covered financial institutions required to obtain or update beneficial ownership

information during routine periodic reviews of existing accounts, absent risk-

based concerns; that is, are such reviews a trigger for the application of the Rule’s

beneficial ownership requirements?

A. No. Covered financial institutions do not have an obligation to solicit or update

beneficial ownership information as a matter of course during regular or periodic

reviews, absent specific risk-based concerns. Financial institutions are required to

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develop and implement risk-based procedures for conducting ongoing customer

due diligence, including regular monitoring to identify and report suspicious

activity and, on a risk basis, to maintain and update customer information. Thus,

periodic reviews are not by themselves a trigger to obtain or update beneficial

ownership information. As stated in response to Questions 13 and 16, the

obligation to obtain or update information is triggered when, in the course of

normal monitoring, a financial institution becomes aware of information about

a customer or an account, including a possible change of beneficial ownership

information, relevant to assessing or reassessing the customer’s overall risk profile.

Absent such a risk-related trigger or event, collecting or updating of beneficial

ownership information is at the discretion of the covered financial institution

onitoring, a financial institution becomes aware of information about

a customer or an account, including a possible change of beneficial ownership

information, relevant to assessing or reassessing the customer’s overall risk profile.

Absent such a risk-related trigger or event, collecting or updating of beneficial

ownership information is at the discretion of the covered financial institution.

Financial institutions may exercise this discretion to collect or update beneficial

ownership information on customers as often as they deem appropriate.

Question 15: Processes for monitoring and updating customer

information

Are covered financial institutions required to implement different processes than

currently established to comply with the Rule’s ongoing monitoring and updating

requirement?

A. To the extent that a covered financial institution has monitoring processes in

place that allow the institution to meet the Rule’s requirements, such institution

may use its existing monitoring processes to comply with customer due diligence

monitoring and updating obligations. As the preamble to the Rule states, “current

industry practice to comply with existing expectations for SAR reporting should

already satisfy this proposed requirement.”16

16. 81 FR 29420.

Question 16: Updating beneficial ownership information

If an update to beneficial ownership information is required, can the change(s) be

made in a covered financial institution’s databases without physically obtaining

and re-certifying the information?

A. It depends. A covered financial institution must develop written internal

policies, procedures, and internal controls with respect to collecting,

maintaining, and updating a legal entity’s beneficial ownership information.

The Rule requires that covered financial institutions monitor and, on a risk-

basis, update the customer information, including the beneficial ownership

information, and does not require re-certification when the information is up-

itten internal

policies, procedures, and internal controls with respect to collecting,

maintaining, and updating a legal entity’s beneficial ownership information.

The Rule requires that covered financial institutions monitor and, on a risk-

basis, update the customer information, including the beneficial ownership

information, and does not require re-certification when the information is up-

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to-date and accurate.17

17. See e.g., 31 CFR 1020.210(b)(5)(ii) (for banks); 1023.210(b)(5)(ii) (for brokers or dealers in securities),

1024.210 (b)(5)(ii) (for mutual funds), 1026.210(b)(5)(ii) (for futures commission merchants and

introducing brokers in commodities).

Covered financial institutions may therefore update their

records to reflect a change of information for an existing beneficial owner using

the same or similar processes the institution implemented to record account

information it obtains from customers in connection with the institution’s account

opening processes. For example, if the update were only to a change of address

for an existing beneficial owner whose identity information has already been

collected and verified, then full re-certification would likely not be required. In

this circumstance, it may be reasonable for the covered financial institution to

communicate verbally with the legal entity customer to confirm the accuracy of

the change of address and reflect such information in its databases. If, however,

the updated information were a change of beneficial ownership, then the new

beneficial owner’s identity would need to be collected, certified, and verified.

Question 17: Beneficial ownership information: Identifying and

verifying at account opening compared to updating after a risk-

related trigger

Does FinCEN distinguish between the requirements for identifying and verifying

beneficial owner information at the time of a new account opening and at the time

of a triggering event?

A. No

ntity would need to be collected, certified, and verified.

Question 17: Beneficial ownership information: Identifying and

verifying at account opening compared to updating after a risk-

related trigger

Does FinCEN distinguish between the requirements for identifying and verifying

beneficial owner information at the time of a new account opening and at the time

of a triggering event?

A. No. Whether a covered financial institution identifies and verifies the identity

of the beneficial owner at the time a legal entity initially opens a new account or

at the time of a triggering event, the fundamental elements of identification and

verification are the same. That is, covered financial institutions must identify each

beneficial owner by obtaining their name, date of birth, address, and identifying

number (such as a social security number or other identifying number permissible

under the CIP rule), and verify their identities. However, financial institutions’

written policies, procedures, and processes, as well as the sum of information,

may differ with respect to the collection of information at the time a legal entity

customer initially opens a new account or at the time an existing account is

updated after a triggering event.

On or after May 11, 2018, when a legal entity customer initially opens a new

account or an existing account is updated to incorporate beneficial ownership

information for the first time in response to a triggering event, covered financial

institutions must identify and verify the identity of beneficial owners as set forth

in section 1010.230(b).

ount is

updated after a triggering event.

On or after May 11, 2018, when a legal entity customer initially opens a new

account or an existing account is updated to incorporate beneficial ownership

information for the first time in response to a triggering event, covered financial

institutions must identify and verify the identity of beneficial owners as set forth

in section 1010.230(b).

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Question 18: Collection of beneficial ownership information: Pooled

Investment Vehicles whose operators or advisers are not excluded

from the definition of legal entity customer

Are covered financial institutions required to identify and verify the identity of

the beneficial owners that own 25 percent or more of the ownership interests of a

pooled investment vehicle whose operators or advisers are not excluded from the

definition of legal entity customer?

A. No. Although the Rule requires covered financial institutions to collect and

verify the identity of beneficial owners who own 25 percent or more of the equity

interests of a legal entity customer, in general, institutions are not required to

look through a pooled investment vehicle to identify and verify the identity of

any individuals who own 25 percent or more of its equity interests. Because of

the way in which ownership of a pooled investment vehicle fluctuates, it would

be impractical for covered financial institutions to collect and verify ownership

identity for this type of entity. Therefore, there is no requirement that the financial

institution should request the customer to look through the pooled investment

vehicle to determine and report any individual’s equity interest

of

the way in which ownership of a pooled investment vehicle fluctuates, it would

be impractical for covered financial institutions to collect and verify ownership

identity for this type of entity. Therefore, there is no requirement that the financial

institution should request the customer to look through the pooled investment

vehicle to determine and report any individual’s equity interest. However,

covered financial institutions must collect beneficial ownership information for

the pooled investment vehicle under the control prong to comply with the Rule

(i.e., an individual with significant responsibility to control, manage, or direct

the vehicle; such individuals could be, e.g., a portfolio manager, commodity pool

operator, commodity trading advisor, or general partner of the vehicle).18

18. In cases where such manager, operator or advisor is itself an entity, then it would be necessary to

identify an individual with responsibility to control, manage or direct the manager, operator, advisor

or general partner. See 31 CFR 1010.230(e)(3)(i), 81 FR at 29415.

Question 19: Collection of beneficial ownership information: Trusts

with multiple trustees

When 25 percent or more of the equity interests of a legal entity customer are

owned by a trust that is overseen by co-trustees (multiple trustees), are covered

financial institutions required to identify and verify the identity of all co-trustees?

partner. See 31 CFR 1010.230(e)(3)(i), 81 FR at 29415.

Question 19: Collection of beneficial ownership information: Trusts

with multiple trustees

When 25 percent or more of the equity interests of a legal entity customer are

owned by a trust that is overseen by co-trustees (multiple trustees), are covered

financial institutions required to identify and verify the identity of all co-trustees?

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A. No. If a trust owns directly or indirectly, through any contract, arrangement,

understanding, relationship or otherwise, 25 percent or more of the equity

interests of a legal entity customer, the beneficial owner under the ownership/

equity prong is the trustee. Where there are multiple trustees or co-trustees,

financial institutions are expected to collect and verify the identity of, at a

minimum, one co-trustee of a multi-trustee trust who owns 25 percent or more of

the equity interests of a legal entity customer that is not subject to an exclusion. A

covered financial institution may choose to identify additional co-trustees as part

of its customer due diligence, based on its risk assessment and the customer risk

profile and in accordance with the institution’s account opening procedures.

Question 20: Collection of beneficial ownership information: Trustee

entity as a beneficial owner

If a legal entity is the trustee (e.g., law firm, bank trust department, etc.) of a trust

that owns 25 percent or more of the equity interests of a legal entity customer, can

that entity be identified as a beneficial owner under the ownership/equity prong or

does a natural person need to be so identified?

A. If a trust owns directly or indirectly, through any contract, arrangement,

understanding, relationship, or otherwise, 25 percent or more of the equity

interests of a legal entity customer, the beneficial owner for purposes of the

ownership/equity prong is the trustee, regardless of whether the trustee is a

natural person or a legal entity.19

19. See 31 CFR 1010.230(d)(3)

be so identified?

A. If a trust owns directly or indirectly, through any contract, arrangement,

understanding, relationship, or otherwise, 25 percent or more of the equity

interests of a legal entity customer, the beneficial owner for purposes of the

ownership/equity prong is the trustee, regardless of whether the trustee is a

natural person or a legal entity.19

19. See 31 CFR 1010.230(d)(3).

In circumstances where a natural person does

not exist for purposes of the ownership/equity prong, a natural person would

not be identified. However, a covered institution should collect identification

information on the legal entity trustee as part of its CIP, consistent with the

covered institution’s risk assessment and the customer risk profile. In addition

to the ownership/equity prong, covered financial institutions are also required to

identify and verify a natural person as the beneficial owner of the legal entity

customer under the control prong to comply with the Rule.20

20. See 31 CFR 1010.230(d)(2).

The ownership/equity and control prongs, although related, are independent

requirements. Thus, satisfaction of, or exclusion from, regulatory obligations

under one prong does not mean a covered financial institution’s obligations under

the other prong are also satisfied or excluded.

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Question 21: Verification of claims of exclusion from the definition

of “legal entity customer”

What methods should covered financial institutions use to verify eligibility for

exclusion from the definition of a “legal entity customer”?

A. Several types of legal entity customers are excluded from the collection and

verification requirements of the Rule, under section 1010.230(e)(2), because, for

example, their regulators require the reporting of beneficial ownership information

or such information is publicly available

ncial institutions use to verify eligibility for

exclusion from the definition of a “legal entity customer”?

A. Several types of legal entity customers are excluded from the collection and

verification requirements of the Rule, under section 1010.230(e)(2), because, for

example, their regulators require the reporting of beneficial ownership information

or such information is publicly available. A financial institution may rely on

information provided by the legal entity customer to determine whether the legal

entity is excluded from the definition of a legal entity customer, provided that it

has no knowledge of facts that would reasonably call into question the reliability

of such information. Whether a financial institution has such knowledge would

depend on the facts and circumstances at the time an account is opened. Covered

financial institutions must establish and maintain written risk-based procedures

reasonably designed to identify and verify the identity of the beneficial owners of all

legal entity customers at the time a new account is opened, unless the customer is

otherwise excluded from the definition of legal entity customer. Covered financial

institutions are expected to address and specify, in their risk-based written policies

and procedures, the type of information they will obtain and reasonably rely upon

to determine eligibility for exclusions.

Question 22: Definition of legal entity customer: Sole proprietorship

and unincorporated associations

Are sole proprietorships formed by spouses or other unincorporated associations

considered legal entity customers under the Rule?

A. No. Sole proprietorships—individual or spousal—and unincorporated

associations are not legal entity customers as defined by the Rule, even though

such businesses may file with the Secretary of State in order to register a trade

name or establish a tax account

ns

Are sole proprietorships formed by spouses or other unincorporated associations

considered legal entity customers under the Rule?

A. No. Sole proprietorships—individual or spousal—and unincorporated

associations are not legal entity customers as defined by the Rule, even though

such businesses may file with the Secretary of State in order to register a trade

name or establish a tax account. This is because neither a sole proprietorship

nor an unincorporated association is a separate legal entity from the associated

individual(s), and therefore beneficial ownership is not inherently obscured.21

21. See 81 FR, 29398, 29412 (May 11, 2016).

Question 23: Definition of charities, non-profits or similar entities

Are covered financial institutions limited to the Internal Revenue Code (IRC)

definitions of charities, non-profits, or similar entities when assessing their

eligibility for exclusion from the definition of legal entity customer?

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A. No. The exclusion from the definition of legal entity customer for charities and

non-profit entities is not limited to those entities that meet the definition or

description of charitable, nonprofit, or similar entities under the IRC. The Rule

does not rely on the tax-exempt status of an entity as described in the IRC. All

nonprofit entities—whether or not tax-exempt—that are established as a nonprofit,

or nonstock corporation, or similar entity that has been validly organized with

the proper State authority are excluded from the ownership/equity prong of the

requirement because nonprofit entities generally do not have ownership interests.22

22. See 81 FR at 29412.

Financial institutions, however, are required to collect beneficial ownership

information under the control prong from any such entity.23

23. Id.

Question 24: Definition of legal entity customer: Publicly traded

companies and entities listed on foreign exchanges

ship/equity prong of the

requirement because nonprofit entities generally do not have ownership interests.22

22. See 81 FR at 29412.

Financial institutions, however, are required to collect beneficial ownership

information under the control prong from any such entity.23

23. Id.

Question 24: Definition of legal entity customer: Publicly traded

companies and entities listed on foreign exchanges.

Are companies publicly traded in the United States and entities listed on foreign

exchanges excluded from the definition of legal entity customer and, therefore,

excluded by the Rule?

A. Companies traded publicly in the United States are excluded from the definition

of legal entity customer. Specifically, the Rule excludes from the definition of legal

entity customer certain entities that are considered “exempt persons” under 31

CFR 1020.315(b). This includes any company (other than a bank) whose common

stock or analogous equity interests are listed on the New York Stock Exchange,

the American Stock Exchange (currently known as NYSE American), or NASDAQ

stock exchange.24

24. See 31 CFR 1020.315 (b)(4).

The Rule also excludes a U.S. entity when at least 51 percent of

its common stock or analogous equity interest is held by a listed entity.25

25. See 31 CFR 1020.315 (b)(5).

These

U.S. companies are excluded from the Rule because they are subject to public

disclosure and reporting requirements that provide information similar to what

would otherwise be collected under the Rule.

Companies listed on foreign exchanges are not excluded from the definition of

legal entity customer. Such companies may not be subject to the same or similar

public disclosure and reporting requirements as companies publicly traded in the

United States and, therefore, collecting beneficial ownership information for them

is required.

to what

would otherwise be collected under the Rule.

Companies listed on foreign exchanges are not excluded from the definition of

legal entity customer. Such companies may not be subject to the same or similar

public disclosure and reporting requirements as companies publicly traded in the

United States and, therefore, collecting beneficial ownership information for them

is required.

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Question 25: Collection of beneficial ownership information: Legal

entities listed on foreign exchanges

May covered financial institutions take a risk-based approach for collecting

beneficial ownership information from legal entity customers listed on foreign

exchanges?

A. No. Financial institutions may not take a “risk-based approach” to collecting the

required beneficial ownership information from legal entity customers that are

listed on foreign exchanges, because such institutions are not excluded from the

definition of legal entity customer. However, as they may with regard to other

legal entity customers, whether listed or not, covered institutions may rely on the

public disclosures of such entities, absent any reason to believe such information is

inaccurate or not up-to-date.

Question 26: Foreign financial institutions

Does the exclusion for foreign financial institutions from the Rule’s definition of

“legal entity customer” depend on whether the beneficial ownership requirements

applied by such institution’s foreign regulator match U.S. requirements?

A. No. For purposes of beneficial ownership identification, the Rule excludes

from the definition of “legal entity customer” a foreign financial institution

created in a non-U.S. jurisdiction when the foreign regulator for that financial

institution collects and maintains information on the beneficial owner(s) of the

regulated institution.26

26. See 31 CFR 1010.230(e)(1)(xiv)

requirements?

A. No. For purposes of beneficial ownership identification, the Rule excludes

from the definition of “legal entity customer” a foreign financial institution

created in a non-U.S. jurisdiction when the foreign regulator for that financial

institution collects and maintains information on the beneficial owner(s) of the

regulated institution.26

26. See 31 CFR 1010.230(e)(1)(xiv).

The rule does not require covered financial institutions to

research the specific transparency requirements imposed on a foreign financial

institution by its regulator and compare them with those imposed on U.S.

financial institutions by U.S. Federal functional regulators. However, if the

foreign regulator does not collect and maintain beneficial ownership information

on the foreign financial institution it regulates, then U.S. financial institutions

will have to collect and maintain beneficial ownership information on accounts

opened by foreign financial institutions in compliance with the Rule. As with any

exclusion, covered financial institutions may rely on the representations of its legal

entity customer as to whether an exclusion applies, provided that they have no

knowledge of facts that would reasonably call into question the reliability of such

representation. (See Question 21.)

For purposes of existing customer due diligence requirements, covered financial

institutions that maintain correspondent accounts for foreign financial institutions

are already required to establish and maintain specific risk-based due diligence

procedures and controls for such accounts that include consideration of all

question the reliability of such

representation. (See Question 21.)

For purposes of existing customer due diligence requirements, covered financial

institutions that maintain correspondent accounts for foreign financial institutions

are already required to establish and maintain specific risk-based due diligence

procedures and controls for such accounts that include consideration of all

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relevant factors,27

27. See 31 CFR 1010.610(a)(2)(iv).

and are required to identify beneficial ownership for certain

high-risk foreign banks.28

28. See 31 CFR 1010.610(b)(3).

These correspondent accounts will continue to be

subject to these existing requirements rather than the requirements set forth in the

AML Program requirements contained in the Rule.

Question 27: Exclusion from the definition of legal entity customer:

U.S. Government list of foreign regulators that maintain beneficial

ownership information

Will the U.S. Government maintain a list of non-U.S. jurisdictions where the regulator

of financial institutions within that jurisdiction maintains beneficial ownership

information regarding the financial institutions they regulate or supervise?

A. No. Covered financial institutions should contact the relevant foreign regulator

or use other reliable means to ascertain whether the foreign regulator maintains

beneficial ownership information for the financial institutions that it regulates or

supervises.

Question 28: Exclusion from the definition of legal entity customer:

Non-U.S. governmental department, agency, or political subdivision

engaged only in governmental activities

What types of entities would be considered a “non-U.S. governmental department,

agency or political subdivision that engages only in governmental rather than

commercial activities”29

29. 31 CFR 1010.230(e)(2)(xv).

such that they would qualify for exclusion from the

definition of a legal entity customer?

A. Examples of legal entity customers that would be considered non-U.S

rnmental activities

What types of entities would be considered a “non-U.S. governmental department,

agency or political subdivision that engages only in governmental rather than

commercial activities”29

29. 31 CFR 1010.230(e)(2)(xv).

such that they would qualify for exclusion from the

definition of a legal entity customer?

A. Examples of legal entity customers that would be considered non-U.S.

governmental entities engaged in only governmental and not commercial activities

include entities that are owned and operated by a non-U.S. government agency

or political subdivision, such as embassies or consulates, as well as entities

that are instrumentalities of a foreign government, such as government-owned

enterprises engaging in activities that are exclusively governmental in nature,

that is, activities involving the direct exercise of legislative, executive, or judicial

authority and which do not involve taking profits from the endeavor. Those

State-owned enterprises engaged in profit-seeking activities, including, among

others, sovereign wealth funds, airlines, or oil companies, would not qualify for

the legal entity customer exclusion. Generally, many State-owned enterprises

may not have an individual that owns at least a 25 percent equity interest because

a governmental department, agency, or political subdivision holds such interest.

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In these circumstances, a covered financial institution would only be required

to identify an individual under the control prong. Similarly, with respect to a

State-owned enterprise that is a pooled investment vehicle not subject to another

exclusion, financial institutions would be required to obtain beneficial ownership

information under the control prong but not under the ownership/equity prong of

the definition of beneficial owner

institution would only be required

to identify an individual under the control prong. Similarly, with respect to a

State-owned enterprise that is a pooled investment vehicle not subject to another

exclusion, financial institutions would be required to obtain beneficial ownership

information under the control prong but not under the ownership/equity prong of

the definition of beneficial owner.

Furthermore, similar to other instances of identification and verification within

the Rule’s context, a covered financial institution may reasonably rely upon the

representations of the legal entity customer, absent knowledge of facts that would

call into question the reliability of the beneficial ownership information provided

to the financial institution.

Question 29: Private label retail credit accounts established at the

point of sale

Does the point of sale exception only apply to accounts opened at the cash register

or does it refer to all applications for credit accounts that are for use at the private

label retailer only?

A. The Rule provides an exemption from the requirements for a covered financial

institution that “opens an account for a legal entity customer that is: [a]t the point-

of-sale to provide credit products, including commercial private label credit cards,

solely for the purchase of retail goods and/or services at these retailers, up to a

limit of $50,000.” The point of sale exemption is provided for retail credit accounts

opened to facilitate purchases made at the retailer because of the very low risk

posed by opening such accounts at the brick and mortar store.

Question 30: Equipment Finance and Lease Exemption: Definition

of equipment

What kind of businesses and equipment are covered under the equipment finance

exemption?

A. The Rule reflects FinCEN’s understanding that businesses require financing to

obtain equipment to conduct ongoing business operations

cause of the very low risk

posed by opening such accounts at the brick and mortar store.

Question 30: Equipment Finance and Lease Exemption: Definition

of equipment

What kind of businesses and equipment are covered under the equipment finance

exemption?

A. The Rule reflects FinCEN’s understanding that businesses require financing to

obtain equipment to conduct ongoing business operations. Many such businesses,

including both large and small businesses, open accounts solely for the purpose of

financing the purchase or lease of that equipment. Subject to certain limitations,

the Rule provides an exemption from the requirement to identify and verify the

identity of a legal entity customer’s beneficial owners for equipment finance and

lease accounts established at a covered financial institution because of the low

risk for money laundering posed by these accounts.30

30. See 31 CFR 1010.230(h)(1)(iv).

The exemption is intended

F I N C E N G U I D A N C E

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to cover business equipment such as farm equipment, construction machinery,

aircraft, computers, printers, photocopiers, and automobiles that a business

purchases or leases. The Rule does not limit the exemption to small businesses.

Regardless of the application of the exemption, a covered financial must comply

with all other applicable BSA/AML obligations, which may include the obligation

to file SARs where there is a suspicion that the equipment may be used to facilitate

criminal activity.

Question 31: Equipment Finance and Leasing Exemption: Accounts

opened to finance the purchase or leasing of equipment

Does the equipment lease and purchase exemption apply when the customer leases

directly from the covered institution?

A. Yes, consider the following. Aviation LLC, which operates several flight training

schools, visits Aircraft Vendor to acquire five aircraft for its flight training schools

uipment Finance and Leasing Exemption: Accounts

opened to finance the purchase or leasing of equipment

Does the equipment lease and purchase exemption apply when the customer leases

directly from the covered institution?

A. Yes, consider the following. Aviation LLC, which operates several flight training

schools, visits Aircraft Vendor to acquire five aircraft for its flight training schools.

Aviation LLC selects the aircraft and contacts the Lessor Covered Financial

Institution to obtain the necessary equipment finance to acquire the aircraft.

After a review of the aircraft and Aviation LLC’s business, the Lessor Covered

Financial Institution agrees to purchase the aircraft from Aircraft Vendor and then

lease them to Aviation LLC for a specified rent amount and duration. The Lessor

Covered Financial Institution purchases the aircraft, pays the purchase price

directly to Aircraft Vendor, and obtains title to the aircraft as collateral. The Lessor

Covered Financial Institution then enters into a lease agreement with Aviation

LLC, which opens an account at the financial institution solely for the purpose of

obtaining the aircraft and making periodic rent payments. There is no possibility

of a cash refund to Aviation LLC under the lease terms.

The equipment lease and purchase exemption would apply because the account

established at the covered financial institution meets all of the requirements of the

exemption, which are that (1) the account’s purpose is to finance the purchase or

leasing of equipment, (2) payments are remitted directly by the financial institution

to the vendor or lessor, and (3) there is no possibility of a cash refund on the

account activity. First, Covered Financial Institution remit full payment directly to

the vendor and obtained title to the equipment in order to lease the equipment to

the legal entity customer. Second, Aviation LLC opened the account solely for the

purpose of financing an equipment lease to acquire aircraft for its training schools

or, and (3) there is no possibility of a cash refund on the

account activity. First, Covered Financial Institution remit full payment directly to

the vendor and obtained title to the equipment in order to lease the equipment to

the legal entity customer. Second, Aviation LLC opened the account solely for the

purpose of financing an equipment lease to acquire aircraft for its training schools.

Finally, there is no possibility of a cash refund to Aviation LLC. As noted in the

final rule, accounts created to provide financing for equipment lease or purchase,

subject to certain conditions, are exempt from the beneficial ownership requirement

because they present a low risk for money laundering and terrorist financing.31

31. Id.

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Question 32: Currency Transaction Report (CTR) and aggregation of

transactions

Under what circumstances should the transactions of a legal entity customer and

those of the beneficial owner(s) be aggregated for purposes of filing a CTR? Are

financial institutions required to proactively cross-check beneficial ownership

information to comply with the CTR aggregation requirement?

A. As a general matter, financial institutions are required to aggregate multiple

currency transactions “if the financial institution has knowledge that [the multiple

transactions] are by or on behalf of any person and result in either cash in or cash

out totaling more than $10,000 during any one business day.”32

32. 31 CFR 1010.313.

With respect

to legal entity customers that may share a common owner, unless there is an

affirmative reason to believe otherwise, covered financial institutions should

presume that different businesses that share a common owner are operating

separately and independently from each other and from the common owner

t totaling more than $10,000 during any one business day.”32

32. 31 CFR 1010.313.

With respect

to legal entity customers that may share a common owner, unless there is an

affirmative reason to believe otherwise, covered financial institutions should

presume that different businesses that share a common owner are operating

separately and independently from each other and from the common owner.

Thus, absent indications that the businesses are not operating independently (e.g.,

the businesses are staffed by the same employees and are located at the same

address, the accounts of one business are repeatedly used to pay the expenses

of another business or of the common owner), financial institutions should not

aggregate transactions involving those businesses with those of each other or with

those of the common owner for CTR filing.33

33. See FinCEN Ruling 2001–2, “Currency Transaction Reporting: Aggregation,” (Aug. 23, 2001) and

FinCEN Guidance 2012-G001, “Currency Transaction Report Aggregation for Businesses with

Common Ownership,” (March 16, 2012), respectively. See also 81 FR at 29409.

Question 33: Listing beneficiaries on CTRs

When completing a CTR for a business (i.e., corporations, limited liability

companies, and general partnerships) will beneficial owners now need to be listed as

beneficiaries in such CTRs? If yes, would this also include trust and estate accounts?

A. No. The Rule does not change the existing currency transaction reporting

requirements or any guidance FinCEN published pursuant to this reporting

requirement. Thus, a covered financial institution is not required to list the

beneficial owners of a business, or trust or estate account, when completing a CTR

as a matter of course

? If yes, would this also include trust and estate accounts?

A. No. The Rule does not change the existing currency transaction reporting

requirements or any guidance FinCEN published pursuant to this reporting

requirement. Thus, a covered financial institution is not required to list the

beneficial owners of a business, or trust or estate account, when completing a CTR

as a matter of course. A financial institution must list a beneficial owner in Part 1

of the CTR only if the financial institution has knowledge that the transaction(s)

requiring the filing is made on behalf of the beneficial owner and results in either

cash in or cash out totaling more than $10,000 during any one business day.

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Question 34: Impact of the Rule on the AML program Board of

Directors or senior management review process

Are covered financial institutions now required to follow specific procedures

to approve changes to AML programs or require Boards of Directors or senior

management to approve such changes? Can Federal functional regulators direct

financial institutions within their jurisdiction to follow a specific approval process?

A. Covered financial institutions may continue to follow their existing internal

procedures for approving AML program changes, including changes that

incorporate the Rule’s new program requirements. However, these procedures

should be consistent with the requirements and expectations of the institution’s

Federal functional regulator.

Question 35: Documenting nature and purpose of customer

relationship on a risk-basis

The Rule requires financial institutions to understand “the nature and purpose

of customer relationships to develop a customer risk profile.” What type of

information should financial institutions collect to satisfy this requirement and

may the documentation of the nature and purpose of a customer relationship be

made on a risk-basis?

A

e and purpose of customer

relationship on a risk-basis

The Rule requires financial institutions to understand “the nature and purpose

of customer relationships to develop a customer risk profile.” What type of

information should financial institutions collect to satisfy this requirement and

may the documentation of the nature and purpose of a customer relationship be

made on a risk-basis?

A. Understanding the nature and purpose of a customer relationship in order to

develop a customer risk profile is an important part of ongoing customer due

diligence, and is required for all customers and accounts. An understanding based

on category of customer means that for certain lower-risk customers, a financial

institution’s understanding of the nature and purpose of a customer relationship

can be developed by inherent or self-evident information, such as the type of

customer or type of account, service, or product or other basic information about

the customer including information obtained at account opening.

The profile may, but need not, include a system of risk ratings or categories of

customers. Accordingly, the documentation that is required to demonstrate an

understanding of the nature and purpose of a customer relationship would vary

with the type of customer, account, service, or product.

Question 36: Use of information on customer risk profile

Once the nature and purpose of a customer relationship has been established, what

are FinCEN’s expectations concerning the use of this information?

he documentation that is required to demonstrate an

understanding of the nature and purpose of a customer relationship would vary

with the type of customer, account, service, or product.

Question 36: Use of information on customer risk profile

Once the nature and purpose of a customer relationship has been established, what

are FinCEN’s expectations concerning the use of this information?

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A. Understanding the nature and purpose of a customer relationship—the

information gathered about a customer at account opening—is essential to

developing a customer risk profile. This information should be used to develop

a baseline against which customer activity, such as the customer’s expected use

of wires or typical number of deposits in a month, can be assessed for possible

suspicious activity reporting. If account activity changes, particularly with

regard to what should be anticipated based on the original nature and purpose

of the account, risk-based monitoring may identify a need to update customer

information, including, as appropriate, beneficial ownership.

Question 37: The nature and purpose of customer relationship

In understanding the nature and purpose of customer relationships, are financial

institutions required to develop and document customer risk profiles for self-

evident products or customer type (e.g., a safe deposit box)?

A. Financial institutions must implement risk-based procedures as part of their AML

program to demonstrate an understanding of the nature and purpose of customer

relationships to develop customer risk profiles. Customer risk profiles refer “to

the information gathered about a customer at account opening used to develop a

baseline against which customer activity can be assessed for suspicious activity

reporting. This may include self-evident information such as the type of customer,

or type of account, service or product.”34

34. 81 FR 29398, 29398 (May 11, 2016)

to develop customer risk profiles. Customer risk profiles refer “to

the information gathered about a customer at account opening used to develop a

baseline against which customer activity can be assessed for suspicious activity

reporting. This may include self-evident information such as the type of customer,

or type of account, service or product.”34

34. 81 FR 29398, 29398 (May 11, 2016).

It is reasonable that in the case of certain

products, such as safety deposit boxes, the nature and purpose are self-evident

and therefore no additional documentation would be needed to demonstrate an

understanding of their nature and purpose, beyond the documentation to establish

the particular type of account.

###

For Further Information

Additional questions or comments regarding the contents of this Guidance should be

addressed to the FinCEN Resource Center at FRC@fincen.gov, (800) 767-2825, or (703)

905-3591. Financial institutions wanting to report suspicious transactions that may

relate to terrorist activity should call the Financial Institutions Toll-Free Hotline

at (866) 556-3974 (7 days a week, 24 hours a day). The purpose of the hotline is to

expedite the delivery of this information to law enforcement. Financial institutions

should immediately report any imminent threat to local-area law enforcement officials.

F I N C E N G U I D A N C E

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FinCEN’s mission is to safeguard the financial system from illicit use and

combat money laundering and promote national security through the

collection, analysis, and dissemination of financial intelligence and

strategic use of financial authorities.