Alert March 09, 2010

FinCEN, the Federal Banking Agencies and the SEC Issue Joint Guidance on Obtaining and Retaining Beneficial Ownership Information

FinCEN, the federal bank regulatory agencies, and the SEC, in consultation with the CFTC, issued guidance that clarifies and consolidates existing regulatory expectations regarding the information financial institutions must obtain regarding beneficial owners for certain accounts and customer relationships. The guidance does not alter or supersede previously issued regulations, rulings, or guidance related to Customer Identification Program requirements.

The guidance emphasizes that financial institutions should follow a risk-focused approach that enables the institution to conduct appropriate customer due diligence on customers, particularly those customers that present a high risk of money laundering or terrorist financing. In particular, the guidance notes that beneficial owners of accounts may present heightened risks because the use of nominal account holders can conceal the identity of the true owner of assets or property. The guidance also encourages financial institutions to consider adopting procedures to address the risks presented by beneficial owners on an enterprise-wide basis, such as by sharing and obtaining beneficial ownership information across business lines, separate legal entities within an enterprise, and affiliated support units.

The guidance states that financial institutions should establish and maintain customer due diligence procedures that are reasonably designed to identify and verify the identity of an account’s beneficial owners, as appropriate, based on the risk associated with the account. The guidance lists the following as examples of such procedures:

  • Determining whether the customer is acting as agent for or on behalf of another, and, if so, obtaining information regarding the capacity in which and on whose behalf the customer is acting;
  • Where the customer is an entity not publicly traded in the United States, such as an unincorporated association, a private investment company, trust or foundation, obtaining information about the structure or ownership of the entity to allow the institution to determine whether the account poses heightened risk; and
  • Where the customer is a trustee, obtaining information about the trust structure to allow the institution to establish a reasonable understanding of the trust structure and to determine the provider of funds and any persons or entities that have control over the funds or have the power to remove the trustees.

If the financial institution identifies an account with heightened risk, the guidance instructs the institution to perform enhanced due diligence appropriate for the level of risk, such as steps to identify and verify beneficial owners, to reasonably understand the sources and uses of funds in the account, and to reasonably understand the relationship between the customer and the beneficial owner.

The guidance also highlights particular due diligence requirements concerning beneficial owners of private banking and foreign correspondent accounts. The guidance observes that financial institutions may need to apply enhanced due diligence to obtain beneficial ownership information for private banking accounts, including whether a beneficial owner is a senior foreign political figure.

Click here for the guidance.