The implementation date of FinCEN’s final rule on beneficial ownership and Customer Due Diligence requirements for financial institutions is May 11, 2018. Are you ready?
The Hurdles of Beneficial Ownership Compliance
Today’s businesses need configurable services to help identify individuals and entities potentially associated with money laundering, terrorism financing, white collar crime and other unusual activities. Complex corporate structures increase the ability to hide the “beneficial owner” of a business. A beneficial owner is the natural person who ultimately owns or controls an account through which a transaction is being conducted. This means that high-risk individuals that might be involved with embezzlement, arms trafficking and drug dealing can be “business owners,” creating anonymous companies used for hiding illegal cash.Beneficial ownership information discloses the identity of the individuals with a controlling interest in a privately-held business. There are two types of beneficial owners:
- The Ownership Prong – This type of owner directly or indirectly owns 25% or more of the equity interest in a legal company. The owners identified must be natural persons.
- The Control Prong – This type of owner is a single individual with significant responsibility to manage or direct the legal entity. Only one person needs be designated under the Control Prong. NGOs, charities and religious organizations such as churches are excluded from the Ownership Prong, but the Control Prong still applies.
Many businesses use offshore entities and sophisticated legal structures for asset protection, estate planning, privacy and confidentiality. While this doesn’t necessarily mean that fraudulent activities occur, these entities create additional challenges for financial institutions in determining which transactions are legitimate and which are fraudulent.
What the Rule Requires
To help reduce beneficial ownership fraud, rules have been put in place by the U.S. Financial Crimes Enforcement Network (FinCEN). These rules require financial institutions to adopt due diligence procedures that help identify and verify the beneficial owner of an entity at the point of account opening. This will help provide financial institutions with a verified identity of the recipient of that business’ financial transactions to avoid non-compliance and potentially significant penalties.
FinCEN issued its Final Rule on Customer Due Diligence (CDD) Requirements for Financial Institutions, which requires covered financial institutions to identify and verify the identity of the beneficial owners of all legal entity customers. Under the Final Rule, covered financial institutions will be required to have written procedures to identify and verify beneficial owners of legal entity customers who open new accounts on or after May 11, 2018. Identification can be accomplished by gathering personally identifiable information (PII) on the form FinCEN included as Appendix A to the Final Rule*.
Preparing for the Final Rule
With the implementation date less than six months away, what should your organization be doing now to prepare? Take these questions into account:
- Do you have the appropriate staff and resources to collect this additional information?
- What other job roles and departments within your organization will be impacted?
- Do your current risk assessment processes take beneficial ownership and CDD into consideration?
- Has your Customer Identification Program been updated with ongoing monitoring?
ComplianceConnect from Equifax can help businesses with its beneficial ownership and due diligence initiatives. We can help handle the additional volume by screening entity names against watch lists and publicly available information in real time to identify high-risk individuals and entities. For more information, contact an Equifax representative.
Better Protect Against Regulatory and Compliance Risks
ComplianceConnect can help businesses more easily and efficiently assist with compliance efforts to manage high-risk transactions. It leverages robust global data, customizable Search/Match functionality, and flexible technology to deliver real-time insights. These insights can help your organization identify individuals and entities potentially associated with money laundering, terrorism financing, white collar crime and other unusual activities in support of your KYC and AML programs.
Attend our upcoming webinar co-hosted with ACAMS:
“Politically Exposed Persons (PEPs) – Exposing the Facts”
January 18, 2018
12 noon – 1 PM ET
Visit this page for registration details closer to the event date.
*FinCEN’s Beneficial Ownership Rule: A Practical Guide to Being Prepared for Implementation – https://www.moneylaunderingwatchblog.com/2017/08/fincens-beneficial-ownership-rule-a-practical-guide-to-being-prepared-for-implementation/
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