Search results for: beneficial ownership rule

 

FinCEN Cites Low Risk of Money Laundering and High Regulatory Burden of Rule

On September 7, 2018, the Financial Crimes Enforcement Network (“FinCEN”) issued permanent exceptive relief (“Relief”) to the Beneficial Ownership rule (“BO Rule”) that further underscores the agency’s continued flexibility and risk-based approach to the BO Rule.

Very generally, the BO Rule — effective as of May 11, 2018, and about which we repeatedly have blogged (see here, here and here) — requires covered financial institutions to identify and verify the identities of the beneficial owners of legal entity customers at account opening. FinCEN previously stated in April 3, 2018 FAQs regarding the BO Rule that a “new account” is established – thereby triggering the BO Rule – “each time a loan is renewed or a certificate of deposit is rolled over.” As a result, even if covered financial institutions already have identified and verified beneficial ownership information for a customer at the initial account opening, the institutions still must identify and verify that beneficial ownership information again – and for the same customer – if the customer’s account has been renewed, modified, or extended.

However, the Relief now excepts application of the BO Rule when legal entity customers open “new accounts” through: (1) a rollover of a certificate of deposit (CD); (2) a renewal, modification, or extension of a loan, commercial line of credit, or credit card account that does not require underwriting review and approval; or (3) a renewal of a safe deposit box rental. The Relief does not apply to the initial opening of any of these accounts.

The Relief echoes the exceptive relief from the BO Rule granted by FinCEN on May 11, 2018 to premium finance lenders whose payments are remitted directly to the insurance provider or broker, even if the lending involves the potential for a cash refund. Once again, although the Relief is narrow, FinCEN’s explanation for why the excepted accounts present a low risk for money laundering is potentially instructive in other contexts. Continue Reading FinCEN Issues Exceptive Relief from Beneficial Ownership Rule to Certain Account Renewals

Incorporation Solidifies Customer Due Diligence as “Fifth Pillar” to BSA/AML Compliance Program

May 11, 2018 was the much anticipated effective date for the Customer Due Diligence (“CDD”) Requirements for Financial Institutions Rule (the “Beneficial Ownership Rule”) issued by the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”). On the same day, the Federal Financial Institutions Examination Council (“FFIEC”) released two updates to the Bank Secretary Act/Anti-Money Laundering (“BSA/AML”) examination manual that incorporate and clarify the CDD Requirements and Beneficial Ownership Rule.  The FFIEC is an interagency body that is “empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions.”  The FFIEC examination manual drives the principles and obligations of covered financial instructions in creating BSA/AML compliance programs.  The new updates further clarify the FinCEN rules and solidify CDD as the fifth pillar of the BSA/AML compliance regime.

As we previously blogged here, when FinCEN announced its final rule on CDD requirements it established two important requirements for covered financial institutions.  First, the covered financial institutions were required to establish procedures to identify and verify the beneficial owners of all legal entity customers. Second, the rule required covered financial institutions to adopt ongoing risk-based CDD procedures as part of their AML compliance programs – including developing and updating customer risk profiles and conducting ongoing AML monitoring.  We previously provided practical guidance to aid covered financial institutions in preparing for implementation of these two requirements.  Now we will highlight the key considerations of FFIEC examination manual addressing these topics.  Of particular interest, the new FFIEC examination manual provisions state in part that regulatory examiners are not supposed to engage in second-guessing specific decisions; rather, during an examination “the bank should not be criticized for individual customer decisions unless it impacts the effectiveness of the overall CDD program, or is accompanied to evidence of bad faith or other aggravating factors.” Continue Reading FFIEC Manual Incorporates Beneficial Ownership Rule and CDD Requirements

Relief is Narrow, but FinCEN’s Explanation of Low Money Laundering Risk Posed by Lending Products is Instructive

On May 11, the Financial Crimes Enforcement Network (“FinCEN”) issued a ruling to provide exceptive relief from the application of the new Beneficial Ownership rule (the “BO Rule,” about which we repeatedly have blogged: see here, here and here) to premium finance lending products that allow for cash refunds.

Very generally, the BO Rule — effective as of May 11, 2018 — requires covered financial institutions to identify and verify the identity of the beneficial owner of legal entity customers at account opening. One exemption provided by the BO Rule from its requirements is when a legal entity customer opens a new account for the purpose of financing insurance premiums and the payments are remitted directly by the financial institution to the insurance provider or broker.  However, this exemption does not apply when there is a possibility of cash refunds.

In its May 11th ruling, FinCEN granted exceptive relief from the BO Rule to premium finance lenders whose payments are remitted directly to the insurance provider or broker, even if the lending involves the potential for a cash refund.  Although this exception is narrow when compared to the many other financial institutions covered by the broad BO Rule, FinCEN’s explanation for why the excepted entities present a low risk for money laundering is potentially instructive in other contexts, such as risk assessments undertaken by financial institutions for the purposes of their anti-money laundering (“AML”) compliance programs. Continue Reading FinCEN Provides Exceptive Relief from New Beneficial Ownership Rule

May 11, 2018 Implementation Deadline Looms

Last year, we posted FinCEN’s Beneficial Ownership Rule: A Practical Guide to Being Prepared for Implementation regarding the Customer Due Diligence Requirements for Financial Institutions Rule (the “Beneficial Ownership Rule” or “Rule”) issued by the Financial Crime Enforcement Center (“FinCEN”). With the Rule’s May 11 implementation date only a few weeks away, and with FinCEN recently having published its new and long-awaited FAQs regarding the Rule (FAQs), we thought that the time was right for more practical tips and answers to questions surrounding the Rule. Continue Reading FinCEN’s Beneficial Ownership Rule: More Practical Tips and Answers to Frequently Asked Questions

In May 2016, Treasury’s Financial Crimes Enforcement Network (FinCEN) issued its final rule on Customer Due Diligence (CDD) Requirements for Financial Institutions. The Final Rule can be found here; our prior discussion of the Final Rule can be found here.

The new rule requires covered financial institutions to identify and verify the identity of the beneficial owners of all legal entity customers. It also adds CDD as a fifth pillar to the traditional four pillars of an effective anti-money laundering (AML) program.  The implementation date of May 11, 2018 is less than a year away.  How can you ensure that you’ll be ready? Continue Reading FinCEN’s Beneficial Ownership Rule: A Practical Guide to Being Prepared for Implementation

On February 14, 2023, both the American Bankers Association (“ABA”) and the Bank Policy Institute (“BPI”) submitted comments to the Financial Crimes Enforcement Network (“FinCEN”) on FinCEN’s notice of proposed rulemaking (“NPRM”) relating to access to beneficial ownership information (“BOI”) reported to FinCEN under the Corporate Transparency Act (“CTA”). While both organizations had similar comments, mainly being that the proposed limits on FIs’ ability to use BOI retrieved from the database contradicts the CTA’s objective, the ABA recommended that FinCEN entirely withdraw the NPRM. Below, we break down each organization’s comments and strong critiques regarding the NPRM.

Continue Reading Bank Industry Groups Heavily Criticize FinCEN’s Proposed Rule on Access to Beneficial Ownership Information

Second Post in a Two-Post Series on the CTA Implementing Regulations

As we just blogged, the Financial Crimes Enforcement Network (“FinCEN”) has issued a final rule (“Final Rule”) regarding the beneficial ownership information (“BOI”) reporting requirements pursuant to the Corporate Transparency Act (“CTA”).  The Final Rule will require tens of millions of corporations and limited liability companies registered to do business in the United States to report their BOI to FinCEN.  FinCEN views this development as a “historic step in support of U.S. government efforts to crack down on illicit finance and enhance transparency.”

The Final Rule defines a “beneficial owner” whose information must be reported as “any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns or controls at least 25 percent of the ownership interests of such reporting company.”  In this post, we focus on the “substantial control” prong of the beneficial ownership definition: “any individual who, directly or indirectly, . . . exercises substantial control over such reporting company.” (emphasis added). The Final Rule generally adopts the language of the proposed rule issued by FinCEN in December 2021, with some minor adjustments.

FinCEN expects reporting companies to always identify at least one beneficial owner under the “substantial control” prong, even if all other individuals are subject to an exclusion or fail to satisfy the “ownership interests” prong.  As we will discuss, the Final Rule contemplates that a covered reporting company may need to report multiple individuals under the “substantial control” prong.  Further, and although FinCEN still needs to issue proposed regulations regarding the following, the Final Rule’s broad definition of the “substantial control” prong under the CTA presumably will lead to FinCEN expanding the definition of “beneficial owner” under the existing Customer Due Diligence (“CDD”) rule applicable to banks and other financial institutions (“FIs”).

Continue Reading FinCEN Final Rule for Beneficial Ownership Reporting: The “Substantial Control” Prong

First Post in a Two-Post Series on the CTA Implementing Regulations

On September 30, 2022, the Financial Crimes Enforcement Network (“FinCEN”) issued its final rule, Beneficial Ownership Information Reporting Requirements (“Final Rule”), implementing the beneficial ownership reporting requirements of the Corporate Transparency Act (“CTA”). 

FinCEN’s September 29, 2022 press release is here; the Final Rule is here; and a summary “fact sheet” regarding the rule is here.  The Final Rule largely tracks the December 8, 2021 Notice of Proposed Rulemaking (the “Proposed Rule”), on which we blogged here and here. 

The Final Rule requires many corporations, limited liability companies, and other entities created in or registered to do business in the United States to report information (“BOI”) about their beneficial owners — the persons who ultimately own and control the company — to FinCEN.  This information will be housed within the forthcoming Beneficial Ownership Secure System (“BOSS”), a non-public database under development by FinCEN. 

The Final Rule takes effect on January 1, 2024.  In a nutshell, (1) companies subject to the BOI reporting rules (“reporting companies”) created or registered before the effective date will have one year, until January 1, 2025, to file their initial reports of BOI and (2) reporting companies created or registered after the effective date will have 30 days after creation or registration to file their initial reports.  In addition to the initial filing obligation, reporting companies will have to file updates within 30 days of a relevant change in their BOI.  And, as we discuss, covered companies also will have to report their “company applicants,” which could include lawyers, accountants or other third-party professionals.

The Final Rule will have broad effect.  FinCEN estimates that over 32 million initial BOI reports will be filed in the first year of the Final Rule taking effect, and that approximately 5 million initial BOI reports and over 14 million updated reports will be filed in each subsequent year.  We summarize here the key provisions of the Final Rule.  In our next blog post, we will discuss the Final Rule’s broad definition of the “control” prong regarding who represents a “beneficial owner,” which will result in an expansion of the definition of “beneficial owner” under the existing Customer Due Diligence (“CDD”) rule applicable to banks and other financial institutions (“FIs”).

Continue Reading FinCEN Issues Final Rule on Beneficial Ownership Reporting Requirements

On August 30, 2023, the Federal Council of Switzerland announced proposed laws (the “Press Release”) to strengthen its anti-money laundering (“AML”) efforts in important ways.

The proposal includes an obligation for attorneys and other advisers to conduct due diligence; the creation of a centralized, non-public register of beneficial owners (“BO”); and new measures concerning sanctions violations, real estate transactions, and precious metal traders.  

The Federal Council has found that “[m]oney laundering and terrorist financing pose a serious threat to financial system integrity” and that criminals (whether in Switzerland or over the world) misuse legal entities to conceal assets and in furtherance of illicit activity.  As a “major financial centre,” The Federal Council realizes that Switzerland is exposed to these risks.  In the eyes of the world, the United States and Switzerland often have vied for the dubious title of the world’s top haven for tax evasion and money laundering.  And Switzerland has been feeling the pressure due to being one of the world’s top economies which still has not implemented regulations for BOs.

The Federal Council published the proposed laws in German (which we do not review in this blog), and issued in English an FAQ and an informative graphic.  The Federal Council is seeking input until November 29, 2023, and will act on the legislation in 2024.

The aim of the proposed laws is to “contribute significantly to protecting the financial centre from funds of criminal origin, and to strengthening Switzerland as a business location.”  Although the Swiss financial sector has more robust safeguards against money laundering and terrorist financing activities, the FAQ explains that “there are gaps in other, nonfinancial areas in this respect” and that “it is necessary to also include particularly risky activities in the non-financial sector in efforts to prevent and combat financial crime.” The Federal Council has found that the “high money laundering risks associated with legal entities and trusts” require legislation to strengthen the Swiss framework. According to the Press Release, prosecuting authorities would benefit from increased transparency to more quickly and accurate identifying the true owners of legal entities. 

Continue Reading Switzerland Proposes Due Diligence for Attorneys and Broader Beneficial Owner Reporting Laws

On August 8, 2023, the American Bar Association (“ABA”) House of Delegates voted overwhelmingly (216–102) to pass Revised Resolution 100 (the “Resolution”), which in turn revised ABA Model Rule of Professional Conduct 1.16 and its Comments (the “Rule”) to explicitly recognize a lawyer’s duty to assess the facts and circumstances of a representation at the time the lawyer is engaged and throughout the representation to ensure that the lawyer’s services are not used to “commit or further a crime or fraud.”

The Comments to the Rule clearly illustrate that the ABA is concerned with the use of a lawyer’s services to—wittingly or unwittingly—assist clients in laundering money.  The Resolution itself acknowledges this, stating “the impetus for these proposed amendments was lawyers’ unwitting involvement in or failure to pay appropriate attention to signs or warnings of danger . . . relating to a client’s use of a lawyer’s services to facilitate possible money laundering and terrorist financing activities.”  And the ABA’s press release echoes this concern, noting the Rule was revised “because of concern that lawyers’ services can be used for money laundering and other criminal and fraudulent activity.”

Continue Reading American Bar Association Revises Model Rule of Professional Conduct to Combat Money Laundering