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The Customer Due Diligence/Beneficial Ownership rule was in effect as of May 11, 2018. That is except for the temporary exceptive relief ruling on CD rollovers and loan renewals, which, as of the date this article was written, was available through September 8, 2018. Although the Financial Crimes Enforcement Network (FinCEN) has issued two rounds of FAQs (FIN 2016-G003 issued July 19, 2016, and FIN 2018-G001 issued April 3, 2018), there are still many questions that have not been addressed either by the rule or the FAQs, which we hope to clarify in this article. Following are some of the frequently asked questions Wipfli has received at ComplianceHelp@wipfli.com or from clients during our audits:

Q:  If a beneficial owner is an existing customer, can our financial institution rely on existing information on file to verify CIP?

A:   According to the April 2018 FAQs, “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.” You should note that the FAQ is specific in stating that the information on file must be up to date.

Q:  If we open multiple accounts for the same business, does our financial institution have to obtain a Certification Form for each account?

A:   It depends on your institution’s system of record retention. For example, if you originate a loan and open a payroll and an operating account for the same covered entity in one day, a separate form is not needed for each if the form is easily retrievable under each respective account number. If accounts are opened for the same covered entity on different dates, the April 2018 FAQs state, “…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.”    

Q:  Can our institution open an account if we do not have all the beneficial ownership information available at time of account opening?

A:   The regulation states: “Covered financial institutions must identify and verify the identity of the beneficial owners of all legal entity customers (other than those that are excluded) at the time a new account is opened (other than accounts that are exempted).” While the rule states that financial institutions may use the same method as required for verifying the identity of customers that are individuals under the applicable CIP rule, the CIP rule specifically addressed CIP exceptions in its subsequent FAQs (issued in January 2004).  Because the CDD/Beneficial Ownership rule and the subsequent FAQs did not specifically address CIP and beneficial ownership certification exceptions, it is Wipfli’s opinion that exceptions to the rule are not permitted. 

Q:  Are all trust accounts exempt?

A:  It depends on the trust’s relationship to the account.

• If the legal entity customer (account holder) is a trust (that has not filed with the state), they are excluded.
• However, if a trust owns 25% or more of a legal entity customer, the trust must be treated as a beneficial owner under the ownership/equity prong. This applies whether the trustee is a natural person or a legal entity such as a financial institution trust department or law firm. Regardless of the beneficial ownership applicability of the trust, CIP must be collected on the trustee (financial institution or law firm), consistent with the covered institution’s risk assessment and the customer risk profile.

Q:  Are all nonprofit accounts exempt from the rule?

A:   The April 2018 FAQs state that “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.” Nonprofit accounts may include churches, synagogues, labor unions, homeowner’s associations, or charitable organizations.  

Q:  For real estate escrow, attorney trust accounts, or premium trust accounts, who should be identified as the beneficial owner of the account?

A:   When we receive questions at ComplianceHelp on the applicability of the beneficial ownership rule, the first thing we ask is, “How is the account titled?” or “Who is your customer?” Most client trust accounts are opened in the name of the realty company, law firm, or insurance agency. Beneficial ownership (by ownership and control) must be obtained on the covered entity that is your customer.   

Q:  Do you think FinCEN will grant permanent relief and exempt CD rollovers or loan renewals for entities?

A:   At the time of publication of this article, FinCEN had already issued an extension to the limited exceptive relief ruling on CD or loan renewals for covered entities. The latest extension is set to expire on September 8, 2018. The regulation states that beneficial ownership must be obtained on covered entities each time a new account is opened. According to the CIP regulation, “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.” In issuing and extending the exceptive relief ruling, FinCEN realized that obtaining beneficial ownership information and CIP on CDs (in particular) that have been on a financial institution’s books for many years may create an undue hardship on some institutions. At the time of the most recent extension, FinCEN stated it was still evaluating the risk of money laundering presented if beneficial ownership information is not obtained. It is recommended that, if possible, financial institutions attempt to obtain a beneficial ownership certification on renewing CDs and loans for covered entities in the event the exceptive relief is not extended again. It should be noted that due to a perceived limited money laundering risk, FinCEN granted permanent exceptive relief on May 11, 2018, (FIN 2018-R001) 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. At the same time, FinCEN reminded financial institutions of the need to comply with all other requirements under the BSA, including the filing of Suspicious Activity Reports (SARs). FinCEN did note that any exceptive relief rulings it issues could be rescinded at its discretion.

Because we don’t yet have all the answers, it is anticipated that FinCEN will issue more FAQs to address commonly asked questions relating to the beneficial ownership rule. In the meantime, Wipfli can assist with your beneficial ownership and other compliance-related questions through our ComplianceHelp subscription service at ComplianceHelp@wipfli.com where we deliver answers with trusted expertise.