Step 1: Who Does This Rule Apply to?
The rule applies to “Legal Entities” as defined by the rule. So even if you’re used to thinking about family trusts and estates as a “legal entity” because they are separate from the individuals involved with them and they are created by state law, that’s not the defining trait of a “legal entity”. The defining trait is an organization that is created by registering with the Secretary of State (or whatever your state’s registration agency is called) as a business that is separate from the individual(s) running it. So for example, a sole proprietorship wouldn’t meet that definition but a sole member LLC would. Likewise, a family trust would not meet definition but a business trust that is set up by registering with the Secretary of State would. So, you have a legal entity, you continue to step 2, if not, you follow your regular CIP steps.
Step 2: What Do I Have to Do?
The beneficial owner rule requires that banks identify who the beneficial owners of a legal entity are and then, verify the identity of those owners much like CIP. So first, you need to figure out who is an owner and if anyone owns at least 25% of the business. So, for example, for sole member LLC, you’re going to have one person who owns 100% of the company and you need to get their verification documents. On the other hand, you might have a company owned by 10 people, all owing at least 10% of the company so none of those owners would meet this ownership requirement.
In addition to your owners, you also need one person who has the ability to control or manage the business – for example, your CEOs, your CFOs or COOs. It doesn’t matter who it is along as they can control the company. You can also rely on the information the customer is giving you in regards to this role. The end point being, you could be collecting information on up to five individuals – up to 4 owners who own at least 25% plus 1 controlling owner. If you don’t have someone who owns at least 25% of the entity, you will just collect information on that controlling or managing owner. So this rule will have to collecting on 1 to 5 people, total.
That’s simple enough when the direct owners are natural people – but what if the beneficial owner is a trust or another company? For a trust that owns at least 25% of a legal entity, you’re simply going to get the CIP-like information from the trustee. For a legal entity that owns a legal entity, you’re looking to see if any natural person individual owns at least 25% of your legal entity customer. For example, if your legal entity is 100% owned by an LLC and that LLC is owned by two people – they indirectly own 50% of your legal entity customer and you would get the CIP-like information from each of them.
Step 3: Who Do I Get the Ownership Information From?
The beneficial ownership information – who the owners are, how much they own, who is in charge - is going to be given to you by the person opening the account. Does that mean a beneficial owner has to open the account? No - the person has been given the right to open the account by the company can give you this information. That means that the person opening the account may very well not be one of the 5 people you’re collecting the beneficial ownership information on.
Step 4: What Do I Have to Collect?
What you’re actually going to be collecting on each individual is really similar to CIP information: name and title of the individual, name and address of the business, date of birth and Social Security Numbers for US citizens and Passport Numbers for non-citizens. One big difference is, unlike CIP, you can accept copies of those documents as verification instead of the actual ID. So that means, the person opening the account can come prepared with that information.
Step 5: How Do I Collect It?
There’s also a model certification form in the appendix which you can take from your customers to identify those beneficial owner individuals. It’s basically going to allow the customer to just list their up-to-four beneficial owners and the single individual who is listed as controlling the company. You can use the model form but it’s not a requirement – so if you want to take that information in some other fashion, you can do that. The person opening the account has to sign off on the information being correct regardless of how it’s collected.
Step 6: When Do I Have to Collect?
This information has to be collected every time a legal entity opens a new account – it’s not based on the legal entity being a new customer – it’s literally every time they open a new account, even if the entity has banked with the bank for 20 years.
Additionally, after the rule came out, we started hearing panelists at regulator panels and different parties indicating that the beneficial ownership rules apply to renewals of CDs and loans. However, it’s also important to be aware the FDIC has also indicated that auto-renewals of CDs do not trigger Beneficial Ownership requirements. Since there have been conflicting opinions on this topic, it’s always best practice to get an interpretation directly from your own regulator.
So there’s the rule – similar to CIP but requires more organization information from your business customers. Compliance Alliance does have a full BSA/AML compliance toolkit including Beneficial Ownership tools.
Silvia Garcia Maggio, CRCM
Associate General Counsel
Associate General Counsel
Silvia Garcia Maggio serves as an Associate General Counsel for Compliance Alliance. After graduating from The University of Texas School of Law in 2011, Silvia began her career in real property and foreclosure law. Employed by a national mortgage servicer since 2012, Silvia worked on the OCC independent foreclosure audit and in compliance for Enterprise Risk Management, gaining a multitude of experience dealing with multi-state and federal banking regulations. Silvia started with Compliance Alliance in March of 2014. Silvia is part of our team of attorneys who assist CA members with a wide-range of regulatory and compliance inquiries. Over the past year, Silvia has developed and implemented the C/A Minute videos, a series of short, compliance training and refresher videos that leverage the frequently asked questions from the Compliance Alliance hotline. In addition, Silvia regularly presents on a number of compliance topics at regulatory schools and conferences nation-wide.