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FinCEN's Customer Due Diligence Rule Takes Effect

Under the Financial Crimes Enforcement Network's Customer Due Diligence Requirements Rule, banks must enhance their programs for combating money laundering — meaning it could now take longer for you to open an account than in the past. Find more details in this article.
FinCEN customer due diligence

On May 11, 2018, the Financial Crimes Enforcement Network's (FinCEN) Customer Due Diligence Requirements (CDD) Rule took effect for financial institutions.

The new CDD Rule requires banks to enhance their programs for combating money laundering. Banks and other covered financial institutions are now required to identify individuals and beneficial owners behind the legal entities — such as corporations, limited liability companies, and partnerships — that seek to open accounts with them. The rule amends Bank Secrecy Act regulations, clarifying and strengthening customer due diligence requirements for U.S. banks, mutual-fund brokers or securities dealers, futures commission merchants, and introducing brokers in commodities.

The rule also adds a requirement for covered financial institutions to identify and verify the identity of natural persons (known as beneficial owners) of legal-entity customers who own, control, and profit from companies when those companies open accounts.

Requirements of the CDD Rule

The U.S. Treasury Department intends the new rule to improve financial transparency and prevent criminals from using shell companies to launder money. Therefore, its CDD Rule has four core requirements. Covered financial institutions must establish and maintain written policies and procedures that are reasonably designed to:

  • Identify and verify the identity of customers;
  • Identify and verify the identity of the beneficial owners (natural persons who own 25 percent or more of a legal entity) of companies opening accounts;
  • Understand the nature and purpose of customer relationships to develop customer risk profiles; and
  • Conduct on-going monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.

The rule also requires legal entities to identify a single individual who has significant control over the entity. In doing so, the institution must collect the name, birth date, address, and an identifying number (such as a Social Security number) to verify the identity of each beneficial owner, as well as supporting documentation to substantiate the information collected.

Deeper inquiries into customers

While the CDD Rule is not retroactive, the new customer monitoring requirements mean that a financial institution may have to conduct beneficial-owner inquiries even on existing customers when products are renewed or information affecting risk ratings or overall risk assessments comes to light.

In addition, the CDD Rule requires financial institutions to understand the nature and purpose of their relationships with customers and regularly monitor accounts. This will require more rigorous customer identification and due diligence, ongoing account scrutiny, and risk assessment of customer relationships.

Small businesses opening new accounts at financial institutions can expect to provide more details about their firms than before. Consequently, it may take longer to open an account.

To learn more about the CDD Rule, review the Treasury Department's FAQ about customer due diligence requirements for financial institutions.

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* Este contenido es solo para fines educativos, no tiene por objeto proporcionar asesoría jurídica específica y no debe utilizarse en sustitución de la asesoría jurídica de un abogado u otro profesional calificado. Es posible que la información no refleje los cambios más recientes en la legislación, la cual podrá modificarse sin previo aviso y no se garantiza que esté completa, correcta o actualizada.

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