Money Laundering is bad and financial institutions need to have internal controls policies, procedures and processes to identify higher-risk accounts and monitor the activity. At the core of an anti-money laundering program is that an institution must know its customers and the risks presented by its customers.
The program becomes more difficult when the customer is a corporation or legal entity.
An alphabet soup of federal regulators just jointly issued new guidance “to clarify and consolidate existing regulatory expectations for obtaining beneficial ownership information for certain accounts and customer relationships.” The Financial Crimes Enforcement Network, Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, Office of Thrift Supervision, Securities and Exchange Commission, and Commodity Futures Trading Commission all joined in the guidance.
Identifying the ownership and control of a legal entity can be difficult. Often, the only way to get the information is from the entity itself, with no third party way to identify the veracity of the information. Most financial institutions struggle with how far to dive into a legal entity to determine the beneficial ownership.
This joint guidance effectively adopts the FinCEN definition of beneficial owner:
“[T]he individual(s) who have a level of control over, or entitlement to, the funds or assets in the account that, as a practical matter, enables the individual(s), directly or indirectly, to control, manage, or direct the account. The ability to fund the account or the entitlement to the funds of the account alone, however, without any corresponding authority to control, manage, or direct the account (such as in the case of a minor child beneficiary), does not cause the individual to be a beneficial owner.” [31 CFR 103.175(b)]
The first step is to obtain enough information about the structure and ownership of the entity so you can determine if the account will pose a heightened risk. With a heightened risk, you should conduct enhanced due diligence.
Accounts for senior foreign political figures always require Enhanced Due Diligence that is reasonably designed to detect and report transactions that may involve the proceeds of foreign corruption. [31 CFR 103.178 (b)(2) and (c)]
The one interesting statement is that financial institutions should consider implementing policies on an enterprise-wide basis to share information about beneficial ownership of their customers. Anti-money laundering staff should be able to cross-check for information with other departments. Avoid silos of information.
The guidance does not offer anything new or insightful. But it is good to see the regulators joining together to try to standardize the expectations across different types of financial institutions.
Sources:
- SEC Release 34-61651
Policy Statement on Obtaining and Retaining Beneficial Ownership Information for Anti-Money Laundering Purposes - FIN-2010-G001 FinCEN Clarifies Expectations Regarding Beneficial Ownership Guidance Released in Conjunction with Financial Regulators
- Board of Governors of the Federal Reserve System SR 10-5 Interagency Guidance on Obtaining and Retaining Beneficial Ownership Information
- OCC 2010-11 Bank Secrecy Act/Anti-Money Laundering: Beneficial Ownership Guidance
- 31 CFR 103.175(b)
- 31 CFR 103.178