Beneficial Ownership – Understanding and Shaping AML’s Fifth Pillar

Author: Mark Prater, CAMS-Audit, CIPP/US

Furthering a domestic initiative to strengthen the customer due diligence (CDD) requirements imposed on regulated financial institutions under the Bank Secrecy Act (BSA), on July 30, 2014, the Financial Crimes Enforcement Network (FinCEN) published a Notice of Proposed Rulemaking (NPR) whose primary purpose is to define new mandates for CDD. In scope for the NPR are financial institutions that are presently required under the BSA to have anti-money laundering (AML) programs and Customer Identification Programs (CIP). If adopted as proposed, these new rules would require the covered institutions, subject to certain exemptions, to identify and verify the beneficial owners of legal entity customers in support of their existing CDD programs and processes.

This paper endeavors to accomplish several missions—of primary importance is assisting the reader in establishing an understanding of beneficial ownership definitions and applicability within covered financial institutions as it supports their CDD programs. It will also clarify how the NPR establishes, in statute, four components of CDD as well as how these new components relate and combine to establish and codify in regulations the new ‘pillar five,’ as well as directional guidance for implementing the new regulatory requirements (once finalized) into a covered financial institution’s overall AML compliance program. Secondarily, this paper intends to provide the reader with an understanding of the history and drivers behind FinCEN’s rulemaking, and how they arrived at the proposed new requirements.

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