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Beneficial Ownership Requirements for Legal Entity Accounts

Wednesday, May 9, 2018Written by: Mitsy S. Huffstetler, CRCM

Overview

In May, 2016, the Federal government passed a new banking regulation regarding the beneficial ownership of legal entity customers.  This new rule requires financial institutions to identify the ultimate beneficial owner(s) and a controlling person of a legal entity customer on all new accounts.  

When Does this Rule Go into Effect?

Financial institutions are required to comply with the beneficial ownership requirements beginning May 11, 2018. 

What is the Purpose of this Rule?

The purpose of this rule is to help the government fight the funding of terrorism and money laundering activities.  Its intention is to assist law enforcement in financial investigations and to help prevent the evasion of targeted financial sanctions by identifying a legal entity’s ultimate beneficial owner(s) and not nominees or straw men.  The rule is also intended to advance U.S. compliance with international standards and commitments. 

Who is a Beneficial Owner of a Legal Entity?

For purposes of this rule, there are two categories to the definition of a beneficial owner:  Ownership and Control.  

Ownership – Each natural person who directly or indirectly owns at least 25% of the equity interests of a legal entity.  If a beneficial owner of a legal entity customer is another legal entity, the owners of the other legal entity must be identified.  This rule requires only natural persons to be identified.  There may be zero to four natural persons identified in this category.

Control – A single individual who has significant responsibility to control, manage, or direct a legal entity customer.  This could be an executive officer, senior manager, or any other individual who regularly performs similar control functions.  There will always be one natural person identified in this category.

Non-governmental organizations (NGOs), charities, and religious organizations such as churches are excluded from the ownership prong, so only one person who has significant control over the entity for the control prong must be identified.

What Information is Required?

For each new deposit or loan account, we must obtain each identified individual’s name, date of birth, physical address, and Social Security Number.  We will also require a copy of each identified individual’s government-issued identification, such as a driver’s license or passport.

When Must this Information be Provided?

This information must be provided at account opening for each new account that is opened for a legal entity.  You will be required to provide this documentation and certify that the information is true and accurate to the best of your knowledge.  Without this information, we will be unable to open any new account.

To ensure an efficient account opening experience, we recommend that you obtain the required information and documentation listed above before requesting to open a new account.  If you will frequently need to open new deposit or loan accounts on behalf of a legal entity, please keep this information current and available to present each time you establish a new account.

Scenario: 

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 For more information contact the BOR Compliance Department or a Relationship Banker at 318-255-3733.

 





Article by: Mitsy S. Huffstetler, CRCM

Mitsy S. Huffstetler, CRCM Image
Tags: Compliance