Required Owner Information

Beneficial Ownership

According to the FinCEN legislation, the Beneficial Ownership Rule states “a bank must establish and maintain written procedures that are reasonably designed to identify and verify beneficial owner(s) of legal entity customers and to include such procedures in its anti-money laundering compliance program.” Translation: All covered financial institutions must collect and verify information from all significant owners of legal entities and their accounts. They must collect all of this information when the new account is opened.

The terminology used in the legislation is a bit ambiguous, so let’s start by breaking down the key players the new rule applies to.

Legal entity: A corporation, LLC, partnership, general partnership, other entity created by filing a public document with a Secretary of State or similar office, or any similar entity formed under the laws of a foreign jurisdiction that opens an account.

Beneficial Owner: Each individual with 25% or more equity interest in the legal entity, whether directly or indirectly.

A legal entity will have a minimum of one and a maximum of five beneficial owners. That is the according the lowest equity interest threshold that FinCEN has established. Banks can have a stricter equity threshold that defines a “beneficial owner,” but that is up to the discretion of individual institutions.

The Beneficial Ownership Rule goes further and describes the organizational structure of the beneficial owners of the legal entity – there is a control prong and subsequent ownership prongs. The control prong, of which there must be one, is the person with the most control and responsibility over the account, like a CEO, COO, or company president. Ownership prongs are any person who owns 25% or more of the equity interests in the account.

As with every government regulation, there are exclusions and exemptions. If you fall under one of these categories, you do not need to supply the same level of personal information that a beneficial owner would.

Exclusions

• Sole Proprietorships

• Unincorporated Associations

• Trusts (other than statutory trusts created by a filing with a Secretary of State or similar office)

• Authorized Users for credit cards

• Non-Account Owners

Note: These excluded parties do not require the collection of evidence supporting their exclusion.

Exemptions

• Entities traded on a U.S. stock exchange (NYSE, American or NASDAQ)

• A charity or non-profit entity (requires a Control Person)

• Trusts (not formed through a Secretary of State filing)

• A public accounting firm registered under section 102 of the Sarbanes-Oxley Act)

• A bank regulated by a U.S. state agency

• An insurance comapny regulated by a state of the United States

• A U.S. regulated financial institution

• An agency of the U.S. federal government

• An agency of a U.S. state government

• A U.S. local government agency

• A non-U.S. government agency engaged in government activites

• A bank holding company

• A savings and loan holding company

• Equipment finance/leasing transaction that are purchases from third parties

• A financial market utility designated byt he Financial Stability Oversignt Council

• A non-U.S. entity opening a private banking account subject to 31 CFR

• A foreign financial institution established in a jurisdiction where the regulator of such insitituion maintains Beneficial Ownership information

• An issuer of a class of securities

• An SEC registered investment company, investment advisor, broker dealer, or other registered firm with a current SEC registration number

• A Commodity Futures Trading Commission registered entity

• A pooled investment vehicle that is operated or advised by a financial institution that is exempt from Beneficial Ownership

• Non-excluded pooled investment vehicles - those not operated by or advised by a financial insititution such as a non-U.S. managed mutual fund, hedged fund or private equity fund (requires Control Person)

• An entity organized under the laws of the United States, with at least 51% of whose commons stock or analogous equity interest held by an equity traded on a U.S. Stock Exchange

• Unincorporated associations (such as scout troops or youth sports leagues)