Several commentators have called on FinCEN to introduce an explicit safe haven in the final rule, which considers that financial institutions using the certification form comply with the beneficial ownership requirement. Some commentators have recommended that FinCEN model such an explicit safe harbor for foreign bank certifications in 1010.630. Other commentators objected to the safe harbour clause, arguing that the certification form should serve as home page 29407 to examine the risk-based due diligence of financial institutions on beneficial ownership of a legal entity. As explained in more detail below, we have included in section 1010.230(b)(2) of the Final Rule a description of the extent to which financial institutions may rely on beneficial ownership information provided by account opening. However, we refuse to include in the final schema a general safe harbor triggered by the use and collection of the standard certification form. Some commenters asked FinCEN to provide guidance on how beneficial ownership information should be included in information exchange processes under Section 314(a) of the USA PATRIOT Act. One of these commentators requested FinCEN to report this information as such outside the scope of Article 314(a). FinCEN does not expect information obtained under the beneficial ownership requirement to add additional Section 314(a) requirements for financial institutions. The 314(a) enforcement requirement in 31 CFR 1010.520 does not permit the reporting of beneficial ownership information in connection with an account or transaction corresponding to a named entity.
Under this rule, financial institutions are only required to search their records for accounts or transactions corresponding to a named subject and report to FinCEN if such a match exists using the credentials provided by FinCEN. (c) Account. For purposes of this section, the Account shall have the meaning set forth in section 1020.100(a) of this Chapter (for banks); paragraph 1023.100(a) of this chapter (for investment dealers); Section 1024.100(a) of this Chapter (for investment funds); and paragraph 1026.100(a) of this Chapter (for term commission dealers or commodity introducing dealers). 79. In the proposal, we have described these elements, which we consider fundamental to an effective anti-money-laundering programme, as follows: (i) identification and verification of the identity of customers; (ii) identify and verify the beneficial ownership of clients of legal persons (i.e. natural persons who own or control legal persons); (iii) understand the nature and purpose of customer relationships; and (iv) conduct ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions. See 79 FR at 45152. Any other company registered with the SEC under the Securities and Exchange Act of 1934 – § 1010.230(e)(2)(vii) For example, the institution itself could identify the specific category of the client`s legal entity during the onboarding/due diligence process by reviewing the company`s incorporation document(s) and before the client applies for beneficial ownership certification.
This is perhaps the simplest solution for the vast majority of clients of legal entities, which will most likely be LLCs, tightly held companies and partnerships. The burden imposed on a small financial institution when opening an account resulting from the final set-up depends on the number of beneficial owners of each client of a legal person opening a new account,[176] the additional time required for each beneficial owner and the number of new accounts opened by the small financial institution for the legal entities in a given period. At the time of its certification in the NPRM, FinCEN had very little information on which to base its estimate of any of these variables and considered it reasonable to assume that the vast majority of legal entities opening accounts with smaller institutions tend to be small entities with simpler ownership structures (e.g. a single legal person directly owned by two natural persons), giving one or two beneficial owners. In addition, FinCEN also considered that small institutions could use these procedures to meet this requirement, given that all covered financial institutions have been subject to the CIP rules [177] for more than 10 years and the proposed rule uses CIP rules. As a result, FinCEN estimated in its certification that it would take an average of 20 minutes to meet the proposal`s requirements for identification, verification and registration of beneficial owners. In addition, for the purposes of its certification, FinCEN did not have direct data on the total number of legal entity accounts opened each year by small financial institutions and (partly based on an estimate it had received from a very large financial institution of the legal entity accounts it opened each year) FinCEN estimated that small institutions would not open more than 1.5 new legal entity accounts per day. and probably less.
However, as there is no statistical data on the average number of beneficial owners of clients of legal entities of small institutions, nor on the number of such accounts they have created in a given period, FinCEN invited comments on these issues. One commenter called on FinCEN to exempt point-of-sale retail credit accounts provided to small and medium-sized business customers, including private label commercial credit cards and co-branded credit cards and installment loans, from the scope of the beneficial ownership requirement. This commenter noted that these accounts pose a lower risk of money laundering, largely due to the restrictions on the use of these cards inherent in these customer relationships. For example, since private label credit cards can only be used to purchase goods or services from the designated retailer where they are issued, they would not be an attractive way to launder illegal products. The fact that these accounts can only be used for domestic transactions and generally have lower credit limits are other factors that mitigate the risk of these accounts. FinCEN heard that legal entities that do not have an established and verifiable credit history and are generally required to provide a personal guarantee of an individual whose identity and credit history will be verified. We agree that these features and restrictions associated with private label credit card accounts, which are used exclusively on the networks of issuing retailers, significantly reduce the vulnerability of these accounts to abuse by money launderers and terrorist financiers. As such, covered financial institutions are exempt from the beneficial ownership requirement for private label credit card accounts to the limited extent that they are established at the point of sale to receive credit products, including private label commercial credit cards, solely for the purchase of retail goods or services from the issuing retailer and have a maximum credit limit of $50,000.
While FinCEN did not decide to adopt any of the alternatives under consideration, in response to comments, it took a number of steps in the Final Rule to minimize the economic impact on small businesses subject to the rule. These include clarifying the definition of “client of a corporation” and extending the transition period from one year to two years; removing the requirement for financial institutions to use the attestation form to obtain beneficial ownership information; the extension of excluded categories of entities not subject to the requirement; simplifying exemption requirements for charities and not-for-profit organisations; and, as noted above, clarification that financial institutions are not required to update beneficial ownership information on a regular or ongoing basis, but only on an event-based basis when they discover, as part of their normal supervision, customer information that may be relevant to the assessment of customer exposure. This information could include a change in the customer`s beneficial ownership. This is explained in more detail in the analysis in the section above. Several commentators representing the commercial insurance premium financing industry submitted a joint letter outlining the expected impact of the beneficial ownership requirement on their industry and the structural characteristics of these financial products, making them a low risk of money laundering. They found that borrowers seeking funds to finance property and casualty insurance premiums do not receive these products directly; Instead, the funds are transferred directly to an insurance company, either directly or through an insurance agent or broker.
