Effective May 1, 2018
Important Information About Opening A New Account
New rules under the Bank Secrecy Act require financial institutions to obtain and verify the identification of business owners before a new account may be established. This rule applies to accounts such as checking, savings, certificates of deposit, safe deposit boxes and loans. It also applies to existing customers opening an additional account or securing a loan.
Each time a business account is opened we are required to ask for identifying information for each individual who has beneficial ownership (of 25% or more) and one individual who has significant managerial control of the business. A person with significant managerial control is a high-level official of the legal entity who is responsible for how the organization is run, and who has access to a range of information concerning the day-to-day operations of the company (i.e., an executive, managing member, general partner, president, vice president, treasurer, or any other person who regularly performs similar functions). If you are opening an account on behalf of a business, you will also be required to provide appropriate documentation and to certify that ownership information is accurate to the best of your knowledge.
Purpose of Collecting Additional Information
Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account in order to help the government fight the funding of terrorism and money laundering activities. Section 326 of the USA Patriot Act requires that financial institutions identify and verify the identity of the beneficial owners of all legal entity customers at the time a new account is opened. The identification and verification procedures for beneficial owners are very similar to those you currently follow as individual customers.
What Entities are Affected?
The rule applies to legal-entity businesses such as corporations, limited liability companies, partnerships, or other entities created by a filing of a public document with a Secretary of State or similar office.
What Entities are Exempt for the Requirements?
These businesses are generally exempt:
- Sole Proprietorships
- Trusts and estates
- U.S. and state government agencies
- Registered insurance companies
- Publicly-traded companies and their subsidiaries
- Unincorporated associations such as scout troops or youth sports leagues.
Legal Entity Customers and Exemptions
Q: Who is a legal entity customer?
A: The Rule defines a legal entity customer as a corporation, limited liability company, other entity created by the filing of a public document with a Secretary of State or similar office, a general partnership, and any similar entity formed under the laws of a foreign jurisdiction that opens an account. The definition also includes limited partnerships, limited liability partnerships, business trusts that are created by a filing with a state office, and any other entity created in this manner.
A legal entity customer does not include sole proprietorships, unincorporated associations, or natural persons opening accounts on their own behalf.
Q: Are there any entities that are excluded from the definition of the legal entity customer and for which a covered financial institutions is not required to obtain beneficial ownership information?
Q: Are trusts included in the definition of legal entity customer?
The CDD Rule does not supersede existing obligations and practices regarding trusts generally. The preamble to each of the CIP rules notes that, while financial institutions are not required to look through a trust to its beneficiaries, they "may need to take additional steps to verify the identity of a customer that is not an individual, such as obtaining information about persons with control over the account."3 We understand that where trusts are direct customers of financial institutions, financial institutions generally also identify and verify the identity of trustees, because trustees will necessarily be signatories on trust accounts. Furthermore, under supervisory guidance for banks, "in certain circumstances involving revocable trusts, the bank may need to gather information about the settlor, grantor, trustee, or other persons with the authority to direct the trustee, and who thus have authority or control over the account, in order to establish the true identity of the customer."
To read the full FinCEN guidance "Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions", click here. If you have any questions or need additional information, please call your 1st Capital Bank banker or stop by your nearest 1st Capital Bank location.