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Identifying Beneficial OwnersGaye DeCesareOctober 5, 2017

DisclaimerThis program is designed to provide accurate and authoritative information. It is done with the express understanding that CU Service Network and its employees are not engaged in rendering legal advice. If legal advice is required, consult an attorney.

FinCEN Customer Due Diligence (CDD) Rule

•2 Main Provisions• Beneficial Ownership Requirements•Anti-money Laundering Programs

•Effective date – May 11, 2018

Fifth Pillar•CDD becomes 5th “pillar” of AML program• Internal Controls•AML Officer• Training • Independent Review•Customer Due Diligence

CDD Obligations• Identify and verify identity of “customers”• Identify and verify identity of “beneficial owners” of legal entity customers•Understand nature of customer relationship•Ongoing monitoring

Identify & Verify Customers•Already required as part of your CIP/MIP process• Individuals • Legal entities• Corporations, LLCs, partnerships,

other similar business entities

New Requirements under CDD• Identify beneficial owners of legal entity members•Verify identity of beneficial owners of legal entity members•Procedures for identifying and verifying beneficial owners•Recordkeeping•Record retention

Legal Entity Account

•Accounts owned by legal entities rather than natural person accounts• Includes• Corporation, LLC, general partnership, other

entity created by filing of public document •Does not include• Government agencies, sole proprietorships,

unincorporated associations, natural persons opening accounts on own behalf

Identify Beneficial Owners•Beneficial owner – 2 prongs•Ownership – Each individual who

owns 25% or more of the equity interests•Control – at least one person who

has significant managerial control• CEO, CFO, COO, General Partner,

President, VP, Treasurer

Identify Beneficial Owners

•Collect information from party opening account•Name•Address• Birthdate• SSN/other gov’t ID number

Identify Beneficial Owners

•Method of collecting information•Certification form – Appendix A of

final rule•Credit union’s forms•Any other means

•Verify identity of beneficial owners via CIP procedures

Written Procedures•How credit union will identify beneficial owners•How credit union will verify identity of beneficial owners•Make and maintain records of identification and verification information•Ongoing due diligence

Recordkeeping Requirements•Certification form•Any identification information

obtained, including certification form, if applicable•A description/copy of document used

to verify identity•Any non-documentary methods used•Measures taken to resolve information

discrepancies and results of those actions

Record Retention Requirements

• Identification records – 5 years after account is closed•Verification records – 5 years after the record is made

Customer Due Diligence•Objective of CDD• Predict kinds of transactions• Identify suspicious transactions

•CDD should address• Verifying identity of customer•Assessing risk with that customer• Enhanced due diligence for higher-risk

customers•Ongoing due diligence of customer

base

Customer Due Diligence•CDD guidelines should• Be commensurate with BSA/AML risk

assessment• Contain statement of management’s

expectations and establish staff responsibilities• Ensure credit union gets enough customer

info for suspicious activity monitoring• Document analysis of due diligence process• Ensure credit union maintains customer

information

Account Opening

EDDCDDCIP/MIP

Due Diligence For High Risk Members• Information at account opening AND

throughout account relationship• Purpose of account• Source of funds• Owners/signers/guarantors• Occupation/type of business• Proximity of account holder’s

residence/place of employment/place of business to CU• Anticipated volume of activity

•Monitoring accounts

High-Risk Businesses• Non-bank financial

institutions• Casinos,

securities/commodities firms, MSBs, insurance companies, precious metal dealers, pawnbrokers

• Professional service providers• Lawyers, accountants

investment brokers

• Nongovernmental organizations• Nonprofits

• Business entities• Corporations, trusts,

LLCs• Cash-intensive

businesses• Convenience

stores, restaurants, liquor stores, parking garages

CDD Basic Questions for Businesses•Who are owners?•What kind of business? What products/services?•Where are offices of business? How many offices?•What is source of funds?

CDD/EDD Questions for Businesses• What are banking

needs?• How many checks

per month?• What are cash

needs?• How often will

deposits/withdrawals be made?• What electronic

services will be used?

• Does business provide any of the following services?• Cash checks and/or

money orders• Issue monetary

instruments• Exchange currency• Serve as a money

transmitter• Internet gambling

transactions• Marijuana related

business

CDD Basic Questions for Individuals•High Risk Individuals•Nonresident aliens•Other foreign individuals

• Info about customer• Residency status•Country of origin• Type of documentary and/or

nondocumentary identification

CDD Monitoring

• Two key components• Keeping information up to date• Scrutinizing transactions

CDD Monitoring• Low risk• Regular suspicious activity

monitoring

•Higher risk•More frequent basis, more specific

examination

CDD Monitoring

•Manual monitoring•Currency Activity Reports• Funds Transfer Records•Monetary Instrument Records

•Automated account monitoring• Establish filtering criteria

CDD Monitoring•Determine when to review and/or “refresh” data•During trigger event – change to CU

policy, change in transaction patterns, change in business ownership• Higher risk – review on periodic cycle• How often to review? Risk based

Documents for Non-Natural Person ID Verification• Sole proprietor – Personal ID, fictitious

business name statement, DBA• Partnership – Partnership agreement•Corporation – Certificate of

incorporation, business license• LLC – Operating agreement•Nonprofit organization or club – bylaws,

charter• Formal trusts – trust documents

CDD Guidelines•CDD guidelines should• Be commensurate with BSA/AML risk

assessment• Contain statement of management’s

expectations and establish staff responsibilities• Ensure credit union gets enough customer

info for suspicious activity monitoring• Document analysis of due diligence

process• Ensure credit union maintains customer

information

CIP vs. CDD•What they have in common:• Explicit legal requirement•Must be addressed in written, board-

approved policy(ies)• Record retention 5 years

•Where they differ:•CIP not required for established

customer opening new account•CDD required every time a legal

entity opens an account

Beneficial Owners and Other AML Rules• Transaction aggregation for beneficial owners•Maybe

•OFAC• Yes

• Section 314(a) requirements•No

CDD & Beneficial Ownership Steps•Develop business owner certification form•Develop checklist/form for information gathering•Data processor• BSA software• Forms provider• Policy(ies) and Procedures

CDD & Beneficial Ownership Steps•Document procedures•Determine system adjustments• Train staff• Help them understand WHY they

are doing something• Critical aspect of combatting illegal

financial activity• Required by regulation and CU’s

policies

Speaker Information

Gaye DeCesareVP Compliance Services

gdecesare@cusn.com720-575-6925

• 274 Union Blvd, Ste 320• Lakewood, CO 80228• www.cusn.com