Business Inspection


New Bank Secrecy Act rules require closer corporate-customer reviews

By Mary Thorson Wright

In May 2016, the U.S. Treasury’s Financial Crimes Enforcement Network published final customer due-diligence rules that add new “beneficial ownership” identification reporting for the corporate clients of financial institutions subject to USA PATRIOT Act requirements.

The result will be more Bank Secrecy Act/anti-money laundering information collection and recordkeeping for community banks, says Lilly Thomas, ICBA vice president and senior regulatory counsel. “Community banks will have to collect and verify the personal information of the individuals who own and control companies that open accounts,” she says.
The customer due-diligence requirements include three actions:

  • Identify and verify the identity of all the beneficial owners of companies opening accounts.
  • Understand the nature and purpose of customer relationships to develop customer risk profiles.
  • Continuously monitor to identify and report suspicious transactions.

A beneficial owner is anyone who owns or controls 25 percent or more of a “legal entity” or who has substantial management authority at the legal entity. The person could be a CEO, chairman, managing partner or anyone who regularly performs similar functions.


The new rules will apply to accounts opened on or after May 11, 2018. Broad-based retroactive measures for existing accounts are not required. However, banks are expected to collect beneficial ownership information on accounts that predate May 2018 if certain triggering events occur in connection with a client company. Those events include significant ownership or management changes occurring at a company or the filing of a formal anti-money laundering report about a corporate client.

Although the rules take effect in 2018, banks may have to make detailed changes to their anti-money laundering policies, procedures, technology and documentation files, Thomas says. For that reason, preparation should begin now to train staff in the new requirements and to execute them on time.

New definitions
The customer due-diligence rules also adopt a few new definitions. A legal entity under the rules includes corporations, partnerships, limited partnerships, and limited-liability corporations and partnerships; corporate entities that require a filing with a state secretary of state or other officer; and any corporate entity chartered in a foreign country that does business in the United States.

New Bank Secrecy Act rules involving “beneficial ownership” identification reporting for corporate customers will apply to accounts opened on or after
May 11, 2018.

Under the rules, an account means a loan, deposit or any other service for which the bank establishes a contractual relationship with the legal entity.

The beneficial ownership requirement is a new fifth pillar for anti-money laundering programs.

The four existing pillars are:

  • Develop internal policies, procedures and controls.
  • Designate a compliance officer.
  • Establish an ongoing employee training program.
  • Implement an independent audit function to test the program.

Complicating factors
As a result, BSA/anti-money laundering compliance programs will have to include ongoing customer due-diligence procedures covering the beneficial owners.

Information about beneficial owners should be used for anti-money laundering compliance, including compliance with the Office of Foreign Assets Control regulations and the Currency Transaction Report aggregation requirements. For cash transaction reporting, community banks will have to recognize when a beneficial owner conducts a transaction on behalf of a legal corporate entity, and when those transactions should trigger a Currency Transaction Report filing, Thomas says.

Moreover, banks also will have to develop appropriate risk-based compliance procedures to determine whether or when additional screening of beneficial owners would be appropriate, she adds. 

Beneficial ownership records must be retained for five years from the date the records are created.

Mary Thorson Wright, a former Federal Reserve manager, is a financial writer in Virginia.

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tection Bureau updated its regulations on mortgage servicers with expanded exceptions for small servicers that ICBA advocated. The final rules include foreclosure-mitigation requirements for certain borrowers, expand protections for surviving family members, and clarify the definition of “delinquency,” among several other mandates.
ICBA will issue a summary of the rules soon.