A financial institution must obtain certain identifying information from new customers and seek to verify that information. The Financial Crimes Enforcement Network (FinCEN), the U.S. agency tasked with issuing anti-money laundering (AML) regulations, recently issued proposed regulations that would require that a covered financial institution identify the beneficial owners of its legal entity customers.1 This month’s column will discuss this proposal, which also would apply to U.S. branches, agencies and representative offices of non-U.S. banks (collectively, offices). The comment period ends Oct. 3, 2014.
In the Beginning…
Until 2001, AML regulations issued under the so-called Bank Secrecy Act2 did not specifically require that banks and other financial institutions have specific programs in place to verify the identity of their customers. The necessity of a financial institution to “know its customer” was emphasized through regulatory guidance.3 In 1998, an attempt was made by the federal banking agencies to require that banking organizations implement formal “Know Your Customer” programs “reasonably designed to determine the identity of their customers, as well as their customers’ normal and expected transactions and sources of funds involving the bank.”4 The proposal proved quite controversial, and shortly after the formal comment period ended in March 1999, the agencies withdrew the proposal but emphasized their continued strong commitment to the Bank Secrecy Act.5
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