Your State Association Presents
Customer Identification Program
and Customer Due Diligence
Program Materials
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Friday, July 22, 2016 Presenter: Deborah L. Crawford
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Customer Identification Program
and Customer Due Diligence
2016
The material used in this text has been drawn from sources believed to be reliable. Every effort has been made to assure the accuracy of the
material; however, the accuracy of this information is not guaranteed. The laws are often changed without prior notice from the government.
The publisher and the editor are not engaging in the practice of law or accounting. We are not responsible for the actions of your company's
employees.
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Instructor
Deborah L Crawford • Debbie is the President of Gettechnical Inc, a Virginia based training company. Her combined banking and training experience began in 1984 and she is a deposit side expert. She received her Bachelors and Masters degrees from Louisiana State University.
• If you have any questions just call 1-800-354-3051 or email us at [email protected].
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CUSTOMER IDENTIFICATION
PROGRAM
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§ 1020.220 Customer Identification Programs for banks, savings associations, credit unions, and certain non-Federally regulated banks.
(a) Customer Identification Program: minimum requirements—(1) In general. A bank must implement a written Customer Identification Program (CIP) appropriate for its size and type of business that, at a minimum, includes each of the requirements of paragraphs (a)(1) through (5) of this section. If a bank is required to have an anti-money laundering compliance program under the regulations implementing 31 U.S.C. 5318(h), 12 U.S.C. 1818(s), or 12 U.S.C. 1786(q)(1), then the CIP must be a part of the anti-money laundering compliance program. Until such time as credit unions, private banks, and trust companies without a Federal functional regulator are subject to such a program, their CIPs must be approved by their boards of directors.
(2) Identity verification procedures. The CIP must include risk-based procedures for verifying the identity of each customer to the extent reasonable and practicable. The procedures must enable the bank to form a reasonable belief that it knows the true identity of each customer. These procedures must be based on the bank’s assessment of the relevant risks, including those presented by the various types of accounts maintained by the bank, the various methods of opening accounts provided by the bank, the various types of identifying information available, and the bank’s size, location, and customer base.
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At a minimum, these procedures must contain the elements described in this paragraph (a)(2).
(i) Customer information required—
(A) In general. The CIP must contain procedures for opening an account that specify the identifying information that will be obtained from each customer. Except as permitted by paragraphs (a)(2)(i)(B) and (C) of this section, the bank must obtain, at a minimum, the following information from the customer prior to opening an account:
(1) Name;
(2) Date of birth, for an individual;
(3) Address, which shall be: (i) For an individual, a residential or business street address;
(ii) For an individual who does not have a residential or business street address, an Army Post Office (APO) or Fleet Post Office (FPO) box number, or the residential or business street address of next of kin or of another contact individual; or
(iii) For a person other than an individual (such as a corporation, partnership, or trust), a principal place of business, local office, or other physical location; and
(4) Identification number, which shall be:
similar safeguard. (i) For a U.S. person, a taxpayer identification number; or
(ii) For a non-U.S. person, one or more of the following: A taxpayer identification number; passport number and country of issuance; alien identification card number; or number and country of issuance of any other government-issued document evidencing nationality or residence and bearing a photograph or
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• (ii) Customer verification. The CIP must contain procedures for verifying the identity of the customer, using information obtained in accordance with paragraph (a)(2)(i) of this section, within a reasonable time after the account is opened. The procedures must describe when the bank will use documents, nondocumentary methods, or a combination of both methods as described in this paragraph (a)(2)(ii).
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(A) Verification through documents. For a bank relying on documents, the CIP must contain procedures that set forth the documents that the bank will use. These documents may include:
(1) For an individual, unexpired government-issued identification evidencing nationality or residence and bearing a photograph or similar safeguard, such as a driver’s license or passport; and
(2) For a person other than an individual (such as a corporation, partnership, or trust), documents showing the existence of the entity, such as certified articles of incorporation, a government-issued business license, a partnership agreement, or trust instrument.
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(B) Verification through nondocumentary methods. For a bank relying on nondocumentary methods, the CIP must contain procedures that describe the nondocumentary methods the bank will use.
(1) These methods may include contacting a customer; independently verifying the customer’s identity through the comparison of information provided by the customer with information obtained from a consumer reporting agency, public database, or other source; checking references with other financial institutions; and obtaining a financial statement.
(2) The bank’s nondocumentary procedures must address situations where an individual is unable to present an unexpired government-issued identification document that bears a photograph or similar safeguard; the bank is not familiar with the documents presented; the account is opened without obtaining documents; the customer opens the account without appearing in person at the bank; and where the bank is otherwise presented with circumstances that increase the risk that the bank will be unable to verify the true identity of a customer through documents.
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• C) Additional verification for certain customers. The CIP must address situations where, based on the bank’s risk assessment of a new account opened by a customer that is not an individual, the bank will obtain information about individuals with authority or control over such account, including signatories, in order to verify the customer’s identity. This verification method applies only when the bank cannot verify the customer’s true identity using the verification methods described in paragraphs (a)(2)(ii)(A) and (B) of this section.
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Elderly
• Social Security cards
• Voters registration
• Membership cards
• Utility bills
• Non-driver’s identification cards
• Real Estate Tax Bills
• Medicare cards
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Minors
• Student identification
• Non-driver’s identification card
• Birth certificates
• Credit cards
• Social Security cards
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Lack of verification
The CIP must include procedures for responding to circumstances in which the bank cannot form a reasonable belief that it knows the true identity of a customer. These procedures should describe:
(A) When the bank should not open an account;
(B) The terms under which a customer may use an account while the bank attempts to verify the customer's identity;
(C) When the bank should close an account, after attempts to verify a customer's identity have failed; and
(D) When the bank should file a Suspicious Activity Report in accordance with applicable law and regulation
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Comparison with government lists
• The CIP must include procedures for determining whether the customer appears on any list of known or suspected terrorists or terrorist organizations issued by any Federal government agency and designated as such by Treasury in consultation with the Federal functional regulators. The procedures must require the bank to make such a determination within a reasonable period of time after the account is opened, or earlier, if required by another Federal law or regulation or Federal directive issued in connection with the applicable list. The procedures must also require the bank to follow all Federal directives issued in connection with such lists.
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Customer notice.
The CIP must include procedures for providing bank customers with adequate notice that the bank is requesting information to verify their identities.
(ii) Adequate notice. Notice is adequate if the bank generally describes the identification requirements of this section and provides the notice in a manner reasonably designed to ensure that a customer is able to view the notice, or is otherwise given notice, before opening an account. For example, depending upon the manner in which the account is opened, a bank may post a notice in the lobby or on its Web site, include the notice on its account applications, or use any other form of written or oral notice.
(iii) Sample notice. If appropriate, a bank may use the following sample language to provide notice to its customers:
Important Information About Procedures for Opening a New Account
To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.
What this means for you: When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver's license or other identifying documents.
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Reliance on another financial
institutionThe CIP may include procedures specifying when a bank will rely on the performance by another financial institution (including an affiliate) of any procedures of the bank's CIP, with respect to any customer of the bank that is opening, or has opened, an account or has established a similar formal banking or business relationship with the other financial institution to provide or engage in services, dealings, or other financial transactions, provided that:
(i) Such reliance is reasonable under the circumstances;
(ii) The other financial institution is subject to a rule implementing 31 U.S.C. 5318(h) and is regulated by a Federal functional regulator; and
(iii) The other financial institution enters into a contract requiring it to certify annually to the bank that it has implemented its anti-money laundering program, and that it will perform (or its agent will perform) the specified requirements of the bank's CIP.
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Recordkeeping
The CIP must include procedures for making and maintaining a record of all information obtained under the procedures implementing paragraph (a) of this section.
(i) Required records. At a minimum, the record must include:
(A) All identifying information about a customer obtained under paragraph (a)(2)(i) of this section;
(B) A description of any document that was relied on under paragraph (a)(2)(ii)(A) of this section noting the type of document, any identification number contained in the document, the place of issuance and, if any, the date of issuance and expiration date;
(C) A description of the methods and the results of any measures undertaken to verify the identity of the customer under paragraph (a)(2)(ii)(B) or (C) of this section; and
(D) A description of the resolution of any substantive discrepancy discovered when verifying the identifying information obtained.
(ii) Retention of records. The bank must retain the information in paragraph (a)(3)(i)(A) of this section for five years after the date the account is closed or, in the case of credit card accounts, five years after the account is closed or becomes dormant. The bank must retain the information in paragraphs (a)(3)(i)(B), (C), and (D) of this section for five years after the record is made.
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CUSTOMER DUE DILIGENCE
(CDD)
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For FinCEN, the key elements of CDD
include:
(i) identifying and verifying the identity of customers;
(ii) identifying and verifying the identity of beneficial owners of legal entity customers (i.e., the natural persons who own or control legal entities);
(iii) understanding the nature and purpose of customer relationships; and
(iv) conducting ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions.
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§1020.210 Anti-money laundering program requirements for financial institutions
regulated only by a Federal functional regulator, including banks, savings
associations, and credit unions
• A financial institution regulated by a Federal functional regulator that is not subject to the regulations of a self-regulatory organization shall be deemed to satisfy the requirements of 31 U.S.C. 5318(h)(1) if the financial institution implements and maintains an anti-money laundering program that:– Complies with the requirements of §§ 1010.610 and 1010.620 of this Chapter;
– Includes, at a minimum:• A system of internal controls to assure ongoing compliance;
• Independent testing for compliance to be conducted by bank personnel or by an outside party;
• Designation of an individual or individuals responsible for coordinating and monitoring day-to-day compliance;
• Training for appropriate personnel; and
• Appropriate risk-based procedures for conducting ongoing customer due diligence, to include, but not be limited to:
– Understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile; and
– Conducting ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions; and
– Complies with the regulation of its Federal functional regulator governing such programs.
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Adds two sections to BSA Regulations
• 1010.230 Beneficial Ownership and Appendix
A
• 1020.210 Rules for Banks
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Critical Dates
• May 11, 2016 appears in Federal Register
• July 11, 2016 goes into effect
• May 11, 2018 Compliance drop dead date
• You will need every minute.
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Four Elements of CDD
Legal Entities
CIP
CIP 25% Beneficial
Owners and Controlling
Person
Ask Transactional Questions to Risk Rate the
Customer
Monitor Account Activity
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Explicit Requirements
Explicit requirements in the anti-money laundering (AML) program for all covered financial institutions, in order to ensure clarity and consistency across sectors:
(1) customer identification and verification,
(2) beneficial ownership identification and verification,
(3) understanding the nature and purpose of customer relationships to develop a customer risk profile, and
(4) ongoing monitoring for reporting suspicious transactions and, on a risk-basis, maintaining and updating customer information.
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Element One
CIP
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Current Customer
Identification Program
• Information
– Name
– Address
– Date of Birth (on people)
– TIN (if non US other numbers
can be used)
• Documentary Verification
• Nondocumentary
Verification
• Resolve Discrepancies
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Element Two
CIP Beneficial Owners
and Controlling Person
1010.230
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Identification and verification.
• With respect to legal entity customers, the covered financial institution’s customer due diligence procedures shall enable the institution to:– Identify the beneficial owner(s) of each legal entity customer at
the time a new account is opened, unless the customer is otherwise excluded pursuant to paragraph (e) of this section or the account is exempted pursuant to paragraph (h) of this section. A covered financial institution may accomplish this either by obtaining a certification in the form of appendix A of this section from the individual opening the account on behalf of the legal entity customer, or by obtaining from the individual the information required by the form by another means, provided the individual certifies, to the best of the individual’s knowledge, the accuracy of the information; and
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– Verify the identity of each beneficial owner identified to the covered financial institution, according to risk-based procedures to the extent reasonable and practicable. At a minimum, these procedures must contain the elements required for verifying the identity of customers that are individuals under §1020.220(a)(2) of this chapter (for banks); §1023.220(a)(2) of this chapter (for brokers or dealers in securities); §1024.220(a)(2) of this chapter (for mutual funds); or §1026.220(a)(2) of this chapter (for futures commission merchants or introducing brokers in commodities); provided, that in the case of documentary verification, the financial institution may use photocopies or other reproductions of the documents listed in paragraph (a)(2)(ii)(A)(1) of §1020.220 of this chapter (for banks); §1023.220 of this chapter (for brokers or dealers in securities); §1024.220 of this chapter (for mutual funds); or §1026.220 of this chapter (for futures commission merchants or introducing brokers in commodities). A covered financial institution may rely on the information supplied by the legal entity customer regarding the identity of its beneficial owner or owners, provided that it has no knowledge of facts that would reasonably call into question the reliability of such information.
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Key points
• Covered financial institutions must identify and verify the identity of the beneficial owners of all legal entity customers (other than those that are excluded) at the time a new account is opened (other than accounts that are exempted).
• The financial institution may comply either by obtaining the required information on a standard certification form (Certification Form (Appendix A)) or by any other means that comply with the substantive requirements of this obligation.
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• The identification and verification procedures for beneficial owners are very similar to those for individual customers under a financial institution’s customer identification program (CIP), except that for beneficial owners, the institution may rely on copies of identity documents.
• Financial institutions are required to maintain records of the beneficial ownership information they obtain, and may rely on another financial institution for the performance of these requirements, in each case to the same extent as under their CIP rule.
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Who is a covered financial
institution?
The term “covered financial institution” refers
to:
(i) banks;
(ii) brokers or dealers in securities;
(iii) mutual funds; and
(iv) futures commission merchants and
introducing brokers in commodities.
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Exemptions to covered financial
institution—“Activity” AccountsCovered financial institutions are exempt from the requirements to identify and verify the identity of the beneficial owner(s) only to the extent the financial institution opens an account for a legal entity customer that is:
• At the point-of-sale to provide credit products, including commercial private label credit cards, solely for the purchase of retail goods and/or services at these retailers, up to a limit of $50,000;
• To finance the purchase of postage and for which payments are remitted directly by the financial institution to the provider of the postage products;
• To finance insurance premiums and for which payments are remitted directly by the financial institution to the insurance provider or broker;
• To finance the purchase or leasing of equipment and for which payments are remitted directly by the financial institution to the vendor or lessor of this equipment.
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Limitations on the “activity”
exemptions
(i) The exemptions do not apply to transaction accounts through which a legal entity customer can make payments to, or receive payments from, third parties.
(ii) If there is the possibility of a cash refund on the account activity identified in this section, then beneficial ownership of the legal entity customer must be identified and verified by the financial institution as required by this section, either at the time of initial remittance, or at the time such refund occurs.
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What is a legal entity?
• Legal entity customer means a corporation, limited
liability company, or other entity that is 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.
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Not a legal entity customer
• A financial institution regulated by a Federal functional
regulator or a bank regulated by a State bank regulator;
• An exempt person;
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CTR Exemption Person 1-5
CIP Exemption Person 1-4
CDD Exemption Person 1-5(b) Exempt person. For purposes of this section, an exempt person is:
(1) A bank, to the extent of such bank’s domestic operations;
(2) A department or agency of the United States, of any State, or of any political subdivision of any State;
(3) Any entity established under the laws of the United States, of any State, or of any political subdivision of any State, or under an interstate compact between two or more States, that exercises governmental authority on behalf of the United States or any such State or political subdivision;
(4) Any entity, other than a bank, whose common stock or analogous equity interests are listed on the New York Stock Exchange or the American Stock Exchange or whose common stock or analogous equity interests have been designated as a NASDAQ National Market Security listed on the NASDAQ Stock Market (except stock or interests listed under the separate ‘‘NASDAQ Capital Markets Companies’’ heading), provided that, for purposes of this paragraph (b)(4), a person that is a financial institution, other than a bank, is an exempt person only to the extent of its domestic operations;
(5) Any subsidiary, other than a bank, of any entity described in paragraph (b)(4) of this section (a ‘‘listed entity’’) that is organized under the laws of the United States or of any State and at least 51 percent of whose common stock or analogous equity interest is owned by the listed entity, provided that, for purposes of this paragraph (b)(5), a person that is a financial institution, other than a bank, is an exempt person only to the extent of its domestic operations;
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+ Not a legal entity continued …
• An issuer of a class of securities registered under section 12 of the Securities Exchange Act of 1934 or that is required to file reports under section 15(d) of that Act;
• An investment company, as defined in section 3 of the Investment Company Act of 1940, that is registered with the Securities and Exchange Commission under that Act;
• An investment adviser, as defined in section 202(a)(11) of the Investment Advisers Act of 1940, that is registered with the Securities and Exchange Commission under that Act;
• An exchange or clearing agency, as defined in section 3 of the Securities Exchange Act of 1934, that is registered under section 6 or 17A of that Act;
• Any other entity registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934;
• A registered entity, commodity pool operator, commodity trading advisor, retail foreign exchange dealer, swap dealer, or major swap participant, each as defined in section 1a of the Commodity Exchange Act, that is registered with the Commodity Futures Trading Commission;
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• A public accounting firm registered under section 102 of the Sarbanes–Oxley Act;
• A bank holding company, as defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841) or savings and loan holding company, as defined in section 10(n) of the Home Owners’ Loan Act (12 U.S.C 1467a(n));
• A pooled investment vehicle that is operated or advised by a financial institution excluded under paragraph (e)(2) of this section;
• An insurance company that is regulated by a State;
• A financial market utility designated by the Financial Stability Oversight Council under Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010;
• A foreign financial institution established in a jurisdiction where the regulator of such institution maintains beneficial ownership information regarding such institution;
• A non-U.S. governmental department, agency or political subdivision that engages only in governmental rather than commercial activities; and
• Any legal entity only to the extent that it opens a private banking account subject to §1010.620 of this chapter.
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– The following legal entity customers are subject
only to the control prong of the beneficial
ownership requirement:
• A pooled investment vehicle that is operated or advised
by a financial institution not excluded; and
• Any legal entity that is established as a nonprofit
corporation or similar entity and has filed its
organizational documents with the appropriate State
authority as necessary.
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• Identify and verify ID of beneficial owners.
• Can use standard form or something substantially similar
• Certification that info is correct if you do or do not use the form.
Certification
Form or similar format
• Trust what customer says unless you have reason to suspect otherwise
• CIP for beneficial owners will be substantially similar to individuals but you may rely on copies
Rely on Customer
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The Form
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Who is a 25% beneficial owner?
– Each individual, if any, who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, owns 25 percent or more of the equity interests of a legal entity customer; and
– A single individual with significant responsibility to control, manage, or direct a legal entity customer, including:
• An executive officer or senior manager (e.g., a Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Managing Member, General Partner, President, Vice President, or Treasurer); or
• Any other individual who regularly performs similar functions.
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What if the 25% beneficial owner is
an trust or exempt entity?
– If a trust owns directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, 25 percent or more of the equity interests of a legal entity customer, the beneficial owner shall mean the trustee.
– If an entity owner is not a legal entity subject to this rule owns directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, 25 percent or more of the equity interests of a legal entity customer, no individual.
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Do we have to use certification of
beneficial ownership form?
• The financial institution may comply either by
obtaining the required information on a
standard certification form (Certification Form
(Appendix A)) or by any other means that
comply with the substantive requirements of
this obligation.
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If we use the form is there a safe
harbor?
• No
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ABC LLC
Four members
Equal owners
Trust
CIP Trustee
XYZ, LLC
Single Member LLC
Owned by Sally Jones
CIP Sally Jones
ABC, Inc
Traded on Stock Exchange
Exempt from CIP and CDD Beneficial
Ownership
Joe Smith
CIP Joe Smith
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Can we rely on what the customer
says for beneficial ownership?
The financial institution may rely on the
beneficial ownership information supplied by
the customer, provided that it has no knowledge
of facts that would reasonably call into question
the reliability of the information.
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Do we use the same CIP on signers
and beneficial owners?
• You do not have too. You can have two
different requirements.
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For Example…
CIP for Signers CIP for Beneficial Owners
Information:
Name, Address, DOB and TIN
Documents:
Driver’s License and Social Security Card
Nondocument:
Third party vendor and welcome letter
Information:
Name, Address, DOB and TIN
Documents:
Driver’s License and Social Security Card
Could be copy and not face to face
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What is a new account for this
section?
• Account has same definition as CIP
• New accounts for this section means each
account opened at a covered financial
institution by a legal entity customer on or
after the applicability date.
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What about existing customers?
• Grandfathered until an “event” happens.
– Adding a new account to existing relationship.
– Something appears in monitoring
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• When a financial institution detects information (including a change in beneficial ownership information) about the customer in the course of its normal monitoring that is relevant to assessing or reevaluating the risk posed by the customer, it must update the customer information, including beneficial ownership information.
• Such information could include, e.g., a significant and unexplained change in the customer’s activity, such as executing cross-border wire transfers for no apparent reason or a significant change in the volume of activity without explanation.
• It could also include information indicating a possible change in the customer’s beneficial ownership, because such information could also be relevant to assessing the risk posed by the customer. This applies to all legal entity customers, including those existing on the Applicability Date.
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Obtain beneficial ownership
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Obtain beneficial ownership for legal
entity customers
New CustomerExisting Customer
adding a new account
Existing Customer with a triggering
event
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Existing Customers
Obtain beneficial information on
existing legal entity customers when…
Add New Account to existing relationship
Triggering Event
Significant unexplained change
in customer’s activity
Information indicating a possible change in beneficial
ownership
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Record Retention
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Recordkeeping for beneficial
ownership.
• A covered financial institution must establish procedures for making and maintaining a record of all information obtained under the procedures implementing identification and verification of beneficial owners.– Required records. At a minimum the record must include:
• For identification, any identifying information obtained by the covered financial institution, including without limitation the certification (if obtained); (Keep five years after account closed) and
• For verification, a description of any document relied on (noting the type, any identification number, place of issuance and, if any, date of issuance and expiration), of any nondocumentary methods and the results of any measures undertaken, and of the resolution of each substantive discrepancy. (Keep five years after account opened.)
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Reliance on Another
Financial Institution
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Reliance on another financial
institution• A covered financial institution may rely on the performance by
another financial institution (including an affiliate) of the requirements of this section with respect to any legal entity customer of the covered financial institution that is opening, or has opened, an account or has established a similar business relationship with the other financial institution to provide or engage in services, dealings, or other financial transactions, provided that:– Such reliance is reasonable under the circumstances;
– The other financial institution is subject to a rule implementing 31 U.S.C. 5318(h) and is regulated by a Federal functional regulator; and
– The other financial institution enters into a contract requiring it to certify annually to the covered financial institution that it has implemented its anti-money laundering program, and that it will perform (or its agent will perform) the specified requirements of the covered financial institution’s procedures to comply with the requirements of this section.
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Policy
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Two Components
Explicit addition of the fifth pillar
Beneficial Ownership
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Part One
Our financial institutions implements and maintains an anti-money laundering program that:
– Complies with the requirements of the Bank Secrecy Act
– Includes, at a minimum:• A system of internal controls to assure ongoing compliance;
• Independent testing for compliance to be conducted by bank personnel or by an outside party;
• Designation of an individual or individuals responsible for coordinating and monitoring day-to-day compliance;
• Training for appropriate personnel; and
• Appropriate risk-based procedures for conducting ongoing customer due diligence, to include, but not be limited to:
– Understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile; and
– Conducting ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions; and
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Part Two
Legal Entities and Beneficial Ownership
In general. Our policy is to identify and verify beneficial owners of legal entity customers and to include such procedures in their anti-money laundering compliance program required under 31 U.S.C. 5318(h) and its implementing regulations.
Identification and verification. With respect to legal entity customers, we shall enable the institution to:
Identify the beneficial owner(s) of each legal entity customer at the time a new account is opened, unless the customer is otherwise excluded. We may accomplish this either by obtaining a certification in the form of appendix A of this section from the individual opening the account on behalf of the legal entity customer, or by obtaining from the individual the information required by the form by another means, provided the individual certifies, to the best of the individual’s knowledge, the accuracy of the information; and
We will verify the identity of each beneficial owner, according to risk-based procedures to the extent reasonable and practicable. At a minimum, these procedures will contain the elements required for verifying the identity of customers that are individuals. Our institution may rely on the information supplied by the legal entity customer regarding the identity of its beneficial owner or owners, provided that it has no knowledge of facts that would reasonably call into question the reliability of such information.
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Full Policy is
in your
handouts
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Procedures for Legal
Entities
Front House Procedures
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Type of Legal Entity Add Element Two--ID Beneficial Owners and
Controlling Person?
Sole Proprietor No
General Partnership Yes
Limited Liability Partnership Yes
Limited Partnership Yes
Limited Liability Limited Partnership Yes
Corporation for Profit Yes
Corporation Not for Profit Yes but only controlling person
Limited Liability Company Single Member Yes
Limited Liability Company-Multiple Member Yes
Nonprofit clubs, organizations, tragedy accounts, benefit accounts No
Escrow Accounts No
Trust Accounts No
Public Funds No
IOLTA No
1031 Exchange Accounts No
Campaign Accounts No
Estate Accounts No 62
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SOLE PROPRIETORSHIP
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To establish a sole proprietorship all an individual is
required to do is to start conducting business for
profit. There are no formal legal requirements for
establishment. In most states these are owned by one
person and cease at the death of that owner.
Certainly the sole proprietorship can have other
signers on the account.
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Requirements Sole Proprietorship
1. Required Information on Entity:
(Before opening account)� Name
� Address
� Date of Birth
� Taxpayer identification—The account will
use the Social Security number of owner or
employer identification number of owner.
2. IRS Reporting: Report in SSN or EIN of owner
3. Documentary Requirements:
(Reasonable time after
opening)
� Valid identification on sole proprietor
My financial institution does/does not require
all signers to Complete CIP.
� County issued document such as
Occupational license/Trade Name
The customer applies in the county where he
or she is doing business.
� Resolution: Provided by the financial
institution for sole proprietorships and
signed by the owner of the business. There
may be other signers on the account. These
signers may be changed at any time by the
owner.
� Signature card: Provided by the financial
institution, signed by those authorized in
the Resolution. It is the contract between
the financial institution and the customer.65
67
Requirements Sole Proprietorship
4. Suggested Nondocument
Verification:
(Reasonable time after
opening)
A CIP program must also have nondocumentary
verification. Suggestions include:
� Welcome letter
� Call to customer to thank for business
� Delivery of checks to location by account
officer
� Third party verification
� Previous financial institution references
5. Account Styling: Joe Smith dba Floral Enterprises
6. Consult Government Lists: � Section 326 List
� OFAC List
7. Insurance: A sole proprietorship is insured under individual
coverage for a total of $250,000.
66
68
Resolution
I, Joe Smith, am the sole owner of Floral Enterprises….
I authorize the following to sign on the account:
Joe Smith Owner
Mary Smith Authorized Signer
Usually a list of what they can and cannot do
Signed
Joe Smith, Owner
69
1
OWNERSHIP� Sole Proprietorship
2
TITLE
Joe Smith
dba Floral Enterprises
3
FEDERAL REGULATIONS
5
TAXPAYER IDENTIFICATION
NUMBER
Joe certifies SSN or EIN
(EIN assigned to Joe
personally…either way Joe is
first on title)
4
SIGNATURES (Access)
Joe Smith
Mary Smith
Sample: Sole Proprietorship
68
70
Checklist for Sole Proprietorship
� Required information on sole proprietorship
� Report in SSN or EIN of owner
� Valid identification on sole proprietor
� Occupational License from county/Trade Name/Assumed Name
� Account Styling: Joe Smith dba Floral Enterprises
� Account Ownership: Sole Proprietor
� Nondocumentary verification
� Resolution
� Signature Card
� Government Lists
69
71
General
Partnerships
County or SOS
May have Agreement
EIN
Resolution &
Signature Card
Limited Liability
Partnerships
Limited
Partnerships
SOS
Partnership Agreement
EIN
Resolution &
Signature Card
EIN
Resolution &
Signature Card
Partnership Agreement
SOS
3 Kinds of Partnerships in Most States
70
72
PARTNERSHIP: ALL THREE FOLLOW
SIMILAR PROCEDURES ALTHOUGH
DOCUMENTS MAY BE DIFFERENTThe Uniform Partnership Act defines a partnership as an association of two or more persons to carry on a business as co-owners for profit. Partnerships are easily organized and may or may not have a formal partnership agreement.
71
73
Requirements Partnership
1. Required Information on
Entity:
(Before opening account)
� Name
� Address
� Taxpayer identification—The account will use the
employer identification number of the
partnership.
2. IRS Reporting: Report in EIN of business
72
74
Requirements Partnership
3. Documentary
Requirements:
(Reasonable time after
opening)
� Valid Identification on partner(s) opening the
account.
My financial institution does/does not require all
signers to complete CIP
� Partnership Agreement: When it is available it is
helpful to identify all the partners by a copy of the
partnership agreement. The key issue to a
partnership account is to make sure all partners
sign the resolution.
� Government Issued document at county or
secretary of state (Domestic or Foreign)
� Certification of Beneficial Owner(s)—Form
and CIP of 25% owners and controlling
person
� Resolution: Provided by the financial institution
for partnerships and signed by the partners. There
may be other signers on the account and may be
changed at any time by all of the partners. A
change in the account requires a new resolution
signed by all the partners.
� Signature Card: Provided by the financial
institution, signed by those authorized in the
resolution. It is the contract between the
financial institution and the customer.73
75
Requirements Partnership
4. Suggested Nondocument
Verification:
(Reasonable time after
opening)
A CIP program must also have nondocumentary
verification. Suggestions include:
� Welcome letter
� Call to customer to thank for business
� Delivery of checks to location by account officer
� Third party verification
� Previous financial institution references
5. Account Styling: Johnson Enterprises
6. Consult Government Lists: � Section 326 List
� OFAC List
7. Insurance: A partnership is separately insured for $250,000 from
the individual accounts of the partners.
8. Miscellaneous: No PODs on partnerships.
74
76
Partnership Resolution
Names the Partnership: Floral Enterprises
Lists who can sign What their job is
Joe Smith Partner
Mary Smith Partner
Betty Smith Authorized Signer
Usually a list of what they can and cannot do
�Make deposits and Withdrawals
�Make loans
�Other
Joe SmithMary Smith
Signed by all the partners unless there is a partnership
agreement with a managing partner named. 75
77
1
OWNERSHIP� General Partnership
2
TITLE
Floral Enterprises
3
FEDERAL REGULATIONS
5
TAXPAYER IDENTIFICATION
NUMBER
EIN of Partnership
4
SIGNATURES (Access)
Joe Smith, Partner
Mary Smith, Partner
Betty Smith, Authorized Signer
Sample: Partnership
76
78
77
Joe Smith
Floral Enterprises
Joe Smith 8/14/77 123 Main St
Monroe LA xxxxx 439-00-9999
Mary Smith 9/15/76 1243 Main St
Monroe, LA xxxxx 439-11-0000
Joe Smith 8/14/77 123 Main St
Monroe, LA 439-00-9999
Joe SmithJoe Smith 1/6/2015
79
Checklist for Partnership
� Required information on Entity
� Report in EIN of Partnership
� Valid identification on partner(s) opening the account
� Documentary verification� County document or SOS document
� Nondocumentary verification
� Signature Card
� Resolution
� Certification of Beneficial Owner(s) )—Form and CIP of 25% owners and controlling person
� Account Styling: Johnson Enterprises
� Government Lists
� Risk rate customer
78
80
CORPORATIONS
FOR PROFIT
79
81
Corporations
• A corporation is formed when Articles of Incorporation are filed with the Secretary of State to approve the new business. Corporations doing business in more than one state must register as a "foreign corporation" in each state. The election of officers, usually contained in the minutes, is done at the first board meeting. The opening and closing of an account is authorized by the Board of Directors and carried out by the Corporate Secretary.
80
82
Requirements Corporations
1. Required Information on
Entity:
(Before opening account)
� Name
� Address
� Taxpayer identification— The account will
use the employer identification number
of the corporation.
2. IRS Reporting: Report in EIN of business
81
83
Requirements Corporations
3. Documentary Requirements:
(Reasonable time after
opening)
� Valid identification on corporate secretary
My financial institution does/does not require all
signers to Complete CIP.
� Domestic: Government issued document
� Foreign: Government issued document
� Fictitious Name: If the corporation is doing
business under another name it must file a
Certificate of Fictitious Name
82
84
Requirements Corporations
3. Con’t - Documentary
Requirements:
(Reasonable time after
opening)
� Minutes from Board Meeting: The customer
should provide an excerpt from the minutes of
the last board meeting where officers were
elected—specifically the Secretary of the
corporation since this person must sign the
resolution.
� Certification of Beneficial Owner(s) )—
Form and CIP of 25% owners and controlling
person
� Resolution: Provided by the financial institution
signed by the secretary of the business. There
may be other signers on the account. These
signers may be changed at any time by the
corporation, provided the corporation provides
new minutes, new resolution and new
signature card.
� Signature Card: Provided by the financial
institution signed by those authorized in the
resolution. It is the contract between the
financial institution and the customer.
4. Suggested Nondocument
Verification:
(Reasonable time after
opening)
A CIP program must also have nondocumentary
verification. Suggestions include:
� Welcome letter
� Call to customer to thank for business
83
85
Requirements Corporations
5. Account Styling: Johnson Enterprises, Inc.
6. Consult Government Lists: � Section 326 List
� OFAC List
7. Insurance: Each corporation is separately insured for $250,000.
8. Miscellaneous: No ITF/PODs on Corporations.
84
86
Resolution
Be it resolved at the last meeting of Floral Enterprises, Inc on
July 4, 2011 the board of directors the following was decided:
All of these will sign on the corporate account:
Joe Smith President and Secretary
Mary Smith Vice President and Treasurer
Usually a list of what they can and cannot do
� Make Deposits and withdrawals
� Make loans
� Other
Signed
Joe Smith, Corporate Secretary
Attested to by another officer 85
87
1
OWNERSHIP� Corporation
2
TITLE
Floral Enterprises Inc
3
FEDERAL REGULATIONS
5
TAXPAYER IDENTIFICATION
NUMBER
EIN of Corporation
4
SIGNATURES (Access)
Joe Smith, Pres and Sec
Mary Smith, VP and Treas
Sample: Corporation
86
88
87
Joe Smith
Floral Enterprises, Inc
Joe Smith
Joe Smith 01/06/2015
Joe Smith 08/14/1977 123 Main Street 439-00-9999
Monroe, LA xxxxx
Mary Smith 09/15/1976 123 Main Street 439-11-0000
Monroe, LA xxxxx
Joe Smith 08/14/1977 123 Main Street 439-00-9999
Monroe, LA xxxxx
89
Checklist for Corporations
� Required information on Corporation
� Report to IRS in EIN of Business
� Valid identification on Corporate Secretary
� Document from Secretary of State � Domestic: Government issued document
� Foreign: Government issued document
� Fictitious Name (If required)
� Minutes from Board meeting to determine Corporate Secretary
� Nondocumentary verification (should check with Secretary of State to see if in good standing)
� Signature Card
� Resolution
� Certification of Beneficial Owner(s) )—Form and CIP of 25% owners and controlling person
� Account Styling: Johnson Enterprises, Inc.
� Government lists
� Risk Rate Customer
88
90
CORPORATIONS
NOT FOR PROFIT
89
91
Corporations
• A corporation is formed when Articles of Incorporation are filed with the Secretary of State to approve the new business. Corporations doing business in more than one state must register as a "foreign corporation" in each state. The election of officers, usually contained in the minutes, is done at the first board meeting. The opening and closing of an account is authorized by the Board of Directors and carried out by the Corporate Secretary.
90
92
Requirements Corporations
1. Required Information on
Entity:
(Before opening account)
� Name
� Address
� Taxpayer identification— The account will
use the employer identification number
of the corporation.
2. IRS Reporting: Report in EIN of business
91
93
Requirements Corporations
3. Documentary Requirements:
(Reasonable time after
opening)
� Valid identification on corporate secretary
My financial institution does/does not require all
signers to Complete CIP.
� Domestic: Government issued document
� Foreign: Government issued document
� Fictitious Name: If the corporation is doing
business under another name it must file a
Certificate of Fictitious Name
92
94
Requirements Corporations
3. Con’t - Documentary
Requirements:
(Reasonable time after
opening)
� Minutes from Board Meeting: The customer
should provide an excerpt from the minutes
of the last board meeting where officers were
elected—specifically the Secretary of the
corporation since this person must sign the
resolution.
� Certification of Beneficial Owner(s)—CIP
Controlling Person only on form
� Resolution: Provided by the financial
institution signed by the secretary of the
business. There may be other signers on the
account. These signers may be changed at
any time by the corporation, provided the
corporation provides new minutes, new
resolution and new signature card.
� Signature Card: Provided by the financial
institution signed by those authorized in the
resolution. It is the contract between the
financial institution and the customer.
4. Suggested Nondocument
Verification:
(Reasonable time after
opening)
A CIP program must also have nondocumentary
verification. Suggestions include:
� Welcome letter
� Call to customer to thank for business
� Delivery of checks to location by account
officer
� Third party verification
� Contact Secretary of State’s Office
93
95
Requirements Corporations
5. Account Styling: Funds for the Homeless, Inc.
6. Consult Government Lists: � Section 326 List
� OFAC List
7. Insurance: Each corporation is separately insured for $250,000.
8. Miscellaneous: No ITF/PODs on Corporations.
94
96
Resolution
Be it resolved at the last meeting of Funds for the Homeless,
Inc on July 4, 2011 the board of directors the following was
decided:
All of these will sign on the corporate account:
Joe Smith President and Secretary
Mary Smith Vice President and Treasurer
Usually a list of what they can and cannot do
� Make Deposits and withdrawals
� Make loans
� Other
Signed
Joe Smith, Corporate Secretary
Attested to by another officer95
97
1
OWNERSHIP� Corporation
2
TITLE
Funds for the Homeless Inc
3
FEDERAL REGULATIONS
5
TAXPAYER IDENTIFICATION
NUMBER
EIN of Corporation
4
SIGNATURES (Access)
Joe Smith, Pres and Sec
Mary Smith, VP and Treas
Sample: Corporation
96
98
97
Joe Smith
Funds for Homeless, Inc
Joe Smith
Joe Smith 01/06/2015
Joe Smith 08/14/1977 123 Main Street 439-00-9999
Monroe, LA xxxxx
99
Checklist for Non profit
Corporations� Required information on Corporation
� Report to IRS in EIN of Business
� Valid identification on Corporate Secretary
� Document from Secretary of State � Domestic: Government issued document
� Foreign: Government issued document
� Fictitious Name (If required)
� Minutes from Board meeting to determine Corporate Secretary
� Nondocumentary verification (should check with Secretary of State to see if in good standing)
� Signature Card
� Resolution
� Certification of Beneficial Owner(s) )—Form and CIP controlling person
� Account Styling: Funds for Homeless, Inc.
� Government lists
� Risk Rate Customer
98
100
LIMITED LIABILITY COMPANY
99
101
Limited Liability Company (LLC)
• A limited liability company offers the owners
limited liability like a corporation with a taxing
structure similar to a partnership. The income
is passed through to the owners of the
business.
100
102
Requirements Limited Liability Company
1. Required Information on
Entity:
(Before opening account)
� Name
� Address
� Taxpayer identification— The account can
use the Social Security number of owner if
a one person LLC or employer identification
number of the business.
2. IRS Reporting: Report in EIN of LLC or may use SSN of member
if the LLC is one person.
101
103
Requirements Limited Liability Company
3. Documentary Requirements:
(Reasonable time after
opening)
� Valid identification on person opening the account
My financial institution does/does not require all
signers to Complete CIP.
� Operating Agreement, if any: Provided by the
customer, the agreement between the members
of the LLC. It usually names the managing
member.
� Domestic: Government Issued Document
� Foreign: Government Issued Document
� Certification of Beneficial Owner(s)—CIP
25% beneficial owners and controlling Person
on form
� Resolution: Provided by financial institution and
signed by managing member authorizing others
in organization to sign on accounts.
� Signature Card: Provided by financial institution;
it is the contract between financial institution
and customer.
102
104
Requirements Limited Liability Company
4. Suggested Nondocument
Verification:
(Reasonable time after opening)
A CIP program must also have nondocumentary
verification. Suggestions include:
� Welcome letter
� Call to customer to thank for business
� Delivery of checks to location by account
officer
� Third party verification
� Check with Secretary of State’s Office
5. Account Styling: Name of business:
Examples:
Smith Electronics, LLC
If a one person LLC using a Social Security
number:
Joe Smith
Smith Electronics, LLC
6. Consult Government Lists: � Section 326 List
� OFAC List
7. Insurance: $250,000 per LLC
8. Miscellaneous: No ITF/PODs on Limited Liability Companies
May be a one person LLC
May use a Social Security number
103
105
Limited Liability Company Resolution
Names the Limited Liability Company: Floral Enterprises, LLC
Lists who can sign What their job is
Joe Smith Managing Member
Mary Smith Member
Betty Smith Authorized Signer
Usually a list of what they can and cannot do
�Make deposits and Withdrawals
�Make loans
�Other
Joe Smith, Managing MemberAttested to by:Mary Smith, Member
104
106
1
OWNERSHIP� Limited Liability Company
2
TITLE
Floral Enterprises, LLC
3
FEDERAL REGULATIONS
5
TAXPAYER IDENTIFICATION
NUMBER
EIN of LLC
4
SIGNATURES (Access)
Joe Smith, Managing member
Mary Smith, Member
Betty Smith, Authorized signer
Sample: Multiple Member LLC
105
107
106
Joe Smith
Floral Enterprises, LLC
Joe Smith
Joe Smith 01/06/2015
Joe Smith 08/14/1977 123 Main Street 439-00-9999
Monroe, LA xxxxx
Mary Smith 09/15/1976 123 Main Street 439-11-0000
Monroe, LA xxxxx
Joe Smith 08/14/1977 123 Main Street 439-00-9999
Monroe, LA xxxxx
108
Limited Liability Company Resolution
Names the Limited Liability Company: Floral Enterprises, LLC
Lists who can sign What their job is
Joe Smith Managing Member
Mary Smith Authorized Signer
Betty Smith Authorized Signer
Usually a list of what they can and cannot do
�Make deposits and Withdrawals
�Make loans
�Other
Joe Smith, Managing Member
107
109
1
OWNERSHIP� Limited Liability Company
2
TITLE
Joe Smith
Floral Enterprises, LLC
3
FEDERAL REGULATIONS
5
TAXPAYER IDENTIFICATION
NUMBER
SSN of Joe Smith
4
SIGNATURES (Access)
Joe Smith, Managing member
Mary Smith, Authorized signer
Betty Smith, Authorized signer
Sample: Single Member LLC
108
110
109
Joe Smith
Floral Enterprises, LLC
Joe Smith
Joe Smith 01/06/2015
Joe Smith 08/14/1977 123 Main Street 439-00-9999
Monroe, LA xxxxx
Joe Smith 08/14/1977 123 Main Street 439-00-9999
Monroe, LA xxxxx
111
Checklist for Limited Liability
Company
� Required information on LLC
� Report to IRS in EIN (or SSN if one person LLC)
� Valid identification on managing member
� Operating Agreement, if any
� Documentation� Domestic: Government Issued Document
� Foreign: Government Issued Document
� Account Styling: Smith Electronics, LLC OR
Joe Smith, Smith Electronics, LLC
� Nondocumentary verification
� Certification of Beneficial Owner(s)—CIP 25% beneficial owners and controlling person
� Resolution
� Signature Card
� Government lists
� Risk Rate Customer110
112
FORMAL NONPROFIT OR
UNINCORPORATED ASSOCIATION
111
113
REQUIREMENTS FOR FORMAL NON PROFIT OR UNINCORPORATED ASSOCIATIONS
Requirements Formal Nonprofit Or Unincorporated
Associations
1. Required Information:
(Before opening account)
� Name
� Address
� Taxpayer identification— The account will use
the employer identification number of the
organization.
2. IRS Reporting: Report in EIN of Organization
3. Documentary
Requirements:
(Reasonable time after
opening)
� Valid identification on person opening the
account. Sometime financial institutions require
identification on all signatories.
My financial institution does/does not require all
signers to complete CIP
� Charter, By-laws —provided by customer.
� Minutes of Meeting authorizing account
opening
112
114
Requirements Formal Nonprofit Or Unincorporated
Associations
3. Doc. Requirements
(Continued)
�Financial Institution Provided Resolution
�Financial Institution Provided Signature Card
4. Suggested nondocument
verification:
(Reasonable time after
opening)
A CIP program must also have nondocumentary
verification. Suggestions include:
� Welcome letter
� Call to customer to thank for business
� Delivery of checks to location by account officer
� Third party verification
� Previous financial institution references
5. Account Styling: Name of organization. Examples:
� Rotary
� Lions Club
� Kiwanis
113
115
Requirements Formal Nonprofit Or Unincorporated
Associations
6. Consult Government Lists: � Section 326 List
� OFAC List
7. Insurance: $250,000 per Organization
8. Miscellaneous: Not for profit organizations may not have ITF/POD
114
116
Nonprofit Resolution
Names the Nonprofit: Baton Rouge Rotary
Lists who can sign What their job is
Joe Smith President
Mary Smith VP and Treasurer
Betty Jones Secretary
Usually a list of what they can and cannot do
�Make deposits and Withdrawals
�Make loans
�Other
Betty Jones, SecretaryAttested to by:Mary Smith, VP
115
117
1OWNERSHIP
Nonprofit
2TITLE
Rotary
3FEDERAL REGULATIONS
5TAXPAYER IDENTIFICATION
NUMBER
EIN of Rotary
4SIGNATURES (Access)
Joe Smith, Pres
Mary Smith, Treas and VP
Betty Jones, Sec
Example of Formal Nonprofit Organization
116
118
Checklist for Formal Nonprofit
Association� Required information on nonprofit association
� Valid identification on signers as required in your CIP
� Charter, By-laws
� Minutes
� Report to IRS in EIN of Association
� Account Styling: Rotary
� Account Ownership: Nonprofit
� Nondocumentary verification
� Resolution
� Signature Card
� Government lists
� Risk rate customer
117
119
INFORMAL NONPROFIT OR
UNINCORPORATED ASSOCIATION
118
120
REQUIREMENTS FOR INFORMAL NONPROFIT OR UNINCORPORATED ASSOCIATIONS
Requirements Informal Nonprofit
1. Required Information:
(Before opening account)
� Name
� Address
� Taxpayer identification— The account will use
the employer identification number of the
organization.
2. IRS Reporting: Report in EIN of Organization
3. Documentary
Requirements:
(Reasonable time after
opening)
� Valid identification on all persons opening the
account, since there will be no outside
documents, such as charters or by by-laws
� Financial Institution Provided Resolution
� Financial Institution Provided Signature Card
119
121
Requirements Informal Nonprofit
4. Suggested nondocument
verification:
(Reasonable time after
opening)
A CIP program must also have nondocument
verification. Suggestions include:
� Welcome letter
� Call to customer to thank for business
� Delivery of checks to location by account officer
� Third party verification
� Previous financial institution references
5. Account Styling: Name of organization. Examples:
� Little League
� Flower Fund
� Hunting Club
� 1975 Class Reunion
120
122
Requirements Informal Nonprofit
6. Consult Government Lists: � Section 326 List
� OFAC List
7. Insurance: $250,000 per Organization
8. Miscellaneous:Some small organizations will not have outside
documents. You will have to identify all signatories
if your financial institution decides
to open these accounts. Do not set up as a
personal account unless the SSN or the person on
the account is signing and checks will be coming in
made out personally to that person.
121
123
Nonprofit Resolution
Names the nonprofit: 1975 High School Reunion
Lists who can sign What their job is
Joe Smith President
Mary Smith Secretary
Usually a list of what they can and cannot do
�Make deposits and Withdrawals
�Make loans
�Other
Joe Smith, PresidentAttested to by:Mary Smith, Secretary
122
124
1
OWNERSHIP�Nonprofit
2
TITLE
1975 High School Reunion
3
FEDERAL REGULATIONS
5
TAXPAYER IDENTIFICATION
NUMBER
EIN of High School Reunion
4
SIGNATURES (Access)
Joe Smith
Mary Smith
Sample: Nonprofit
Gettechnical Inc 123
125
Checklist for Informal Nonprofit
Association
� Required information on nonprofit association
� Valid identification on all signatories
� Some financial institutions have customer write a “Letter of Purpose”
� Report to IRS in EIN of Association
� Account Styling: 1975 High School Reunion
� Account Ownership: Nonprofit
� Nondocumentary verification
� Resolution
� Signature Card
� Government lists
� Risk Rate Customer
124
126
Mapping Multi-tiered
Businesses
125
127
126
Mountain
View LLC
Lake
Rentals
Inc
Owned by:
Sally Smith
Bill Smith
50/50
Lake
Realty Inc
Owned by:
Sally Smith
Stan Smith
50/50
Lake
Shopping
Inc
Owned by:
Sally Smith
Stan Smith
Bill Smith
33/33/33
128
• Do we have 25% beneficial owners?
• Control Person?
• How many resolutions?
127
129
Element ThreeUnderstanding the nature and purpose of customer relationships to develop
a customer risk profile
128
130
FinCEN stated…
• under the existing requirement for financial
institutions to report suspicious activity, they
must file SARs on a transaction that, among
other things, has “no business or apparent
lawful purpose or is not the sort in which the
particular customer would normally be
expected to engage
129
131
• Banks specifically are expected to “obtain
information at account opening sufficient to
develop an understanding of normal and
expected activity for the customer’s
occupation or business operations.
130
132
• to understand the types of transactions in
which a particular customer would normally
be expected to engage necessarily requires an
understanding of the nature and purpose of
the customer relationship, which informs the
baseline against which aberrant, suspicious
transactions are identified
131
133
FinCEN stated…
• In some circumstances an understanding of the nature and purpose of a customer relationship can also be developed by inherent or self-evident information about the product or customer type, such as the type of customer, the type of account opened, or the service or product offered, or other basic information about the customer, and such information may be sufficient to understand the nature and purpose of the relationship.
• FinCEN further noted that, depending on the facts and circumstances, other relevant facts could include basic information about the customer, such as annual income, net worth, domicile, or principal occupation or business, as well as, in the case of longstanding customers, the customer’s history of activity.
132
134
You are probably gathering info such
as…
• Purpose of Account
• Nature of Business
• Source of Funds
• Transactional Questions
• Special Sets of Questions– MSBs
– MRBs
– Privately Held ATMs
– Third Party Payment Processors
– Embassy and Foreign Accounts
133
135
Transactional Questions
• Number of Deposits
• Number of Withdrawals
• ACH
• Wires
• International
• Purchase of Monetary Instruments
• POP Money
• Bill Pay
134
136
• Do you have a base line?
• Do you risk rate customers on transactions,
type of business, purpose etc?
• What do you do with the risk rating?
• How is risk rating changed?
135
137
Worksheet Approach—2 in Handbook
136
138
Excel Approach
137
139
Best yet
• Build it in your system
138
140
Element FourOngoing monitoring for reporting suspicious
transactions and, on a risk-basis, maintaining and
updating customer information
139
141
• “Regarding the fourth element, conducting ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions, we noted our understanding that, as with the third element, current industry practice to comply with existing expectations for SAR reporting should already satisfy this proposed requirement. Banks are expected to have in place internal controls to “provide sufficient controls and monitoring systems for timely detection and reporting of suspicious activity.”
• In short, the proposal served to codify existing supervisory and regulatory expectations for banks as explicit requirements within FinCEN’s AML program requirement in order to make clear that the minimum standards of CDD, as articulated, include ongoing monitoring of all transactions by, at, or through the financial institution.”
140
142
• “As proposed, the obligation to update customer information as a result of monitoring would generally only be triggered when the financial institution becomes aware of information about the customer in the course of normal monitoring relevant to assessing the risk posed by a customer; it was not intended to impose a categorical requirement to update customer information on a continuous or ongoing basis using the Certification Form in Appendix A or by another means.”
• Id.at 29-30.
141
143
FinCEN states
• “We clarify first that our expectation that all accounts be subject to ongoing monitoring does not mean that we expect all accounts to be subject to a uniform level of scrutiny.
• Rather, we fully expect financial institutions to apply the risk-based approach in determining the level of monitoring to which each account will be subjected.
• Thus, consistent with current practice, we would expect the level of monitoring to vary across accounts based on the financial institution’s assessment of the risk associated with the customer and the account.
• We also noted that all account relationships would be subject to this requirement merely to reflect the fact that all accounts must necessarily be monitored in some form in order to comply with existing SAR requirements, and not only those subject to the CIP rule.”
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Thanks for participating!
Debbie Crawford
Gettechnical Inc
1-800-354-3051
www.gettechnicalinc.com
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