[Federal Register Volume 75, Number 46 (Wednesday, March 10, 2010)]
[Notices]
[Pages 11207-11210]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-5075]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61651]
Policy Statement on Obtaining and Retaining Beneficial Ownership
Information for Anti-Money Laundering Purposes
AGENCY: Securities and Exchange Commission.
ACTION: Policy statement.
-----------------------------------------------------------------------
SUMMARY: The Securities and Exchange Commission is issuing a policy
statement to provide guidance on obtaining and retaining beneficial
ownership information for anti-money laundering purposes.
DATES: Effective Date: March 5, 2010.
FOR FURTHER INFORMATION CONTACT: Lourdes Gonzalez (202-551-5550), John
J. Fahey (202-551-5550), or Emily Westerberg Russell (202-551-5550),
Office of the Chief Counsel, Division of Trading and Markets.
SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission is
issuing a policy statement that provides guidance on obtaining and
retaining beneficial ownership information for anti-money laundering
purposes. This guidance is being issued jointly with the Financial
Crimes Enforcement Network, the Board of Governors of the Federal
Reserve System, the Federal Deposit Insurance Corporation, the Office
of the Comptroller of the Currency, the Office of Thrift Supervision,
and the National Credit Union Administration, and in consultation with
the staff of the Commodity Futures Trading Commission. The guidance
provided in this policy statement clarifies and consolidates existing
regulatory expectations for obtaining beneficial ownership information
for certain accounts and customer relationships.
Regulatory Requirements
The provisions of the Administrative Procedure Act (``APA'')
regarding notice of proposed rulemaking, opportunities for public
comment, and prior publication are not applicable to general statements
of policy, such as this.\1\ Similarly, the provisions of the Regulatory
Flexibility Act,\2\ which apply
[[Page 11208]]
only when notice and comment are required by the APA or another
statute, are not applicable.
---------------------------------------------------------------------------
\1\ 5 U.S.C. 553.
\2\ 5 U.S.C. 601-602.
---------------------------------------------------------------------------
By the Commission.
Dated: March 5, 2010
Florence E. Harmon,
Deputy Secretary.
Text of the Guidance
Guidance on Obtaining and Retaining Beneficial Ownership Information
The Financial Crimes Enforcement Network (FinCEN), along with the
Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the National Credit Union Administration, the
Office of the Comptroller of the Currency, the Office of Thrift
Supervision, and the Securities and Exchange Commission, are issuing
this guidance, in consultation with staff of the Commodity Futures
Trading Commission, to clarify and consolidate existing regulatory
expectations for obtaining beneficial ownership information for certain
accounts and customer relationships. Information on beneficial
ownership in account relationships provides another tool for financial
institutions to better understand and address money laundering and
terrorist financing risks, protect themselves from criminal activity,
and assist law enforcement with investigations and prosecutions.
Background
The cornerstone of a strong Bank Secrecy Act/Anti-Money Laundering
(BSA/AML) compliance program is the adoption and implementation of
internal controls, which include comprehensive customer due diligence
(CDD) policies, procedures, and processes for all customers,
particularly those that present a high risk for money laundering or
terrorist financing.\1\ The requirement that a financial institution
know its customers, and the risks presented by its customers, is basic
and fundamental to the development and implementation of an effective
BSA/AML compliance program. Specifically, conducting appropriate CDD
assists an institution in identifying, detecting, and evaluating
unusual or suspicious activity.
---------------------------------------------------------------------------
\1\ This guidance does not alter or supersede previously issued
regulations, rulings, or guidance related to Customer Identification
Program (CIP) requirements.
---------------------------------------------------------------------------
In general, a financial institution's CDD processes should be
commensurate with its BSA/AML risk, with particular focus on high risk
customers. CDD processes should be developed to identify customers who
pose heightened money laundering or terrorist financing risks, and
should be enhanced in accordance with the institution's assessment of
those risks.
Heightened risks can arise with respect to beneficial owners of
accounts because nominal account holders can enable individuals and
business entities to conceal the identity of the true owner of assets
or property derived from or associated with criminal activity.
Moreover, criminals, money launderers, tax evaders, and terrorists may
exploit the privacy and confidentiality surrounding some business
entities, including shell companies and other vehicles designed to
conceal the nature and purpose of illicit transactions and the
identities of the persons associated with them. Consequently,
identifying the beneficial owner(s) of some legal entities may be
challenging, as the characteristics of these entities often effectively
shield the legal identity of the owner. However, such identification
may be important in detecting suspicious activity and in providing
useful information to law enforcement.
A financial institution may consider implementing these policies
and procedures on an enterprise-wide basis. This may include sharing or
obtaining beneficial ownership information across business lines,
separate legal entities within an enterprise, and affiliated support
units. To encourage cost effectiveness, enhance efficiency, and
increase availability of potentially relevant information, AML staff
may find it useful to cross-check for beneficial ownership information
in data systems maintained within the financial institution for other
purposes, such as credit underwriting, marketing, or fraud detection.
Customer Due Diligence
As part of an institution's BSA/AML compliance program, a financial
institution should establish and maintain CDD procedures that are
reasonably designed to identify and verify the identity of beneficial
owners \2\ of an account, as appropriate, based on the institution's
evaluation of risk pertaining to an account.\3\
---------------------------------------------------------------------------
\2\ The definition of a ``beneficial owner'' under FinCEN's
regulations specific to due diligence programs for private banking
accounts and for correspondent accounts for foreign financial
institutions is the individual(s) who have a level of control over,
or entitlement to, the funds or assets in the account that, as a
practical matter, enables the individual(s), directly or indirectly,
to control, manage, or direct the account. The ability to fund the
account or the entitlement to the funds of the account alone,
however, without any corresponding authority to control, manage, or
direct the account (such as in the case of a minor child
beneficiary), does not cause the individual to be a beneficial
owner. This definition may be useful for purposes of this guidance.
See, e.g., 31 CFR 103.175(b).
\3\ The final rules implementing Section 326 of the USA PATRIOT
Act similarly provide that, based on a financial institution's risk
assessment of a new account opened by a customer that is not an
individual, a financial institution may need to take additional
steps to verify the identity of the customer by seeking information
about individuals with ownership or control over the account,
including signatories. See, e.g., 31 CFR 103.121(b)(2)(ii)(C). In
addition, a financial institution may need to look through the
account in connection with customer due diligence procedures
required under other provisions of its BSA compliance program.
---------------------------------------------------------------------------
For example, CDD procedures may include the following:
Determining whether the customer is acting as an agent for
or on behalf of another, and if so, obtaining information regarding the
capacity in which and on whose behalf the customer is acting.
Where the customer is a legal entity that is not publicly
traded in the United States, such as an unincorporated association, a
private investment company (PIC), trust or foundation, obtaining
information about the structure or ownership of the entity so as to
allow the institution to determine whether the account poses heightened
risk.
Where the customer is a trustee, obtaining information
about the trust structure to allow the institution to establish a
reasonable understanding of the trust structure and to determine the
provider of funds and any persons or entities that have control over
the funds or have the power to remove the trustees.
With respect to accounts that have been identified by an
institution's CDD procedures as posing a heightened risk, these
accounts should be subjected to enhanced due diligence (EDD) that is
reasonably designed to enable compliance with the requirements of the
BSA. This may include steps, in accordance with the level of risk
presented, to identify and verify beneficial owners, to reasonably
understand the sources and uses of funds in the account, and to
reasonably understand the relationship between the customer and the
beneficial owner.
Certain trusts, corporate entities, shell entities,\4\ and PICs are
examples of customers that may pose heightened risk. In addition,
FinCEN rules establish particular due diligence requirements concerning
beneficial owners in the areas of private banking and foreign
correspondent accounts.
---------------------------------------------------------------------------
\4\ http://www.fincen.gov/statutes_regs/guidance/pdf/AdvisoryOnShells_FINAL.pdf.
---------------------------------------------------------------------------
In addition, CDD and EDD information should be used for monitoring
purposes and to determine whether there are discrepancies
[[Page 11209]]
between information obtained regarding the account's intended purpose
and expected account activity and the actual sources of funds and uses
of the account.
Private Banking \5\
Under FinCEN's regulations, a ``covered financial institution'' \6\
must establish and maintain a due diligence program that includes
policies, procedures, and controls reasonably designed to detect and
report known or suspected money laundering or suspicious activity
conducted through or involving private banking accounts. This
requirement applies to private banking accounts established,
maintained, administered, or managed in the United States.\7\ The
regulation currently covers private banking accounts at depository
institutions, securities broker-dealers, futures commission merchants
and introducing brokers in commodities, and mutual funds.
---------------------------------------------------------------------------
\5\ A ``private banking account'' is defined in 31 CFR
103.175(o), as an account (or any combination of accounts)
maintained at a covered financial institution that: (1) Requires a
minimum aggregate deposit of funds or other assets of not less than
$1,000,000; (2) is established on behalf of or for the benefit of
one or more non-U.S. persons who are direct or beneficial owners of
the account; and (3) is assigned to, or is administered or managed
by, in whole or in part, an officer, employee, or agent of a covered
financial institution acting as a liaison between the covered
financial institution and the direct or beneficial owner of the
account. Private banking accounts that do not fit within this
definition should be subject to the general CDD procedures,
including, as appropriate, EDD procedures discussed above.
\6\ 31 CFR 103.175(f)(1).
\7\ See, generally, 31 CFR 103.178.
---------------------------------------------------------------------------
Among other actions, as part of their due diligence program,
institutions that offer private banking services must take reasonable
steps to ascertain the source(s) of the customer's wealth and the
anticipated activity of the account, as well as potentially take into
account the geographic location, the customer's corporate structure,
and public information.\8\ Moreover, reasonable steps must be taken to
identify nominal and beneficial owners of private banking accounts.\9\
Obtaining beneficial ownership information concerning the types of
accounts listed above may require the application of EDD procedures.
---------------------------------------------------------------------------
\8\ See, 31 CFR 103.178 (b)(3) and (b)(4). See also, Federal
Financial Institutions Examination Council (FFIEC) Exam Manual,
Private Banking--Overview. Although the FFIEC Exam Manual is issued
by the federal banking regulators regarding AML requirements
applicable to banks, it contains guidance that may be of interest to
securities and futures firms.
\9\ 31 CFR 103.178(b)(1).
---------------------------------------------------------------------------
Special rules apply for senior foreign political figures.\10\ A
review of private banking account relationships is required in part to
determine whether the nominal or beneficial owners are senior foreign
political figures. Covered financial institutions should establish
policies, procedures, and controls that include reasonable steps to
ascertain the status of a nominal or beneficial owner as a senior
foreign political figure. This may include obtaining information on
employment status and sources of income, as well as consulting news
sources and checking references where appropriate.\11\ Accounts for
senior foreign political figures require, in all instances, EDD that is
reasonably designed to detect and report transactions that may involve
the proceeds of foreign corruption.\12\
---------------------------------------------------------------------------
\10\ A senior foreign political figure is a current or former
senior official in the executive, legislative, administrative,
military, or judicial branches of a foreign government (whether
elected or not), senior official of a major foreign political party
or a senior executive of a foreign government-owned commercial
enterprise, a corporation or other entity formed by or for the
benefit of such individuals, or any immediate family member or
widely and publically known close associate to such individuals. 31
CFR 103.175(r).
\11\ See, e.g., FFIEC Exam Manual, Private Banking Due Diligence
Program (Non-U.S. Persons).
\12\ 31 CFR 103.178 (b)(2) and (c).
---------------------------------------------------------------------------
With regard to private banking accounts, a covered financial
institution's failure to take reasonable steps to identify the nominal
and beneficial owners of an account generally would be viewed as a
violation of the requirements of 31 CFR 103.178.
Foreign Correspondent Accounts
FinCEN's regulations also require covered financial institutions
\13\ to establish a due diligence program that includes appropriate,
specific, risk-based, and, where necessary, enhanced policies,
procedures and controls that are reasonably designed to detect and
report, on an ongoing basis, any known or suspected money laundering
activity conducted through or involving any correspondent account \14\
established, maintained, administered, or managed in the United States
for a foreign financial institution.\15\ Under these regulations,
enhanced due diligence is required for correspondent accounts \16\
established, maintained, administered, or managed in the United States,
for foreign banks that operate under: (1) An offshore banking license;
(2) a banking license issued by a country that has been designated as
non-cooperative with international anti-money laundering principles or
procedures; or (3) a banking license issued by a country designated by
the Secretary of the Treasury (under delegation to the Director of
FinCEN, and in consultation with the Federal banking agencies, the
Securities and Exchange Commission, and the Commodity Futures Trading
Commission) as warranting special measures due to money laundering
concerns.\17\ Enhanced due diligence is designed to be risk-based, with
flexibility in its implementation to allow covered financial
institutions to obtain and retain this information based on risk.
---------------------------------------------------------------------------
\13\ 31 CFR 103.175(f)(1). The definition of covered financial
institution discussed above applies to both the private banking and
correspondent account regulations.
\14\ 31 CFR 103.175(d). Generally, a ``correspondent account''
is defined as an account established for a foreign financial
institution to receive deposits from, or to make payments or other
disbursements on behalf of, the foreign financial institution, or to
handle other financial transactions related to such foreign
financial institution. 31 CFR 103.175(d)(1).
\15\ 31 CFR 103.176(a).
\16\ For purposes of the enhanced due diligence requirements for
certain foreign banks and the foreign shell bank prohibitions
discussed herein, a ``correspondent account'' is defined as an
account established for a foreign bank to receive deposits from, or
to make payments or other disbursements on behalf of, the foreign
bank, or to handle other financial transactions related to such
foreign bank. 31 CFR 103.175(d)(1)(ii).
\17\ See 31 CFR 103.176(b) and(c) for the full text of this
provision. Special Due Diligence Programs for Certain Foreign
Accounts, 72 FR 44768-44775 (August 9, 2007).
---------------------------------------------------------------------------
With respect to correspondent accounts for such foreign banks, a
covered financial institution's risk-based EDD should obtain
information, as appropriate, from the foreign bank about the identity
of any person with authority to direct transactions through any
correspondent account that is a payable-through account, as well as the
source and beneficial owner of funds or other assets in a payable-
through account. A payable-through account is a correspondent account
maintained by a covered financial institution for a foreign bank by
means of which the foreign bank permits its customers to engage, either
directly or through a subaccount, in banking activities usual in
connection with the business of banking in the United States.\18\
Covered financial institutions may elect to use a questionnaire or
conduct a review of the transaction history for the respondent bank in
collecting the information required.\19\
---------------------------------------------------------------------------
\18\ See, 31 CFR 103.176(b)(1)(iii)(B).
\19\ ``An Assessment of the Final Rule Implementing Enhanced Due
Diligence Provisions for Accounts for Certain Foreign Banks, p. 4.
(March 2009). http://www.fincen.gov/news_room/rp/files/Special_Due_Diligence_Program.pdf.
---------------------------------------------------------------------------
[[Page 11210]]
Additionally, covered financial institutions \20\ are prohibited
from opening and maintaining correspondent accounts \21\ for foreign
shell banks.\22\ Covered financial institutions that offer foreign
correspondent accounts must take reasonable steps to ensure the account
is not being used to indirectly provide banking services to foreign
shell banks.\23\ The covered financial institution must identify the
owners \24\ of foreign banks whose shares are not publicly traded and
record the name and address of a person in the United States that is
authorized to be an agent to accept service of legal process.\25\
---------------------------------------------------------------------------
\20\ For purposes of the shell bank prohibitions, a covered
institution generally includes: U.S. banks, savings associations,
credit unions, private bankers, and trust companies; branches and
agencies of foreign banks; Edge Act corporations; and securities
broker-dealers. 31 CFR 103.175(f)(2).
\21\ For purposes of the foreign shell bank prohibitions, a
``correspondent account'' is defined as an account established for a
foreign bank to receive deposits from, or to make payments or other
disbursements on behalf of, the foreign bank, or to handle other
financial transactions related to such foreign bank. 31 CFR
103.175(d)(1)(ii).
\22\ See, 31 CFR 103.177.
\23\ 31 CFR 103.177(a)(1)(ii).
\24\ For purposes of 31 CFR 103.177, ``owner'' is defined at 31
CFR 103.175(l). Similarly, under the enhanced due diligence
provisions of the correspondent account rule, the covered financial
institution may need to identify the owners of foreign banks whose
shares are not publicly-traded. See, 31 CFR 103.176(b)(3). An
``owner'' is defined for this purpose to include any person who
directly or indirectly owns, controls, or has the power to vote 10
percent or more of any class of securities. See, 31 CFR
103.176(b)(3)(ii).
\25\ See 31 CFR 103.177(a)(2).
---------------------------------------------------------------------------
With regard to foreign correspondent accounts, a covered financial
institution's failure to maintain records identifying the owners of
non-publicly traded foreign banks could be viewed as a violation of the
requirements of 31 CFR 103.177.
For questions about this guidance, please contact FinCEN's
Regulatory Helpline at (800) 949-2732 or your appropriate regulatory
agency.
[FR Doc. 2010-5075 Filed 3-9-10; 8:45 am]
BILLING CODE 8011-01-P