We recommend treating the healthcare facility as the ”legal entity customer” when opening this account, unless the facility can provide additional information demonstrating that it is a trustee opening the account on behalf of a trust (in which case it would be exempt from FinCEN’s new CDD rule).

The account that you have described appears to be one authorized by the Illinois Nursing Home Act (Act). The Act permits healthcare facilities to accept funds from residents “for safekeeping and managing,” with written authorization from the residents or other qualified parties. The funds must be kept “in an account separate from the facility’s funds,” and funds over $100 must be deposited into an interest-bearing account that is established in a form that “clearly indicates that the facility has only a fiduciary interest in the funds.”

FinCEN’s new CDD rule applies to accounts opened by legal entity customers, such as corporations, LLCs, and other entities “created by the filing of a public document with a Secretary of State or similar office.” It exempts trusts (other than “statutory trusts”) from the definition of a “legal entity customer.” It also partly exempts certain pooled investment vehicles. However, this arrangement does not appear to meet the definition of a trust or a pooled investment arrangement.

A trust must be created by a written trust instrument under the following conditions: (1) an intent to create a trust, (2) a definite trust res, (3) ascertainable beneficiaries, (4) a trustee, (5) specification of the purpose of the trust and how it is to be performed, and (6) delivery of the trust property to the trustee. Without a written trust instrument, we do not recommend treating these accounts as trust accounts.

Also, this arrangement should not be treated as a pooled investment vehicle. While the term “pooled investment vehicle” is not defined in the new CDD rule, an earlier proposed version of the rule refers to such vehicles as investment companies or commodity pools, such as a hedge fund. You have indicated that these healthcare facility account funds are not invested and that the accounts operate like any other deposit accounts. Consequently, we do not recommend treating these accounts as pooled investment vehicle accounts, either.

Instead, we recommend treating these accounts as intermediated accounts. As explained in both FinCEN’s proposed rule and final rule, intermediated accounts are where a customer maintains an account for the benefit of others who are subject to the CDD rule. Your bank may treat the intermediary as the customer, rather than the underlying funds’ owners. Under this approach, your bank would treat the healthcare facility as its customer and collect the required beneficial ownership information regarding the healthcare facility, not its residents.

Additionally, if the healthcare facility is a nonprofit corporation, you would need to collect information only on those who control the nonprofit corporation, and not on the “member” or “members” who technically own the nonprofit corporation.

For resources related to our guidance, please see:

• Nursing Home Care Act, 210 ILCS 45/2-201(2) (“To protect the residents’ funds, the facility: . . . May accept funds from a resident for safekeeping and managing, if it receives written authorization . . . .”)

• Nursing Home Care Act, 210 ILCS 45/2-201(6) (“To protect the residents’ funds, the facility: . . . Shall keep any funds received from a resident for safekeeping in an account separate from the facility’s funds, and shall at no time withdraw any part or all of such funds for any purpose other than to return the funds to the resident upon the request of the resident or any other person entitled to make such request, to pay the resident his allowance, or to make any other payment authorized by the resident or any other person entitled to make such authorization.”)

• Nursing Home Care Act, 210 ILCS 45/2-201(7) (“To protect the residents’ funds, the facility: . . . Shall deposit any funds received from a resident in excess of $100 in an interest bearing account insured by agencies of, or corporations chartered by, the State or federal government. The account shall be in a form which clearly indicates that the facility has only a fiduciary interest in the funds and any interest from the account shall accrue to the resident. The facility may keep up to $100 of a resident’s money in a non-interest bearing account or petty cash fund, to be readily available for the resident’s current expenditures.”)

• FinCEN Customer Due Diligence Rule, 31 CFR 1010.230(e)  (“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.”)

• FinCEN Customer Due Diligence Rule, 31 CFR 1010.230(e)(3) (“The following legal entity customers are subject only to the control prong of the beneficial ownership requirement: (i) A pooled investment vehicle that is operated or advised by a financial institution not excluded under paragraph (e)(2) of this section; . . .”)

• FinCEN Final Rule, Customer Due Diligence Requirements for Financial Institutions, 81 Fed. Reg. 29397, 29412 (May 11, 2016) (“The definition would also not include trusts (other than statutory trusts created by a filing with a Secretary of State or similar office). This is because, unlike the legal entities that are subject to the final rule, a trust is a contractual arrangement between the person who provides the funds or other assets and specifies the terms (i.e., the grantor or settlor) and the person with control over the assets (i.e., the trustee), for the benefit of those named in the trust deed (i.e., the beneficiaries).”)

• Tucker v. Soy Capital Bank and Trust Co., 974 N.E.2d 820, 830 (1st Dist. 2012) (“In order to find there is a valid express trust, these conditions must be present: an intent to create a trust which may be shown by a declaration of trust by the settlor or circumstances which show the settlor intended to create a trust; a definite trust res; ascertainable beneficiaries; a trustee; specification of the purpose of the trust and how it is to be performed; and delivery of the trust property to the trustee.”)

• FinCEN Proposed Rule, Customer Due Diligence Requirements for Financial Institutions, 79 Fed. Reg. 45151, 45161 (August 4, 2014) (“Several comments, particularly from the securities and futures industries, also highlighted the potential challenges associated with identifying beneficial owners of non-exempt pooled investment vehicles, such as hedge funds, whose ownership structure may continuously fluctuate. [Note 44: For purposes of this discussion, a ‘non-exempt pooled investment vehicle’ means (i) any company that would be an investment company as defined in Section 3(a) of the Investment Company Act of 1940, but for the exclusion provided by either Section 3(c)(1) or Section 3(c)(7) of that Act; or (ii) any commodity pool under section 1a(10) of the Commodity Exchange Act (CEA) that is operated by a commodity pool operator registered with the CFTC under Section 4m of the CEA.]”)

• FinCEN Proposed Rule, Customer Due Diligence Requirements for Financial Institutions, 79 Fed. Reg. 45151, 45160 (August 4, 2014) (“An intermediary generally refers to a customer that maintains an account for the primary benefit of others, such as the intermediary’s own underlying clients. . . . [F]or purposes of the beneficial ownership requirement, if an intermediary is the customer, and the financial institution has no CIP obligation with respect to the intermediary’s underlying clients pursuant to existing guidance, a financial institution should treat the intermediary, and not the intermediary’s underlying clients, as its legal entity customer.”)

• FinCEN Final Rule, Customer Due Diligence Requirements for Financial Institutions, 81 Fed. Reg. 29397, 29415–29416 (May 11, 2016) (“To the extent that existing guidance provides that, for purposes of the CIP rules, a financial institution shall treat an intermediary (and not the intermediary’s customers) as its customer, the financial institution should treat the intermediary as its customer for purposes of this final rule.”)

• FinCEN Customer Due Diligence Rule, 31 CFR 1010.230(e)(3)(ii)  (“The following legal entity customers are subject only to the control prong of the beneficial ownership requirement: . . . (ii) 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.”)