Our trust department serves as trustee for various escrow accounts as a holder of documents, not funds. In a typical transaction, we receive paperwork to hold from an attorney’s office for the sale of a property either to a business or individual. We release the documents once the sale is completed. Do we need to collect beneficial ownership information related to these escrow accounts and if so, for whom?

Yes, we believe your bank should collect beneficial ownership information from the attorney’s office that is opening the escrow accounts, provided the attorney’s office is a “legal entity customer” as defined in FinCEN’s customer due diligence (CDD) final rule. However, your bank is not required to obtain beneficial ownership information regarding the clients whose documents are held in these accounts.

Under FinCEN’s CDD rule, banks generally are required to obtain and verify beneficial ownership information for legal entity customers at account opening, including accounts established to provide safekeeping, custodian, or trust services. The attorney’s office is a legal entity customer if it is a limited liability company, limited partnership, or other entity created by the filing of a public document with the Secretary of State. However, if the attorney’s office is a sole proprietorship, it is not a legal entity customer and would not be covered by the beneficial ownership requirements.

Additionally, FinCEN has clarified that attorney escrow accounts holding client funds should be treated as “intermediated accounts,” meaning that the attorney or attorney’s office opening the escrow accounts (the “intermediary”) is treated as the customer for these accounts. By analogy, we believe that these document escrow accounts should be treated in the same way, with the attorney’s office treated as the customer. If the attorney’s office is a legal entity, your bank should collect its beneficial ownership information.

For resources related to our guidance, please see:

FinCEN Customer Due Diligence Rule, 31 CFR 1010.230(b) (“With respect to legal entity customers, the covered financial institution’s customer due diligence procedures shall enable the institution to: (1) 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. . . .”)

FinCEN Rules for Banks, 31 CFR 1020.100(a)(1) (“Account means a formal banking relationship established to provide or engage in services, dealings, or other financial transactions including a deposit account, a transaction or asset account, a credit account, or other extension of credit. Account also includes a relationship established to provide a safety deposit box or other safekeeping services, or cash management, custodian, and trust services.”)

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 Final Rule, Customer Due Diligence Requirements for Financial Institutions, 81 Fed. Reg. 29397, 29415–29416 (May 11, 2016) (“This means that ‘legal entity customer’ would include, in addition to corporations and limited liability companies, limited partnerships, business trusts that are created by a filing with a state office, any other entity created in this manner, and general partnerships. . . . It would not include, for example, sole proprietorships or unincorporated associations even though such businesses may file with the Secretary of State in order to, for example, register a trade name or establish a tax account. This is because neither a sole proprietorship nor an unincorporated association is an entity with legal existence separate from the associated individual or individuals that in effect creates a shield permitting an individual to obscure his or her identity.”)

FinCEN Final Rule, Customer Due Diligence Requirements for Financial Institutions, 81 Fed. Reg. 29397, 29416 (May 11, 2016) (“FinCEN understands that many attorneys maintain client trust or escrow accounts containing funds from multiple clients and other third parties in a single account. . . . FinCEN believes that attorney escrow and client trust accounts should be treated like other intermediated accounts described above, and we accordingly deem such escrow accounts intermediated accounts for purposes of the beneficial ownership requirement.”)

FinCEN Final Rule, Customer Due Diligence Requirements for Financial Institutions, 81 Fed. Reg. 29397, 29415–29416 (May 11, 2016) (“Intermediated Account Relationships. . . . 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.”)

Interagency Interpretive Guidance on CIP Requirements (April 28, 2005) (“10. Who is the ‘customer’ for purposes of escrow accounts? An escrow account is an account generally established for the deposit of funds that are to be paid to a specified party on the fulfillment of escrow conditions or returned. If a bank establishes an account in the name of a third party, such as a real estate agent, who is acting as escrow agent, then the bank’s customer will be the escrow agent. If the bank is the escrow agent, then the person who establishes the account is the bank’s ‘customer.’ For example, if the purchaser of real estate directly opens an escrow account and deposits funds to be paid to the seller upon satisfaction of specified conditions, the bank’s customer will be the purchaser.”)