We are reviewing our beneficial ownership procedures and considering requiring evidence of control for all nonprofits, since almost all seem to either be incorporated or registered as 501(c)(3) corporations. In Illinois, can a nonprofit exist without being incorporated or filing organizational documents with the state? Do you foresee any issues with requiring evidence of control from an organization that doesn’t meet the definition of a “legal entity” for beneficial ownership purposes?

Yes, a nonprofit organization can exist in Illinois without being incorporated or filing organizational documents with the state. Consequently, you may have some nonprofit customers that are incorporated as not-for-profit corporations, which are only partially subject to FinCEN’s beneficial ownership requirements, while other nonprofit customers organized informally may be fully exempt from FinCEN’s beneficial ownership requirements.

In general, nonprofit organizations qualify for a partial exemption from the general requirement to collect information about both those who own (the “ownership prong”) and those who control the customer (the “control prong”); nonprofit corporations are exempt from the ownership prong, and only the control prong applies. However, a nonprofit organization that is not a “legal entity” would be completely exempt from FinCEN’s beneficial ownership requirements. When publishing the beneficial ownership rules, FinCEN acknowledged that “small local community organizations, such as Scout Troops and youth sports leagues, are unincorporated associations rather than legal entities and therefore not subject to the beneficial ownership requirement.”

In Illinois, many nonprofit organizations are registered with the Illinois Secretary of State either as Illinois or foreign not-for-profit organizations. For these entities, you would need to complete the “control” prong of the beneficial ownership requirements.

However, other nonprofit organizations may be operating in Illinois that are not incorporated as not-for-profit corporations. In addition to FinCEN’s examples of Scout Troops and youth sports leagues, another example would be an informal charitable group established to raise money for a particular individual’s medical or funeral expenses. We do not believe that such groups are required to incorporate as not-for-profit corporations, although they may be required to register with the Illinois Attorney General under the Illinois Charitable Trust Act (for groups that hold more than $4,000 for a charitable purpose) or the Solicitation for Charity Act (for groups that will be soliciting donations, unless an exception applies). We do not believe that such informal charitable groups should be treated as “legal entity customers,” even if they have registered with the Illinois Attorney General, since they are not “created by the filing of a public document with a Secretary of State or similar office.”

Although obtaining beneficial ownership information on such entities is not required, we believe that your bank may opt to require such entities to provide beneficial ownership information as part of your customer identification program (CIP) policies and procedures. We cannot foresee running into any issues when obtaining additional information on an individual who controls an informal charitable group, other than resistance on the part of a customer to providing such information. We would just caution that this practice should be consistently applied, not imposed in a discriminatory basis and otherwise conformed to your bank’s written policies and procedures.

For resources related to our guidance, please see:

General Not For Profit Corporation Act of 1986, 805 ILCS 105/101.01 et seq.

FinCEN Customer Due Diligence Rule, 31 CFR 1010.230(a) (“Covered financial institutions are required to establish and maintain written procedures that are reasonably designed 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.”)

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.”)

FinCEN Customer Due Diligence Rule, 31 CFR 1010.230(e)(1) (“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, 29416 (May 11, 2016) (“FinCEN also notes that as a general matter, small local community organizations, such as Scout Troops and youth sports leagues, are unincorporated associations rather than legal entities and therefore not subject to the beneficial ownership requirement.”)

Charitable Trust Act, 760 ILCS 55/6 (“Every trustee subject to this Act who has received property for charitable purposes shall file and register with the Attorney General, within 6 months after any part of the income or principal is received for application to the charitable purpose . . . .”)

Charitable Trust Act, 760 ILCS 55/2 (“This Act applies to any and all trustees, as defined in Section 3, holding property of a value in excess of $4,000.”)