Topic: Customer Due Diligence (CDD)
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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?
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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…
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Our bank is preparing to allow customers to use electronic signatures to open accounts and make changes to accounts in all areas of our bank, including deposits, loans, and trusts. Is there any reason to continue to obtain a customer’s wet ink signature on a signature card? Are wet ink signatures required for mortgage documents or for certification of beneficial ownership forms? Also, is there a method of identification authentication for customers opening accounts using electronic signatures that is better than other methods when it comes to catching synthetic identity fraud?
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021. Please note that this change may affect the continued accuracy of this guidance as it pertains to the ECSA. As a general rule, we believe your bank may accept a customer’s electronic signature on…
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A community college has been a customer of our bank for several years and now is opening a new account. Do we need to obtain a Certification of Beneficial Ownership Form?
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Whether a community college is exempt from FinCEN’s customer due diligence requirements, including the requirement to collect a certification form, depends on the specific community college. If the community college is a public institution that has the power to tax (for example, some community colleges in Illinois have the power to levy property taxes), we…
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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?
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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…
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We have an existing legal business entity customer whose CD is due to auto-renew. One of the beneficial owners of the business is an estate with one beneficiary. To comply with the beneficial ownership requirements of FinCEN’s new customer due diligence rule, should we verify the identity of the estate beneficiary or the estate executor?
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We believe the executor of the estate should be treated as the beneficial owner of the CD, based on informal guidance we received from a representative of FinCEN, who advised us that this would be the appropriate treatment in the situation you are describing. Also, we note that FinCEN created a temporary ninety-day exception from…
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A healthcare facility pools its residents’ social security insurance proceeds into one single “resident trust” deposit account. Is this account subject to FinCEN’s new legal entity customer due diligence (CDD) requirements? Or would the account be exempt as a trust account? Or as a pooled investment vehicle? The account funds are not invested in anything. The healthcare facility provided us with evidence of a surety bond regarding the account funds, but no evidence of a trust agreement.
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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…
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Does FinCEN’s beneficial ownership rule apply to loans made to a trustee of a land trust?
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No, FinCEN’s beneficial ownership requirements do not apply to land trusts and their trustees. FinCEN’s beneficial ownership requirements apply only to “legal entity customers,” defined to include corporations, limited liability companies, general partnerships and any “other entity that is created by the filing of a public document with a Secretary of State or similar office.”…
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A nonprofit corporation maintains custodial accounts for several mentally incapacitated individuals. The nonprofit corporation uses the accounts to accept deposits and pay bills on behalf of the individuals, who do not have access to the accounts. For the purposes of our customer identification procedures, we treat the nonprofit as our customer. Under the new customer due diligence final rule, are we required to obtain information regarding the individuals who control the nonprofit?
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Yes, your bank is required to obtain information about the individuals who control the nonprofit corporation. Under the new customer due diligence final rule, banks are required to obtain and verify information at account opening about the beneficial owners of legal entity customers, which typically includes information about both those who own (the “ownership prong”)…
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In recent frequently asked questions (FAQs) on the beneficial ownership rule, FinCEN stated that a bank may satisfy the rule requirements for account renewals if a legal entity customer: (1) certifies its beneficial ownership information once after the new rule takes effect, and (2) agrees to notify the bank of any changes when it certifies this information. Where can we find a certification form that includes this “notification” language?
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The Certification Form in Appendix A of the beneficial ownership final rule does not include this language. However, as you pointed out, FinCEN’s subsequent FAQs permit banks to comply with the beneficial ownership rule requirements for account renewals by adding this “notification” language to the legal entity customer’s certification at the time of the first…