The Finance Crimes Enforcement Network (“FinCEN”) of the U.S. Treasury Department, which oversees most of the federal anti-money laundering (“AML”) regulations, issued Customer Due Diligence (“CDD”) rules on May 11, 2016, that are to become fully effective on May 11, 2018. These rules apply to AML diligence to be done by covered U.S. financial institutions, which are banks, securities broker-dealers, mutual funds, futures commission merchants and commodity introducing brokers. (Other FinCen AML regulations will still cover “financial institutions” listed in Appendix D of the Bank Secrecy Act (as defined in 31 USC 5312 (a)(2)), including, in addition to those covered by the new CDD rules, entities such as currency exchanges, insurers, travel agencies and many others.) The rules require the covered institutions to obtain information not only on their customers but on the beneficial owners of their customers. On April 3, 2018, FinCEN issued additional guidance in the form of FAQs regarding its new CDD rules. Among many other things, the guidance provides that in meeting the 25% beneficial ownership requirement, indirect ownership by an individual of two or more entities that in combination own 25% of more of he customer meets the requirement. Whether and when the new CDD rules and the guidance will apply to other financial institutions remains to be seen. FinCEN says publicly that it expects larger and more complex business to have more sophisticated AML operations than smaller and less complex institutions. But given the drive to use AML data to uncover crime and terrorism, the new rules and guidance may influence regulators’ views of what a good AML program comprises.
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