Effective May 11, 2018, the FinCEN mandate strengthens customer due diligence (CDD) requirements. The key elements and minimum standard of CDD include: (1) Identifying and verifying customer identity; together with (2) Identifying and verifying beneficial owners of legal entity customers (i.e., natural persons who own or control legal entities); (3) understanding the nature and purpose of customer relationships; and (4) conducting ongoing monitoring.
“As far back as 2006, the Senate Permanent Subcommittee on Investigations held a hearing on how the failure to identify the owners of shell companies impeded efforts to combat money laundering and foreign corruption.”
The new ruling prevents criminals, kleptocrats, and other non-savory characters from accessing the financial system anonymously and hiding ill-gotten proceeds. Moreover, the beneficial ownership requirement closes the gap to assist law enforcement in financial investigations while facilitating AML compliance.
Paying the Bill — Government or Financial Institutions?
FinCEN calculated a 0.6 percent reduction in illicit activity to yield a positive net benefit to its ruling. The Treasury Department believes the final rule will reduce illicit activity by a greater amount.
