The Financial Crimes Enforcement Network’s (FinCEN) Customer Due Diligence (CDD) and Beneficial Ownership Information (BOI) rules seek to protect U.S. financial systems by making it easier to detect money laundering and terrorist financing activity in the U.S. financial system. These rules enable FinCEN to collect information that is critical to law enforcement efforts to trace criminal proceeds and attribute money laundering and terrorist financing activity to specific individuals.
Prior to 2016, financial institutions were not required to know the identities of individuals who owned or controlled legal entity customers (i.e. corporations, limited liability companies, limited partnerships, and trusts). This vulnerability allowed transnational criminal organizations (TCOs), money laundering networks, terrorist organizations, drug traffickers, and individuals who engage in financial fraud to create opaque corporate structures that could be used to place, layer, and ultimately integrate criminal proceeds into the legitimate economy while significantly decreasing the chances of being detected by bank investigators and law enforcement. This vulnerability also benefited individuals attempting to avoid compliance with tax laws and targeted financial sanctions.
In July 2016, FinCEN issued expanded CDD rules to ensure banks, mutual funds, securities brokers, future commission merchants, and introducing brokers in commodities know the beneficiaries of the services they provide. Under the expanded CDD rules, financial institutions are required to:
- Identify and verify the identity of customers
- Identify and verify the beneficial owners of companies opening accounts
- Understand the nature and purpose of customer relationships to develop customer risk profiles
- Conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information
In January 2024, additional regulations were introduced that require certain businesses to report BOI to FinCEN. Entities that are subject to these regulations include corporations, limited liability companies and other entities that were created by the filing of a document with a secretary of state or similar office. Foreign entities may also be required to provide BOI to FinCEN. There are numerous entities that are exempt from filing BOI reports with FinCEN to include banks, credit unions, public utilities, and certain large, publicly-held companies.
Businesses that are subject to this requirement that were created prior to January 1, 2024, have until January 1, 2025, to file a BOI report with FinCEN. Entities subject to these requirements created in 2024 have 90 days to file a BOI report with FinCEN. Entities subject to these requirements created on or after January 1, 2025, will have 30 days to file a BOI report with FinCEN.
Financial institutions will have access to BOI information in certain circumstances with the consent of the reporting business. BOI information maintained by FinCEN is another tool financial institutions can use to verify the beneficiaries of the services they provide. Additional information on the BOI reporting requirements can be accessed at www.fincen.gov/boi.
Homeland Security Investigations (HSI) Special Agents rely on financial institutions to know and collect information on the ultimate beneficial owners of the legal entities that they provide services to. Access to beneficial ownership information assists law enforcement with tracing criminal proceeds as they move through the financial system. This information is critical to attributing money laundering and financial fraud activity to specific criminal actors (i.e., individuals and legal entities).
Law enforcement agencies use beneficial ownership information as a crucial tool in investigating and combating money laundering activities. Here's how they typically utilize this information:
-
Identifying Ultimate Beneficial Owners (UBOs): Beneficial ownership information helps law enforcement identify the individuals who ultimately own or control a legal entity, such as a corporation or trust. This is crucial in uncovering the true maligned actors, financial facilitators and leader/organizers behind illicit financial transactions and activities.
-
Tracing of Illicit Funds: By knowing the beneficial owners of legal entities involved in suspicious transactions, law enforcement can trace the flow of illicit funds. This includes following the money through complex networks of entities and accounts, ultimately leading to the individuals or TCOs behind the underlying criminal activities.
-
Building Investigations: Beneficial ownership information provides evidence and documentation to build strong investigations against money launderers. It helps establish connections between seemingly unrelated entities and transactions, demonstrating patterns of illegal activity.
-
Targeting Criminal Networks: Law enforcement can use beneficial ownership data to target entire criminal networks involved in money laundering. By identifying key players and their roles within these networks, authorities can dismantle these money laundering operations and TCOs more effectively.
-
Preventing Asset Concealment: Knowledge of beneficial ownership prevents criminals from hiding their assets behind layers of legal entities. This transparency helps authorities identify, freeze and seize assets connected to money laundering activity, disrupting the illicit flow of funds.
-
Enhancing International Cooperation: Sharing beneficial ownership information across jurisdictions enhances international cooperation in combating money laundering. This collaborative approach allows law enforcement agencies to access critical data from different countries, thereby strengthening their investigations.
-
Compliance and Regulation: Beneficial ownership information is also used to ensure compliance with anti-money laundering (AML) regulations and to detect potential regulatory violations. Financial institutions and other entities are required to report beneficial ownership details to regulatory authorities, aiding in AML efforts.
 |
The following red flags may be indicative of individuals attempting to avoid compliance with the CDD requirements:
- The use of corporate records to open a bank account and the reluctance of the customer to offer information about the individuals associated with the corporation
- The use of corporate records in conjunction with out-of-state or foreign identification documents when opening an account
- A customer’s inability or unwillingness to provide multiple forms of identification when opening an account
- A customer’s inability or unwillingness to provide a physical address when opening an account
- A customer expressing concern if the financial institution attempts to make copies of identification documents for their records
- A customer’s lack of familiarity with the purpose of the corresponding corporate structure that is being used to request services from the financial institution
- Private companies, LLCs, trusts, charities or similar corporate vehicles that are domiciled in countries or jurisdictions with inadequate AML requirements or strict corporate secrecy laws
HSI encourages the public to report suspected suspicious activity through its toll-free Tip Line at 1-866-347-2423 or by completing an online Tip Form available at https://www.ice.gov/webform/ice-tip-form.
For areas outside the United States and Canada, callers should dial 802-872-6199. Hearing-impaired users may call TTY 802-872-6196.
|
