FinCEN Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions
On April 3, 2018, the Financial Crimes Enforcement Network (FinCEN) issued its long-awaited second set of Frequently Asked Questions (FAQs)1 to assist covered financial institutions in understanding the scope of the Customer Due Diligence for Financial Institutions (CDD Rule).2
Summary of the FAQs
FinCEN’s FAQs address 37 of the most frequently asked questions. The vast majority of the questions are grouped under broad topics. Below, we summarize what we believe to be the most important aspects of the FAQs and topics, but financial institutions should consult the FAQs for more detail.3
Topic |
FAQ(s) |
Summary |
Beneficial Ownership for Complex Structures |
3 |
|
Identification and Verification of Beneficial Owners |
4-8, 10-11 |
|
Collecting Beneficial Ownership for Product or Service Renewals |
12 |
|
Collecting Beneficial Ownership Information for Existing Accounts |
13 |
|
Updating Beneficial Ownership Information |
14-17 |
|
Pooled Investment Vehicles and Multiple Trustees |
18-20 |
|
Institutions That Are Not Considered “Legal Entity” Customers |
21-24 |
|
Foreign companies and entities |
25-28 |
|
Currency Transaction Reports |
32-33 |
|
Information for Customer Risk Profile |
35-37 |
|
What the FAQs Mean for Covered Financial Institutions
For the most part, the FAQs appear to address many of the industry’s concerns and questions regarding the CDD Rule, though there are some questions left unanswered. For example, the FAQs do not provide guidelines on the safeguarding of Personal Identifying Information, and expectations related to sharing of information obtained in overseas branches in jurisdictions with strict data privacy rules. The FAQs also do not specify the extent to which a financial institution should integrate technology changes to better use the information it obtains during CDD.
With the CDD Rule’s final applicability less than a month away, how should covered financial institutions address the FAQs given that one would assume that covered financial institutions have implemented or are in the final stages of implementing changes and enhancements to existing anti-money laundering/global sanctions compliance programs (AML/Sanctions Compliance Programs) to address the rule’s requirements? We recommend ensuring that your institution has undertaken the following actions:
Given that the FAQs do not contain any surprises, it seems logical to assume that the regulators are going to give covered financial institutions some room to work through difficulties encountered during implementation, provided that the institution has made good faith efforts to design and implement policies and procedures that meet the CDD requirements. Importantly, as the regulators understand how firms of all sizes are implementing the CDD rule, best practices and effective methodologies will evolve over time until there are generally accepted approaches based on the risks of the covered financial institution.
Learn More
Guidehouse’s CDD webpage contains information and insights from our team of AML/Sanctions experts, which includes former financial regulators, prosecutors, and law enforcement officials who have developed and documented AML/Sanctions regulations and investigated and prosecuted violations of those regulations and individuals with in-house compliance and operational experience.
Our team has years of practical experience assisting financial institutions in implementing changes and revisions to their existing policies, procedures, and controls in response to regulatory changes and developments. Guidehouse can provide your institution with highly skilled resources for the short-term implementation of these regulatory changes until your financial institution has incorporated such changes as “business as usual.”
Note: The authors wish to thank Joseph Frenkel and Patrick Haig for their assistance.
1 See Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions, FIN-2018-G001 (https://www.fincen.gov/news/news-releases/frequently-asked-questions-regarding-customer-due-diligence-requirements). Also see FAQs issued on July 19, 2016 (https://www.fincen.gov/resources/statutes-regulations/guidance/frequently-asked-questions-regarding-customer-due-diligence).
2 See Customer Due Diligence Requirements for Financial Institutions, May 11, 2016 (https://www.gpo.gov/fdsys/pkg/FR-2016-05-11/pdf/2016-10567.pdf), amended September 28, 2017 (https://www.fincen.gov/sites/default/files/federal_register_notices/2017-09-29/CDD_Technical_Amendement_17-20777.pdf)
3 This document is not intended to provide legal advice. Covered financial institutions should consult counsel for legal advice.
4 Entities falling into this category generally include embassies or consulates, and entities that are instrumentalities of a foreign government, such as government-owned enterprises engaging in activities that are exclusively governmental in nature — that is, activities involving the direct exercise of legislative, executive, or judicial authority and which do not involve taking profits from the endeavor. Those state-owned enterprises engaged in profit-seeking activities, including, among others, sovereign wealth funds, airlines, or oil companies, would not qualify for the legal entity exclusion.
Covered financial institutions should be mindful of United States v. Esquenazi, No. 11-15331, (11th Cir. May 16, 2014) in which the U.S. Court of Appeals for the Eleventh Circuit, in United States vs. Esquenazi, defined the term “instrumentality” of a foreign government under the U.S. Foreign Corrupt Practices Act.
Guidehouse Inc. (“Navigant”) is not a certified public accounting or audit firm. Guidehouse does not provide audit, attest, or public accounting services. See Guidehouse.com/about/legal for a complete listing of private investigator licenses.
This publication is provided by Guidehouse for informational purposes only and does not constitute consulting services or tax or legal advice. This publication may be used only as expressly permitted by license from Guidehouse and may not otherwise be reproduced, recorded, photocopied, distributed, displayed, modified, extracted, accessed, or used without the express written permission of Guidehouse.