Money Laundering, Terrorism and Financial Institutions - USA Patriot Act Monitor

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05/09/2012 FinCEN May Require New "Beneficial Owner" Disclosures from Financial Institutions.   

Effort seeks to counter attempts by criminals, terrorists, and even legitimate entities attempting to hide the identities of investors.

The Financial Crimes Enforcement Network is considering customer due diligence rules that would cover banks, broker-dealers, mutual funds, futures commission merchants, and introducing brokers.  Other financial institutions may be covered later, even ones that do not currently have customer identification requirements.  FinCEN believes that the amount that institutions should know about their customers can be based on the risks involved. 

Criminals, terrorists, and even legitimate operations continue to create entities that can hide the identities of those investing and operating businesses and other entities, making it continually difficult for governments to find out who is behind the business. 

At the moment, private banking and correspondent accounts are covered by rules requiring financial institutions to verify customer identities.  The idea FinCEN is considering would mean that unless an exception applies, financial institutions would have to identify the beneficial owners of all customers.  A phase-in as to existing customers is being considered to allow institutions to explain the new requirements in such a way as not to lose customers they already have. 

This would be a dramatic change, and FinCEN has extended the comment period with regard to the advance notice into June.  The proposal will be discussed in detail in the May issue of the Monitor.

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