Prepare for Customer Due Diligence Final Rule

Transcription

1 Prepare for Customer Due Diligence Final Rule Presented by: Carrie Mansbridge Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor CliftonLarsonAllen LLP

2 Disclaimers This presentation is intended for informational purposes only. It is not to be used as a substitute for the Final Rule. Refer to the Final Rule for the official interpretation and guidance on regulatory requirements. The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, or tax advice or opinion provided by CliftonLarsonAllen LLP to the user. The user also is cautioned that this material may not be applicable to, or suitable for, the user s specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The user should contact his or her CliftonLarsonAllen LLP or other tax professional prior to taking any action based upon this information. CliftonLarsonAllen LLP assumes no obligation to inform the user of any changes in tax laws or other factors that could affect the information contained herein. 2

3 Housekeeping If you are experiencing technical difficulties, please dial: Q&A session will be held at the end of the presentation. Your questions can be submitted via the Questions Function at any time during the presentation. The PowerPoint presentation, as well as the webinar recording, will be sent to you within the next 10 business days. Please complete our online survey. 3

4 About CliftonLarsonAllen A professional services firm with three distinct business lines Wealth Advisory Outsourcing Audit, Tax, and Consulting More than 5,000 employees Offices coast to coast Serve 1,500+ financial institutions Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC. 4

5 Speaker Introduction Carrie Mansbridge is a regulatory compliance consultant in the Financial Institution practice of CliftonLarsonAllen LLP from Minneapolis, MN. She has been in the financial services industry since 2010 and has hands on experience in residential and commercial lending, management of branch operations, and deposit operations. Connect with Carrie on LinkedIn 5

6 Agenda Brief Review of BSA Customer/Member Due Diligence Pillars of BSA/AML Beneficial Ownership Examiners Expectations Common Questions Q&A Session 6

7 BSA Review What is it? Congress passed in 1970 Also known as the Financial Recordkeeping and Reporting of Currency and Foreign Transactions Act of 1970 Requires U.S. financial institutions to: maintain appropriate records file certain reports involving currency transactions 7

8 BSA Then and Now Then: Used to aid investigations into financial crimes including tax evasion and money laundering Now: Helps investigations into drug trafficking and terrorist financing activities 8

9 Five Pillars of BSA/AML 1. Internal Controls 2. BSA/AML Compliance Officer 3. Independent Testing 4. Training 5. CDD/MDD 9

10 Customer/Member Due Diligence Fifth Pillar Traditionally Four Pillars Addition of Fifth Pillar Customer/Member Due Diligence CDD/MDD and EDD is fifth pillar not Beneficial Ownership 10

11 Review CDD/MDD Cornerstone of a strong BSA/AML compliance program Allow financial institutions to (reasonably) predict the transaction activity of a customer s/member s account CIP/MIP verifying the customer s/member s identity Creating and maintaining risk profile EDD for high-risk customers/members 11

12 Beneficial Ownership Important Dates Effective Date July 11, 2016 Mandatory Compliance Date May 11,

13 Beneficial Ownership Definition: a natural person who benefits from the operations of the business (legal entity) Owns and/or controls the business Legal entity entities created by filing public documents with the Secretary of State or other similar office Requirement: covered financial institutions must identify and verify the identity of beneficial owners of the legal entity Triggering event: when an account (of any type) is opened by a new or existing legal entity customer, Not Retroactive 13

14 Beneficial Ownership Inclusions Inclusions: Limited Liability Corporations Limited Partnerships Corporations General Partnerships * Any other entity which is created by filing public documents with the state office (Secretary of State Office) 14

15 Beneficial Ownership - Exclusions Exclusions/Exemptions: Financial Institutions Government Entities Sole Proprietors Natural Persons Trusts (other than statutory trusts created by a filing with a state office) 15

16 Beneficial Ownership Exclusions continued Bank and savings and loan holding companies state-regulated insurance companies publicly held companies listed on the New York, American, or NASDAQ Stock Exchanges Registered investment advisers and investment companies SEC-registered exchanges or clearing agencies Entities registered with the SEC 16

17 Beneficial Ownership Partial Exemptions Pooled investment vehicles Trusts* Non profits Non-governmental organizations (NGOs) Charities Religious organizations (e.g. churches) Unincorporated Associations (local Girl Scout troop or a neighborhood association) Exempt from ownership prong. Must collect control prong information. 17

18 Identification and Verification Requirements Identification: form from Appendix A - aka Certification Form Used to identify beneficial owners Directly or indirectly have 25% or more equity interest in entity (ownership prong) Up to four (4) if applicable Significant control of entity (control prong) 18

19 Appendix A Form FinCEN Certification Form No Safe Harbor Can use form exactly how it is or edit it and place logo Adding another column for percentage of ownership 19

20 Identification and Verification Requirements Verification: apply your institutions existing CIP/MIP, CDD/MDD, and EDD Risk based approach OFAC checks on owners Running credit check Remember FCRA must get consent from beneficial owner s prior to running check (necessary signed disclosure) Verify customer/member hasn t been involved in corruption or other illegal activities 20

21 Two Important Pieces of Information Ownership Prong Each individual (if any) who directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, owns 25% or more of the equity interests of a legal entity customer/member Control Prong A single individual with significant responsibility to control, manage, or direct a legal entity customer/member e.g. CEO, CFO, President, Vice President, Treasurer, COO, General Partner, Managing Member 21

22 The Coffee Shoppe 2018 CliftonLarsonAllen LLP Example Partner A (60%) Partner B (40%) 22

23 Example Company ABC (100%) Company XYZ (50%) Company JKL (50%) John Doe (70%) Jane Doe (30%) John Smith (100%) 23

24 Record Retention Identification Documents: 5 years after the date the account is closed Certification Form (Appendix A Form) Verification Documents: 5 years after the record is made Documents verifying the identity of the individuals on Certification Form Copies of identification for beneficial owners Documents produced for purposes of CDD/MDD and EDD 24

25 Impacts - CTRs and SARs Beneficial Ownership rule gives institutions more insight into the business structure Do any of the beneficial owner s have personal accounts with your institution? Reveals more information about cash activity and overall transaction activity CTR s make sure they are being aggregated by TIN Ensure customer/member isn t using the business and personal accounts to avoid a CTR filing (structuring) 25

26 Impacts - OFAC OFAC requires institutions to block accounts of anyone appearing on SDN list Any entity owned by that individual by more than 50% Beneficial Ownership uncovers more individuals within the business structure Routine scans may reveal an individual on the list Block transactions to those accounts 26

27 Policies and Procedures Need to amend or create new policies and procedures Account Opening Training frontline staff Verification Methods Copies of identification what will you accept, how will you accept it? When will you require new and updated information? Credit Checks 27

28 Policies and Procedures (continued) Need to amend or create new policies and procedures Error Resolution Do you use 3 rd party vendors? Vendor information doesn t match what is provided on the Certification Form Record Retention Must be in a standalone policy (not just in retention schedule) 28

29 Examiners Expectations Understanding of the rule Education Training of staff Plans for implementing Policies and procedures Systems core, platforms, and validation systems 29

30 Common Questions Will the new beneficial ownership rule require my institution to update our USA Patriot Act lobby notices? Are certificate of deposit rollovers considered a triggering event? Are loan renewals considered a triggering event? Does beneficial ownership apply to loan participations? Are indirect business dealer loans exempt from the beneficial ownership rule? 30

31 Resources FinCEN Federal Register: /CDD_Technical_Amendement_ pdf FFIEC Frequently Asked Questions: Final_Rule_(7_15_16).pdf 31

32 Questions? 32

33 Thank You! Carrie Mansbridge Financial Institutions Regulatory Compliance Consultant Phone: CLAconnect.com linkedin.com/company/ cliftonlarsonallen facebook.com/ cliftonlarsonallen twitter.com/claconnect