FINCEN’s CIP, AML & UBO requirements

FINCEN has issued a rule for non-FFR (Federal Functional regulator) banks, credit unions and certain trust companies to implement sections 352,326 and 312 of USA PATRIOT ACT-2001. FINCEN designed the rule by consulting concerned state, federal and supervisory agencies such as IRS (Internal Revenue Service), CFTC (Commodity Futures Trading Commission). The term “Federal functional regulator” means— (1) the Board of Governors of the Federal Reserve System; (2) the Office of the Comptroller of the Currency; (3) the Board of Directors of the Federal Deposit Insurance Corporation; (4) the Director of the Office of Thrift Supervision; (5) the National Credit Union Administration Board; and (6) the Securities and Exchange Commission.

The purpose and intention behind establishing this rule is to ensure that all the banks whether they are subject to federal regulations or not are mandatorily required to develop and implement anti money laundering programs, customer identification program (CIP) and beneficial ownership requirements. Though the non-FFR institutions were earlier exempted from establishing an AML program were required to comply with the requirements of BSA, 1970.

Under section 352 of USA PATRIOT Act, the minimum requirements prescribed for financial institutions to establish AML program are (a) The development of internal policies and control, (b) designation of a compliance officer, (c) ongoing employee training program and (d) an independent audit function.

Under section 326 of USA PATRIOT Act, FINCEN lays down minimum regulations for financial institutions to establish procedures for account opening. They are (a) Verifying the identity of any person seeking to open an account, to the extent reasonable and practicable; (b) maintaining records of the information used to verify the person’s identity, including name, address, and other identifying information; and (c) determining whether the person appears on any lists of known or suspected terrorists or terrorist organizations provided to the financial institution by any government agency. These programs are collectively referred to as Customer Identification Programs (“CIPs”)

Under section 312 of the USA PATRIOT Act, each U.S. financial institution that establishes, maintains, administers, or manages a correspondent account or a private banking account in the United States for a non-U.S. person to subject such accounts to certain AML measures.

Through this rule, FINCEN doesn’t aim for uniform AML programs for all non-FFR banks rather it aims at designing and implementing unique risk based AML guidelines to combat money laundering and terrorist financing and other financial crimes. Such AML program will be structured by conducting appropriate risk assessments of the banks/credit union’s product and services, their target customers and the jurisdictions in which they operate. Most importantly these non-FFR s are required to have a written AML program that is to be approved by its board or equivalent authorized body. The compliance date for AML, CIP programs and beneficial ownership requirements for non-FFR banks is 15 march 2021.

Author: Rajashree, PonSun AML Academy

Reference: https://www.federalregister.gov/documents/2020/09/15/2020-20325/financial-crimes-enforcement-network-customer-identification-programs-anti-money-laundering-programs