FinCEN Customer Due Diligence Requirements for Financial Institutions in the Context of Certain Sales of Securities Background
Effective May 11, 2018, new rules adopted by the Financial Crimes Enforcement Network (FinCEN), within the U.S. Department of the Treasury, will require financial institutions to identify and verify the identity of key individuals (i.e., beneficial owners) who own or control legal entity customers of the financial institutions and to obtain a certification from the legal entity customers as to their beneficial owners. The new rules are intended to assist law enforcement in investigating and prosecuting terrorist financing, money laundering, and other financial crimes that may be perpetrated through the use of legal entities.
The beneficial ownership requirement applies at the time each new account is opened. For these purposes, an account is defined to include a formal relationship with a broker-dealer established to effect transactions in securities. Accordingly, broker-dealers have considered how the beneficial ownership requirement may apply when providing clients with trading and underwriting services.