1. Implementation of the Beneficial Ownership Rules February 2, 2018 ICLE Banking Law Seminar
Barry Hester, Associate General Counsel, TIAA, FSB, Jacksonville, FL
PK Prakash, Director – AML Center of Excellence, SunTrust Bank, Atlanta, GA
John Polosky, AML Director, Synovus Bank, Columbus, GA
Views expressed here are personal only and not legal advice

2. Agenda AML Program Regulatory Requirements (Four Pillars + One)
Purpose of the Final Rule
Definitions – Two Prong Requirement
To Which Legal Entities Does the Beneficial Ownership Rule Apply?
Legal Entities Excluded from the FinCEN Final Rule
Final Rule Requirements
Suspicious Activity Reporting (SAR) Requirements
Part1: Beneficial Owner and Control Person Requirements
Part 2: OFAC Compliance
Part 3: Beneficial Ownership Certification Form
Existing Customers – Applicability
Open Discussion/Additional Resources

3. AML Program Regulatory Requirements (Four Pillars + One)
A system of internal controls
Independent testing
Designation of a compliance officer or individual(s) responsible for day-to- day compliance
Training for appropriate personnel
FinCEN (Financial Crimes Enforcement Network) Final Rule: Appropriate risk- based procedures for conducting ongoing CDD to:
Understand the nature and purpose of customer relationships
Conduct ongoing monitoring to identify and report suspicious transactions
On a risk basis, maintain and update customer information (to include the identification and verification of beneficial owners of legal entity customers)

4. Purpose of the Final Rule
Enhance financial transparency and help to safeguard the financial system against illicit use
Help financial institutions understand who their customers are and what type of transactions they conduct
Enhancing the availability to law enforcement of beneficial ownership information about legal entity customers to improve financial investigations
Increase the ability to identify the assets and accounts of terrorist organizations, corrupt actors, money launderers, drug kingpins, and other national security threats
Strengthen the compliance with U.S. sanctions programs (OFAC) to undercut financing and support for such persons
Facilitate reporting and investigations in support of tax compliance
Promote consistency in implementing and enforcing CDD regulatory expectations across and within financial sectors (among “covered institutions”)

5. Definitions – Two Prong Requirement
Beneficial Owner
each individual, if any, who, directly or indirectly, owns 25% or more of the equity interests of a legal entity customer (i.e., the ownership prong)
Control Person
a single individual with significant responsibility to control, manage, or direct a legal entity customer, including an executive officer or senior manager
Examples: a Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Managing Member, General Partner, President, Vice President, or Treasurer); or any other individual who regularly performs similar functions
This list of positions is illustrative, not exclusive, as there is significant diversity in how legal entities are structured
FinCEN’s expectation is that the identified control person must be a high-level official in the legal entity, who is responsible for how the organization is run, and who will have access to a range of information concerning the day-to-day operations of the company

6. To Which Legal Entities Does the Beneficial Ownership Rule Apply?
FinCEN Final Rule applies to legal entity customers such as
Corporations, limited liability companies, other entities created by the filing of a public document with a Secretary of State or similar office
General partnerships, and any similar entity formed under the laws of a foreign jurisdiction that opens an account
Limited partnerships, business trusts that are created by a filing with a state office, and any other entity created in this manner
A legal entity customer does not include
Sole proprietorships
Unincorporated associations
Natural persons opening accounts on their own behalf
Treatment of non-profits, trusts, and other special cases

7. Legal Entities Excluded from the FinCEN Final Rule
Financial institutions regulated by a Federal functional regulator or a bank regulated by a State bank regulator
A department or agency of the United States, of any State, or of any political subdivision of a State
Any entity established under the laws of the United States, or any State, or of any political subdivision of any State, or under an interstate compact;
Any entity (other than a bank) whose common stock or analogous equity interests are listed on the New York, American, or NASDAQ stock exchange
Any entity organized under the laws of the United States or of any State at least 51% of whose common stock or analogous equity interests are held by a listed entity
Issuers of securities registered under section 12 of the Securities Exchange Act of 1934 (SEA) or that is required to file reports under 15(d) of that Act
An investment company, as defined in section 3 of the Investment Company Act of 1940, registered with the U.S. Securities and Exchange Commission (SEC)
An SEC-registered investment adviser, as defined in section 202(a)(11) of the Investment Advisers Act of 1940
An exchange or clearing agency, as defined in section 3 of the SEA, registered under section 6 or 17A of that Act
Any other entity registered with the SEC under the SEA
A registered entity, commodity pool operator, commodity trading advisor, retail foreign exchange dealer, swap dealer, or major swap participant, defined in section 1a of the Commodity Exchange Act, registered with the Commodity Futures Trading Commission
A public accounting firm registered under section 102 of the Sarbanes-Oxley Act
A bank holding company, as defined in section 2 of the Bank Holding Company Act of 1956 (12 USC 1841) or savings and loan holding company, as defined in section 10(n) of the Home Owners’ Loan Act (12 USC 1467a(n))
A pooled investment vehicle operated or advised by a financial institution excluded from the definition of legal entity customer under the final CDD rule
An insurance company regulated by a State
A financial market utility designated by the Financial Stability Oversight Council under Title VIII of the Dodd-Frank Wall Street Reform and Customer Protection Act of 2010
A foreign financial institution established in a jurisdiction where the regulator of such institution maintains beneficial ownership information regarding such institution
A non-U.S. governmental department, agency or political subdivision that engages only in governmental rather than commercial activities; and
Any legal entity only to the extent that it opens a private banking account subject to 31 CFR
TIAA CONFIDENTIAL

8. Final Rule Requirements
Effective Date: July 11th, 2016 (81 FR (May 11th 2016))
Applicability Date: May 11th, 2018
What is Required?
Identify and Verify Beneficial Owners – 25% Threshold
Identify and Verify Control Person – Only one individual
Identify and Verify Certifying Person (TBD)
Obtain a Beneficial Ownership Certification Form (or its equivalent)
Conduct OFAC Due Diligence
Aggregate Beneficial Ownership Transactions for BSA Reporting
Suspicious Activity Reviews
Currency Transaction Reporting (CTRs) – Cash transactions greater than $10,000 in any one day, by any one individual
Aggregation requirements kick in if the legal entities are not acting independent of each other

9. Suspicious Activity Reporting (SAR) Requirements
Criminal violations involving insider abuse in any amount
Criminal violations aggregating $5,000 or more when a suspect can be identified
Criminal violations aggregating $25,000 or more regardless of a potential suspect
Transactions conducted or attempted by, at, or through the bank (or an affiliate) and aggregating $5,000 or more, if the bank or affiliate knows, suspects, or has reason to suspect that the transaction:
May involve potential money laundering or other illegal activity (e.g., terrorism financing). FinCEN issued guidance identifying certain BSA expectations for banks offering services to marijuana-related businesses
Is designed to evade the BSA or its implementing regulations.
Has no business or apparent lawful purpose or is not the type of transaction that the particular customer would normally be expected to engage in, and the bank knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction.

10. Part 1: Beneficial Owner and Control Person Requirements
Identification
name,
date of birth
Address
and social security number or other government identification number (passport number or other similar information in the case of foreign persons)
Verification:
Documentary Verification
Non-documentary Verification
Both
Final Rule permits copies of ID documents for Beneficial Owners and Control Persons as documentary verification (CIP requires the actual document)
Control Person:
Identification
name
date of birth
Address
and social security number or other government identification number (passport number or other similar information in the case of foreign persons)
Title
Verification:
Documentary Verification
Non-documentary Verification
Both
Final Rule permits copies of ID documents for Beneficial Owners and Control Persons as documentary verification(CIP requires the actual document)

11. Part 2: OFAC Compliance Office of Foreign Assets Control (OFAC)
Office of Foreign Assets Control, an enforcement division of the United States Department of the Treasury
Administers and enforces economic and trade sanctions against foreign governments and government officials and persons and entities identified on the SDN List as terrorists, drug traffickers, etc.
SDN List - “Specially Designated Nationals and Blocked Persons List”
Specific Country Based Sanctions
Two primary statutory bases for OFAC regulations:
The Trading with the Enemy Act of 1917 (“TWEA”)
International Emergency Economic Powers Act of 1977 (“IEEPA”)
Required to scan the following against the OFAC List
Legal Entity
Identified Beneficial Owner
Identified Control Peron
Identified Certifying Person (TBD)

12. Part 2: OFAC Compliance
Applies to all corporate and natural persons subject to the jurisdiction of the United States – wherever they are located
Prevents terrorists and drug traffickers from profiting through transactions with “U.S. Persons” subject to U.S. jurisdiction
Objective standard: must not deal with embargoed countries, their residents or citizens or SDNs
Requires the blocking and seizing of assets of embargoed natural persons and entities
Requires the rejecting of certain transactions that may violate OFAC sanctions
Reporting to OFAC of actions that involve the blocking or rejection of funds or transactions.

13. Part 3: Beneficial Ownership Certification Form
Purpose of the Certification Form:
To balance the benefits and burdens of this new requirement to the financial institution and its customers with the benefits to law enforcement and regulatory authorities
Use of the Certification Form is not mandatory, and financial institutions have the flexibility to utilize their existing onboarding systems to comply with the beneficial ownership certification requirement
The financial institution must obtain from the individual the information required by the Form by another means, provided the individual certifies, to the best of the individual’s knowledge, the accuracy of the information provided
The financial institution may rely on the beneficial ownership information supplied by the customer, provided that it has no knowledge of facts that would reasonably call into question the reliability of the information.

14. Existing Customers – Applicability
No legal duty to retroactively apply the Rule
However, note the following language in the Final Rule
the absence of a categorical mandate to apply the requirement retroactively would not preclude financial institutions from deciding that collecting beneficial ownership information on some customers on a risk basis during the course of monitoring may be appropriate for their institution.
FinCEN has concluded that financial institutions should obtain beneficial ownership information from customers existing on the Applicability Date when, in the course of their normal monitoring, the financial institution detects information relevant to assessing or reevaluating the risk of such customer
Industry is calling this a “Trigger Event”
Examples of Trigger Events (Risk Based – Not Exhaustive): +
Opening a “new account” (FinCEN considers this a categorical trigger)
A significant and unexplained change in customer activity
Detected change in beneficial ownership, control person
Periodic Review – Loan Review, High Risk Review, CTR Exemption Review

15. Open Discussion/Additional Resources
due-diligence-requirements-for-financial-institutions (Final Rule Release - May 11, 2016)
due-diligence-requirements-for-financial-institutions-correction (Technical Amendments - September 28, 2017) (including to Certification Form)
idx?SID=0be cdf043aeb559703a4ecb12&mc=true&node=se _1230& rgn=div8 (Codification of the Final Rule, as amended, at 31CFR § )
asked-questions-regarding-customer-due-diligence (FinCEN FAQs - July 19, 2016)
(SunTrust public-facing website relating to beneficial ownership requirements and featuring certification form)
THANK YOU