1. FinCEN’s New Customer Due Diligence Requirements
ACAMS Northern California Chapter
April 30, 2015

2. Topics Background Identification of Beneficial Owners: Two-Prong Test
Equity Interests
In/Direct Connections
Legal Entities:
Not/Included
Exemptions & Exclusions:
CIP Exempt
Exclusions
Other Exemptions
Intermediated Account Relationships & Pooled Investment Vehicles
Beneficial Owner Information:
Standard Certification Form
Verification
Updating Beneficial Ownership Information
Reliance on Other Financial Institutions
Nature & Purpose of Customer Relationships:
Identifying Transactions
Understanding the Relationship
Identifying Suspicious Activity
Ongoing Monitoring:
Current Requirements
Internal policies & procedures
Ongoing Monitoring Requirement
BSA/AML Pillars:
The new Fifth Pillar
Proposed Effective Date
Tools
Example: RNA Organization CDD Information Sheet
CDD Rule Checklist
My Contact Information

3. Background FinCEN published the CDD Proposed Rule on 8/04/14*
Will codify the four minimum CDD Elements:
Identification & Verification of Customers (CIP)
Identification & Verification of Beneficial Owners
Understanding the nature & purpose of customer relationships
Conducting ongoing monitoring to maintain and & update customer information and to identify & report suspicious activity *

4. Identification of Beneficial Owners
Determining Beneficial Ownership
Two-Prong Test:
Ownership Prong: Each individual, if any, who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, owns 25 percent or more of the equity interests of a legal entity customer
Control Prong: An individual with significant responsibility to control, manage, or direct a legal entity customer, including:
Executive Officer or Senior Manager (e.g., CEO, CFO, COO, President, VP, Managing Member, General Partner, Treasurer), OR
Any other individual who regularly performs similar functions

5. Equity Interests Equity Interests Broadly Defined:
Applies to any legal entity structure (except Trusts), for those individuals that have a primary value interest in that legal entity
Examples:
Shares of Stock in a Corporation
Membership interests in an LLC
Partnership interests in a Partnership
Any other similar ownership interests in any other type of legal entity

6. In/Direct Connections
Applies to Ownership Prong:
Where a Legal Entity customer is owned by (or controlled through) one or more other legal entities, customers are required to “look through” those other legal entities to determine which natural persons (individuals) own 25 percent or more of the equity interests of the legal entity customer

7. Entities Not/Included
Corporations
LLCs
Partnerships (e.g., GP, LP, LLP, Joint Venture)
Unincorporated non-profits & associations*
NOT INCLUDED:
Trusts: Not included unless State Filing required, such as for statutory business trusts (Massachusetts, Alaska, Delaware)
Note: California doesn’t require business trusts to file, think through impacts
More Business Trusts Information:
*Some non-profits may be Exempt – see slide 9 for more information

8. Beneficial Owner Exemptions & Exclusions
CIP Exemptions:
Financial institutions regulated by a federal regulator (e.g., federally regulated banks, brokers or dealers in securities, mutual funds, futures commission merchants and introducing brokers in commodities)
Publicly held companies traded on U.S. Stock exchanges
Domestic government agencies and instrumentalities
Certain legal entities exercising governmental authority
Exclusions:
Existing customers, thus only applies to new customers opening accounts going forward from the final rule’s effective date*
*Slide 15 becomes crucial here

9. Beneficial Owner Additional Proposed Exemptions
Issuer of Securities Exchange Act of 1934 (SEA) section 12 registered securities; or required report filer under section 15(d)
Majority-owned Domestic subsidiary of any U.S. Stock Exchange listed entity
SEC registered Investment Company defined under Section 3 of the Investment Company Act of 1940 (ICA)
SEC registered Investment Adviser per the ICA, Section 202(a)(11) definition
SEA Section 6 or 17a registered exchange or clearing agency
Any other SEC registered entity
CFTC registered entity, commodity pool operator or trading advisor, retail foreign exchange dealer, swap dealer or major swap participant, per Section 1a of the Commodity Exchange Act (CEA)
Sarbanes-Oxley Act (SOA) Section 102 registered public accounting firm
IRS Code Section 501(c), 527 or 4947(a)(1) charity or non-profit entity that has not been denied tax exempt status and is required to and has filed their most recent annual information return (Form 990)

10. Intermediated Accounts & Pooled Investment Vehicles
Non-Exempt Pooled Investment Vehicles
Your customer is the Intermediary and NOT their underlying clients
Beneficial ownership information applies then only to the Intermediary UNLESS they are an exempt entity, eliminating the requirement
NOTE: More information is available for different Intermediary scenarios in the proposed rule
Applies to:
Investment Companies as defined under Section 3(a) of the ICA (or as excluded under Section 3(c)1 or 3(c)7)
Any Commodity Pool as defined under Section 1a(10) of the CEA
Likely to require:
Identification of the Control Prong individual(s) only (but the final rule will outline whether the Ownership Prong will apply – see slide 4 for more information)

11. Organigram Example LLC Entity Customer Owners List: Owner 1: 50%
Grantor A:
37.5%
Grantor B:
12.5%
LP Owner
100%
Owner 1
50%
Revocable Trust Owner
50%
Grantor A
75%
Grantor B
25%
Rabobank, N.A.

12. Verification of Beneficial Owners
TGII !!!!!
Thank Goodness It’s Identity!
Identification Verification (IDV):
Documentary
Non-documentary
CERTIFICATION

13. BENEFICIAL OWNER INFORMATION
CERTIFICATION OF BENEFICIAL OWNERSHIP:
Name of person opening account
Legal Entity Name of Customer
Obtain from each individual who directly or indirectly owns ≥25% equity interests of the legal entity; AND obtain same from one individual with significant responsibility to manage the legal entity, with Opener’s signature certification regarding accuracy of the information:
(Legal) Name
Date of Birth
(Physical Residential) Address
Social Security No. (as applies), OR
Foreign Passport No. and Name of Issuing Country (as applies)

14. Updating Beneficial Ownership Information
What It Ain’t:
NOT every time a new account is opened
What It Is:
Risk-Based for CDD and Beneficial Ownership:
Higher Risk Business Types
When aware of: Changes in business operations, management or ownership
Possible Shell Company misuse in account history
Changes in Address or Account Signatories

15. Reliance On Other FI’s Shared customers reliance is allowed, if:
The other FI is regulated by a Federal functional regulator; and
The other FI is subject to an AML Program requirement; and
The reliance is reasonable under the circumstances; and
A mutual contract requires the other FI to provide annual certifications relative to an implemented AML Program and will perform the specified requirements under the rules

16. Nature & Purpose of Customer Relationships
Identifying Transactions:
COMPARISON:
Anticipated Activity
Historical Activity
Actual Current Activity
Individual or Business
Occupation or Business Type
Geographic Impacts
Products and Services used or offered
Peer Analysis
Etcetera
Understanding the Relationship:
MAYBE Enough is Enough:
Type of Customer
Type of Account
Type of Product or Service
When Enough is not Enough:
Annual Income
Net Worth
Domicile (Geography)
Principal Occupation or Business
Etcetera
Identifying Suspicious Activity:
“…if you don’t know me by now…
….you will never, never, never know me…
……oooooooooo…….”

17. Ongoing Monitoring
…means I have to constantly “refresh” CDD and UBO information ...now…and…forever???
Nope
(well…sort of…)
“in the course of monitoring, if you become AWARE of information relevant to assessing the RISK posed by a customer, it is expected you update the customer’s relevant information accordingly…”

18. The 4 Pillars The Fifth Pillar Policies, Procedures and Controls
Appropriate RISK-BASED procedures for conducting ongoing Customer Due Diligence:
Identification & Verification of Customers
Identification & Verification of Beneficial Owners
Understanding the nature & purpose of customer relationships
Conducting ongoing monitoring to maintain and & update customer information and to identify & report suspicious activity
Policies, Procedures and Controls
Independent Testing
Designation of a BSA Officer
Ongoing Training

19. Proposed Effective Date
One year from the Final Rule’s Issue Date

20. TOOLS: Required CDD Info
CIP and Basic CDD Elements
CIP (Name, Add., TIN, DOB)
Identification (Ind. / Bus.)
Residency / Citizenship
Tax & Exemption Status (FATCA)
Occupation / Business Type
Account Purpose
Source of Funds (Wealth & Accounts)
Products & Services
Anticipated Trans. Activities
Beneficial Owners and Controlling Party Info. including Opener Cert.
Deeper CDD Elements
PEP Status
Higher Risk Business Types:
Private Banking/Wealth Management
International/Trade/ExIm
MSB/NBFI
POATM
TPPP
RDC/RCC
Correspondents & FFIs
Embassy/Consulate

21. TOOLS

22. TOOLS

23. Steve.Byron@Rabobank.com 916-878-4683
Steve Byron, CAMS Vice President BSA Program Manager and BSA Operations Manager RABOBANK, N.A. (RNA)