The US treasury department’s Financial Crimes Enforcement Network’s (FinCEN’s), Final Rule for Customer Due Diligence (CDD Rule) becomes mandatory from 11 May 2018.

The new rule requires certain financial institutions to “look through” legal entity account holders to identify the account’s beneficial owners who own or control the entity.

Due diligence

Released in May 2016, the CDD Rule is intended to be a structural pillar in FinCEN’s anti-money laundering (AML) programme, which mandates that certain institutions will implement risk-based procedures for conducting customer due diligence on all customers.

The CDD Rule also aims to strengthen aspects of the US’ AML regime identified as a weakness by the Financial Action Task Force (FATF) in its mutual evaluations. They identified shortcomings in US requirements for the identification and verification of individuals associated with legal entities.

The rule defines beneficial owners as individuals or corporations owning 25 per cent or more of an entity, and a single individual who has significant responsibility for controlling the entity.

AML programme

The new rule also includes CDD standards for covered financial institutions subject to FinCEN’s AML programme requirements.

FinCEN says the rule formalises existing practice, requiring financial institutions to establish risk based procedures to understand the “nature and purpose of the customer relationship,” and to monitor, identify and report suspicious transactions and update customer information.