FFIEC Issues Customer Due Diligence and Beneficial Ownership Sections of BSA/AML Examination Manual

On May 11, 2018, the Federal Financial Institutions Examination Council (FFIEC) released the customer due diligence and beneficial ownership sections of its Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual.  These manual sections provide financial institutions with guidance about how to comply with the Department of the Treasury Financial Crimes Enforcement Network’s (FinCen) new Consumer Due Diligence (CDD) and Beneficial Ownership Rules, which both became effective on May 11, 2018.   The sections will be incorporated into FFIEC’s next manual update.

The Customer Due Diligence section provides guidance for how to establish CDD procedures which will allow financial institutions to better understand the nature and purpose of specific customer relationships in order to more accurately identify potentially suspicious transactions.  The section details the specific information that institutions should gather about a customer and highlights the specific “risk categories”—such as the geographic locations of purchases, the nature of a customer’s business, and the products and services a customer pays for—that institutions should consider when determining whether a customer may pose a higher risk of money laundering or terrorist financing.  The section also addresses long-term monitoring of customer relationship and outlines specific examination procedures.

The Beneficial Ownership section walks institutions through the process of establishing and instituting written procedures regarding the identification and verification of legal entity customers.  At a minimum, institutions must obtain the name, date of birth, address, and “identification number” of each beneficial owner of a legal entity customer.  The section suggests that the requiring legal entity customers to disclose such identifying information will make the entities more transparent, and thus less attractive to criminals.  The section further advises institutions on a variety of compliance issues, including recordkeeping and retention requirements, establishing policies for circumstances in which the bank cannot ascertain the true identity of the beneficial owner of a legal entity customer, and reliance on other financial institutions.