What Does Your Financial Institution Need to Know About Your Company’s Ownership in 2025?
Yes, the requirement to register an entity’s Beneficial Ownership Information (BOI) with the U.S. Government agency, Financial Crime Enforcement Network (FINCEN), is being bounced around in the court system. While there is a lot of uncertainty with the new administration, it’s essential to establish what has not changed and most likely will not change related to Beneficial Ownership Information.
Financial institutions continue to be subject to high regulatory standards that require this information be readily available as part of the government’s aim to curtail financial crimes. When opening a loan or deposit account with a bank, credit union, trust, or FinTech, referred to here as a Financial Institution (FI), you must provide information about the identity of the company’s “beneficial owners.” This must, by law, be correct, current, and accurate information, and the FI may ask periodically for this information to be updated. Account openings should be declined, and existing accounts should be closed for non-compliance or if the institution believes the information is inaccurate or deceptive.
What Does “Identify” Mean?
FIs are required to verify the identity of beneficial owners by obtaining information that matches the details of a valid identification document, such as a passport or driver’s license. They must also maintain records of the information used to verify the identity of a beneficial owner.
FIs are required to verify the identity of beneficial owners by obtaining information that matches the details of a valid identification document, such as a passport or driver’s license. They must also maintain records of the information used to verify the identity of a beneficial owner for five years after the account is closed.
FIs must update the beneficial ownership information when they detect concerns that ownership or control has changed about the customer during their routine monitoring that may be relevant to assessing or reevaluating the risk posed by the customer.
What is a Beneficial Owner? Financial Owner and Controlling Responsibility.
- Financial Owner – FIs are required to identify individuals who directly or indirectly own 25% or more of the equity interests in a legal entity customer, such as a corporation, Limited Liability Company, or other entity created by filing a public document with a Secretary of State or similar office.
- Controlling Responsibility – In addition to the above, FIs must identify individuals with significant responsibility for controlling, managing, or directing the legal entity. This could be an executive officer, senior manager, or any other individual performing similar functions regularly.
Why and how are they collecting this information?
FIs are expected to develop risk-based procedures for conducting ongoing customer due diligence. This can include understanding the nature and purpose of customer relationships, conducting ongoing monitoring to identify and report suspicious transactions, and maintaining and updating customer information.
Conceptually, FIs collect BOI to enhance financial transparency and help identify who is conducting financial crimes such as money laundering, tax evasion, and other illicit activities or the individuals assisting in conducting or hiding the activity. All too often, an account or series of accounts would be opened. Eventually, law enforcement investigates the activity, and the individual signers on the account would turn out to be patsies with no knowledge of the underlying crimes. Under the new rules, these patsies could legally be held responsible for financial crimes committed through the account, aiming to get the patsy to cooperate with law enforcement to find the actual criminals.
These requirements are part of the Customer Due Diligence (CDD) Final Rule, enforced by the Financial Crimes Enforcement Network (FinCEN) in the United States. However, the specific rules and thresholds can vary by country and regulatory authority.
Sources:
Financial Crimes Enforcement Network (FinCEN)
Office of the Comptroller of the Currency (OCC)
Federal Deposit Insurance Corporation (FDIC)