13046 Federal Register / Vol. 77, No. 43 / Monday, March 5, 2012 / Proposed Rules 

1See, e.g., ‘‘Anti-Money Laundering Programs for 

Insurance Companies,’’ 31 CFR 1025.210(b)(1). 

2The BSA is codified at 12 U.S.C. 1829b, 12 

U.S.C. 1951–1959, 18 U.S.C. 1956, 1957, and 1960, 

and 31 U.S.C. 5311–5314 and 5316–5332 and notes 

thereto, with implementing regulations at 31 CFR 

Chapter X. See 31 CFR 1010.100(e). 

3 31 U.S.C. 5311. 

4Treasury Order 180–01 (Sept. 26, 2002). 

5 31 U.S.C. 5318(h)(2). 

6 31 U.S.C. 5318(a)(2). 

7FIN–2010–G001, ‘‘Guidance on Obtaining and 

Retaining Beneficial Ownership Information, March 

5, 2010, p.1 (‘‘Beneficial Ownership Guidance’’). 

See also Federal Financial Institution Examination 

Council Bank Secrecy Act Anti-Money Laundering 

Examination Manual (2010) (‘‘FFIEC Manual’’), 

available at: http://www.ffiec.gov/ 

bsa_aml_infobase/documents/ 

BSA_AML_Man_2010.pdf; Financial Industry 

Branch, ANM–150S, FAA, Seattle Aircraft 

Certification Office, 1601 Lind Avenue SW., 

Renton, Washington 98057–3356; phone: 

425–917–6596; fax: 425–917–6590; email: 

francis.smith@faa.gov. 

(2) For service information identified in 

this AD, contact Boeing Commercial 

Airplanes, Attention: Data & Services 

Management, P.O. Box 3707, MC 2H–65, 

Seattle, Washington 98124–2207; telephone 

206–544–5000, extension 1; fax 206–766– 

5680; email me.boecom@boeing.com; Internet 

https://www.myboeingfleet.com. You may 

review copies of the referenced service 

information at the FAA, Transport Airplane 

Directorate, 1601 Lind Avenue SW., Renton, 

Washington. For information on the 

availability of this material at the FAA, call 

425–227–1221. 

Issued in Renton, Washington, on February 

24, 2012. 

Ali Bahrami, 

Manager, Transport Airplane Directorate, 

Aircraft Certification Service. 

[FR Doc. 2012–5180 Filed 3–2–12; 8:45 am] 

BILLING CODE 4910–13–P 

DEPARTMENT OF THE TREASURY 

Financial Crimes Enforcement Network 

31 CFR Chapter X 

RIN 1506–AB15 

Customer Due Diligence Requirements 

for Financial Institutions 

AGENCY: Financial Crimes Enforcement 

Network (FinCEN), Treasury. 

ACTION: Advance notice of proposed 

rulemaking. 

SUMMARY: FinCEN, after consulting with 

staffs of various Federal supervisory 

authorities, is issuing this advance 

notice of proposed rulemaking 

(ANPRM) to solicit public comment on 

a wide range of questions pertaining to 

the development of a customer due 

diligence (CDD) regulation that would 

codify, clarify, consolidate, and 

strengthen existing CDD regulatory 

requirements and supervisory 

expectations, and establish a categorical 

requirement for financial institutions to 

identify beneficial ownership of their 

accountholders, subject to risk-based 

verification and pursuant to an 

alternative definition of beneficial 

ownership as described below. 

DATES: Written comments on this 

ANPRM must be received on or before 

May 4, 2012. 

ADDRESSES: Comments may be 

submitted, identified by Regulatory 

Identification Number (RIN) 1506– 

AB15, by any of the following methods: 

• Federal E-rulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

Include RIN 1506–AB15 in the 

submission. Refer to Docket Number 

FINCEN–2012–0001. 

• Mail: FinCEN, P.O. Box 39, Vienna, 

VA 22183. Include 1506–AB15 in the 

body of the text. 

Please submit comments by one 

method only. All comments submitted 

in response to this ANPRM will become 

a matter of public record. Therefore, you 

should submit only information that 

you wish to make publicly available. 

Inspection of comments: Comments 

may be inspected, between 10 a.m. and 

4 p.m., in the FinCEN reading room in 

Vienna, VA. Persons wishing to inspect 

the comments submitted must request 

an appointment with the Disclosure 

Officer by telephoning (703) 905–5034 

(not a toll free call). In general, FinCEN 

will make all comments publicly 

available by posting them on http:// 

www.regulations.gov. 

FOR FURTHER INFORMATION CONTACT: 

FinCEN: Regulatory Policy and 

Programs Division, Financial Crimes 

Enforcement Network, (800) 949–2732 

and select option 6. 

SUPPLEMENTARY INFORMATION: 

I. Scope of ANPRM 

The scope of this ANPRM includes all 

of the industries that have anti-money 

laundering (AML) program 

requirements under FinCEN’s 

regulations. At this time, and as an 

initial matter, FinCEN is considering 

developing a CDD rule to cover banks, 

brokers or dealers in securities, mutual 

funds, futures commission merchants, 

and introducing brokers in 

commodities; accordingly, this ANPRM 

is focused primarily on these 

institutions. However, FinCEN believes 

that a CDD rule may be appropriate for 

all financial institutions subject to 

FinCEN’s regulations, and will consider 

extending such a rule to such other 

financial institutions in the future. 

Therefore, in addition to focusing on 

input from those types of institutions 

that would be subject to an initial 

rulemaking, FinCEN is also specifically 

requesting comment from other 

institutions, such as money services 

businesses (including providers of 

prepaid access), insurance companies, 

casinos, dealers in precious metals, 

stones and jewels, non-bank mortgage 

lenders or originators, and other entities 

under FinCEN’s regulations, in 

particular regarding issues related to 

identification and verification of 

customers as discussed in Section IV A. 

of this ANPRM. While these institutions 

currently are not mandated to obtain the 

minimum mandatory information 

required to identify customers as is 

mandated in regulations pertaining to 

depository institutions, brokers or 

dealers, and others described above, in 

some cases they still must, on a riskbased approach, obtain all relevant and 

appropriate customer-related 

information necessary to administer an 

effective anti-money laundering 

program.1

II. Background 

FinCEN exercises regulatory functions 

primarily under the Currency and 

Financial Transactions Reporting Act of 

1970, as amended by the USA PATRIOT 

Act of 2001 (the Act) and other 

legislation, which legislative framework 

is commonly referred to as the ‘‘Bank 

Secrecy Act’’ (BSA),2 which authorizes 

the Secretary of the Treasury (Secretary) 

to require financial institutions to keep 

records and file reports that ‘‘have a 

high degree of usefulness in criminal, 

tax, or regulatory investigations or 

proceedings, or in the conduct of 

intelligence or counterintelligence 

activities, including analysis, to protect 

against international terrorism’’ 3 The 

Secretary has delegated to the Director 

of FinCEN the authority to implement, 

administer and enforce compliance with 

the BSA and associated regulations.4

FinCEN is authorized to impose AML 

program requirements on financial 

institutions,5 as well as to require 

financial institutions to maintain 

procedures to ensure compliance with 

the BSA and FinCEN’s implementing 

regulations or guard against money 

laundering.6

As reflected in recent guidance and 

enforcement actions, the cornerstone of 

a strong BSA/AML compliance program 

is the adoption and implementation of 

internal controls, which include 

comprehensive CDD policies, 

procedures, and processes for all 

customers, particularly those that 

present a high risk for money 

laundering or terrorist financing.7 As 


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Regulatory Authority, Updated AML Template for 

Small Firms (Jan. 2010) (‘‘FINRA Small Firm 

Template’’), available at http://www.finra.org/ 

Industry/Issues/AML/p006340; National 

Association of Securities Dealers, Notice to 

Members 02–21 at 7 (Apr. 2002) (‘‘NASD NTM 02– 

21’’). 

8See supra note 7. 

9See supra note 7. 

10Title II of Public Law 95–223, codified at 50 

U.S.C. 1701–1707. 

11See, e.g., FFIEC Manual, FINRA Small Firm 

Template, NASD NTM 02–21. 

12See, e.g., FFIEC Manual, pp. 63–66; Beneficial 

Ownership Guidance; FIN–2006–G009, Application 

of the Regulations Requiring Special Due Diligence 

Programs for Certain Foreign Accounts to the 

Securities Industries (May 10, 2006) (‘‘Finally, we 

remind securities and futures firms that the 

correspondent account rule supplements their antimoney laundering obligations—it does not 

supersede such obligations. A securities or futures 

firm’s anti-money laundering program should 

contain policies, procedures, and controls for 

conducting appropriate, ongoing due diligence on 

foreign entities including, among other things, 

whether or not they are foreign financial 

institutions for the purposes of the correspondent 

account rule. Such policies, procedures, and 

Continued 

part of their basic business model, 

financial institutions seek at some level 

to identify their customers and their 

needs in order to best service them. The 

requirement that a financial institution 

know its customers, and the risks 

presented by its customers, is basic and 

fundamental to the development and 

implementation of an effective BSA/ 

AML compliance program.8 In 

particular, appropriate CDD policies, 

procedures, and processes assist a 

financial institution in identifying, 

detecting, and evaluating unusual or 

suspicious activity.9 Furthermore, 

financial institutions may not be able to 

perform effective risk assessments of 

their customers or account bases 

without conducting adequate due 

diligence throughout customer 

relationships. 

As discussed in more detail below, 

despite the basis for a CDD obligation 

implicit in BSA requirements, such as 

the AML program and suspicious 

activity reporting (SAR) rules, FinCEN 

believes that issuing an express CDD 

rule that requires financial institutions 

to perform CDD, including an obligation 

to categorically obtain beneficial 

ownership information, may be 

necessary to protect the United States 

financial system from criminal abuse 

and to guard against terrorist financing, 

money laundering and other financial 

crimes. Despite efforts to highlight and 

clarify CDD and beneficial ownership 

expectations over the past several years, 

FinCEN is concerned that there is a lack 

of uniformity and consistency in the 

way financial institutions address these 

implicit CDD obligations and collect 

beneficial ownership information 

within and across industries. In the 

absence of a broader definition of the 

term ‘‘beneficial owner,’’ in particular a 

definition that can be applied across 

lines of business and customer 

categories in the context of CDD, it may 

be difficult for a financial institution to 

(1) identify the risk scenarios that would 

require the identification of beneficial 

owners; and (2) collect sufficient 

information to adequately address 

identified risk. The lack of consistency 

and uniformity also severely limits the 

ability of financial institutions to rely on 

the CDD efforts of other financial 

institutions, which would promote 

greater efficiency and eliminate 

instances of duplication of effort in 

transactions involving multiple 

financial institutions. 

FinCEN believes that an explicit CDD 

program rule codifying, clarifying and 

(with respect to beneficial ownership 

information) strengthening existing CDD 

expectations for U.S. financial 

institutions could enhance efforts to 

combat money laundering, terrorist 

financing, tax evasion and other 

financial crimes by: 

(i) Strengthening the ability of 

financial institutions to identify and 

report illicit financial transactions and 

comply with all existing legal 

requirements, including FinCEN 

regulations implementing the BSA, the 

International Emergency Economic 

Powers Act (IEEPA),10 and related 

authorities; 

(ii) Promoting consistency in the 

implementation of, examination for, and 

enforcement of CDD program 

requirements across and within sectors 

of the U.S. financial system; 

(iii) Assisting financial investigations 

by law enforcement, particularly by 

enhancing the availability of beneficial 

ownership and other information held 

by U.S. financial institutions; 

(iv) Facilitating reporting and 

investigations in support of tax 

compliance; and 

(v) Promoting global financial 

transparency and efforts to combat 

transnational illicit finance, consistent 

with international standards. 

We are exploring an express CDD 

program rule as one key element of a 

broader U.S. Department of the Treasury 

strategy to enhance financial 

transparency in order to strengthen 

efforts to combat financial crime, 

including money laundering, terrorist 

financing, and tax evasion. Illicit actors 

continue to create legal entities, 

masking beneficial ownership 

information in order to facilitate access 

to the financial system and conduct 

financial crimes. Enhancing financial 

transparency to address such ongoing 

abuse of legal entities requires a broad 

approach. Other key elements of this 

strategy include: (i) Improving the 

availability of beneficial ownership 

information of legal entities created in 

the United States; and (ii) facilitating 

global implementation of international 

standards regarding beneficial 

ownership of legal entities and trusts 

and CDD by financial institutions. 

While these three elements of the U.S. 

government’s strategy for combating 

criminal abuse of legal entities are 

proceeding independent of each other, 

together they establish a comprehensive 

approach to effectively combat the 

criminal abuse of legal entities. As such, 

strengthening CDD program 

requirements for financial institutions 

complements the Administration’s 

ongoing work with Congress to adopt 

legislation that would require the 

collection of beneficial ownership 

information at the time that legal 

entities are created in the United States. 

These efforts are also consistent with 

Treasury’s ongoing work with the Group 

of Twenty Finance Ministers and 

Central Bank Governors (G20), the 

Financial Action Task Force (FATF), 

and other financial centers around the 

world to clarify and strengthen 

implementation of international 

standards on identifying and 

understanding beneficial ownership, 

particularly with respect to CDD by 

financial institutions and the creation of 

legal entities. 

The Importance of CDD in 

Strengthening the Ability of Financial 

Institutions To Deter Illicit Transactions 

and Comply With Existing Legal 

Requirements 

The establishment and maintenance 

of strong AML programs that include 

CDD policies, procedures, and processes 

has been a long-standing regulatory and 

supervisory expectation of certain 

Federal financial regulatory agencies, 

and is implicit in regulations requiring 

financial institutions to maintain an 

effective BSA compliance program that 

is reasonably designed to assure and 

monitor compliance with the 

recordkeeping and reporting 

requirements of the BSA.11 An effective 

CDD program should provide a financial 

institution with sufficient information 

to develop a customer risk profile that 

can then be used by the financial 

institution to identify higher-risk 

customers and accounts, including 

customers and accounts subject to 

special or enhanced due diligence 

requirements.12 The financial 


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controls should include, where appropriate, 

ascertaining the foreign entity’s ownership and the 

nature of its business. In high-risk situations 

involving any account, an anti-money laundering 

program should include provisions for obtaining 

any necessary and appropriate information about 

the customers underlying such an account.’’) 

(emphasis added). 

13See, e.g., 31 CFR 1021.210(b)(2)(i). 

14See, e.g., Pacific National Bank, Miami, FL, 

Comptroller of the Currency (OCC) #2011–021 

(2011); HSBC Bank USA, N.A., McLean, VA, OCC 

#2010–199 (2010); Consent Order issued by the 

OCC in the Matter of Wachovia Bank, N.A., 

Charlotte, NC. OCC #2010–037 (2010); Public 

Savings Bank, Huntington Valley, PA, FDIC–11– 

107b (2011); First Financial Holding Co., Ltd, 

Taipei, Taiwan, Board of Governors of the Federal 

Reserve System (FRB), Docket Nos. 11–019–WA/ 

RB–FH et seq. (2011); Bank Hapoalim, B.M., Tel 

Aviv, Israel, FRB, Docket Nos. 09–083–WA/RB–FB 

(2009); Westfield Bank, Westfield, MA, Office of 

Thrift Supervision Order No. NE–11–20 (2011); 

Chapin, Davis, Baltimore MD, FINRA Case 

#2010021065701 (2011); FINRA, Letter of 

Acceptance, Waiver and Consent No. 

2007007328101, Terra Nova Financial, LLC (2009); 

FINRA, Letter of Acceptance, Waiver and Consent 

No. 2007007139501, Synergy Investment Group, 

LLC (2009); FINRA, Letter of Acceptance, Waiver 

and Consent No. 2008011725001, ViewTrade 

Securities, Inc., (2009); In the Matter of I Trade FX, 

NFA Case No. 08–BCC–014 (filed April 24, 2009) 

(finding that I Trade failed to follow up on red flags 

and investigate suspicious activity, including 

following up where the customer’s account had 

inflows of funds well beyond the known income or 

resources of the customer); In the Matter of Forex 

Capital Markets LLC (FXCM), NFA Case No. 11– 

BCC–016 (filed Aug. 12, 2011) (consent order based 

on allegations in the complaint that FXCM failed to 

conduct an investigation of suspicious activity 

involving unexplained wire activity, unexplained 

transfers between accounts, and deposits that were 

in excess of the clients’ net worth and/or liquid 

assets identified on their opening account 

documents). 

15Supra note 7. 

16See, e.g., Letter from the Investment Company 

Institute, the Securities Industry and Financial 

Markets Association, and the Futures Industry 

Association (June 9, 2010), available at: http:// 

www.ici.org/pdf/24354.pdf. 

17Shasky Calvery, Jennifer, ‘‘Priorities and 

Initiatives of the Asset Forfeiture and Money 

Laundering Section (AFMLS), U.S. Department of 

Justice’’ The SAR Activity Review, Trends, Tips, 

and Issues, p. 44. (May 2011), available at http:// 

www.fincen.gov/news_room/rp/files/sar_tti_19.pdf. 

18Hiring Incentives to Restore Employment Act 

of 2010, Pub.L. 111–147, Section 501(a). 

19See generally, Internal Revenue Service, 

‘‘Regulations Relating to Information Reporting by 

Foreign Financial Institutions and Withholding on 

Certain Payments to Foreign Financial Institutions 

and Other Foreign Entities,’’ REG–121647–10 

(February 8, 2012), available at http://www.irs.gov/ 

pub/newsroom/reg-121647-10.pdf. 

institution also should apply 

appropriate internal controls to identify 

and investigate unusual and suspicious 

activity and make an informed decision 

whether or not to file a SAR.13 In the 

event that a financial institution files a 

SAR, CDD information collected could 

enhance the information included in the 

SAR and thereby enhance law 

enforcement’s ability to initiate and 

pursue the successful investigation and 

prosecution of criminal activity. The 

failure to obtain adequate CDD 

information may impede a financial 

institution’s ability to detect and report 

suspicious or unusual activity or 

provide information in a filing that is 

useful to law enforcement. Several of 

the consent orders and enforcement 

actions issued over the last few years 

have identified the lack of effective CDD 

policies, procedures, and processes, or 

the underlying elements thereof, as 

rendering AML programs inadequate, 

being a significant deficiency, and an 

underlying factor in supervisory 

actions.14

Although appropriate and adequate 

CDD policies, procedures, and processes 

have generally been an expectation of 

the Federal financial regulatory 

agencies, FinCEN believes that an 

express CDD program rule will 

strengthen compliance with and 

enforcement of CDD program 

requirements by clarifying, 

consolidating, and harmonizing such 

agencies’ minimum expectations with 

respect to CDD policies, procedures, and 

processes, including the fundamental 

elements necessary for an effective CDD 

program. 

As described in detail below, FinCEN 

believes that one fundamental element 

necessary for an effective CDD program 

is obtaining beneficial ownership 

information for all account holders, 

possibly subject to limited exceptions 

based upon lower risk. An express CDD 

program rule would enable FinCEN to 

establish such a clear requirement, 

thereby strengthening the ability of 

financial institutions to detect and 

address suspicious activity. Establishing 

a categorical beneficial ownership 

information requirement through a CDD 

program rule also would address current 

concerns regarding potential confusion 

or inconsistency across financial sectors 

regarding obligations to obtain 

beneficial ownership information 

outside of statutorily prescribed 

circumstances. Recent industry 

commentary and feedback indicated a 

lack of common understanding and 

consistent practice across the financial 

services industry for collecting 

beneficial ownership information. For 

example, an industry survey conducted 

by FinCEN in 2008 indicated certain 

inconsistencies in financial institutions’ 

practices related to collecting and 

maintaining beneficial ownership 

information both within and across 

industries. Moreover, industry 

commentary following the issuance of 

the Beneficial Ownership Guidance 15

indicated that there is at least some 

question about the nature of a financial 

institution’s obligation to conduct CDD 

and to obtain beneficial ownership 

information.16

The Importance of CDD in Assisting 

Criminal Investigations 

As discussed previously, an effective 

CDD program is important in facilitating 

effective suspicious activity monitoring, 

which in turn facilitates the filing of 

quality SARs containing information 

that is both meaningful and useful to 

law enforcement. The lack of such 

information has been a source of 

growing concern to law enforcement in 

its efforts to conduct successful criminal 

investigations, both domestically and in 

conjunction with international 

counterparts. For example, the Chief of 

DOJ’s Asset Forfeiture and Money 

Laundering Section (AFMLS) has stated 

that, with respect to international law 

enforcement cases, ‘‘the lack of 

beneficial ownership information can 

also hamper our ability to respond to 

requests for assistance from our foreign 

counterparts. This problem not only 

damages our reputation, but also 

undermines our efforts to join with 

foreign counterparts in a global 

offensive against organized crime and 

terrorism.’’ 17

The Importance of CDD in Facilitating 

Tax Reporting, Investigations and 

Compliance 

The collection of CDD information by 

financial institutions is also 

fundamentally important in facilitating 

tax reporting, investigations and 

compliance. For example, a variety of 

information may be needed in a tax 

enquiry including information held by 

banks and other financial institutions as 

well as information concerning the 

ownership of companies or the identity 

of interest holders in other persons or 

entities, such as partnerships and trusts. 

The United States has long been a global 

leader in establishing and promoting the 

adoption of international standards for 

transparency and information exchange 

to combat cross-border tax evasion and 

other financial crimes, and 

strengthening the CDD procedures of 

financial institutions is an important 

part of that effort. Moreover, the United 

States has an extensive network of 

agreements for the exchange of tax 

information that meet international 

standards. In addition, new tax 

reporting provisions under the Foreign 

Account Tax Compliance Act 

(FATCA) 18 would require overseas 

financial institutions to identify U.S. 

account holders, including foreign 

entities with significant U.S. ownership, 

and to report certain information about 

their accounts to the IRS.19 In many 


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20The FATF, an inter-governmental organization 

of which the United States, thirty-four other 

jurisdictions and two regional organizations are 

members, is the global standard setter and policymaking body for AML/CFT. http://www.fatfgafi.org/pages/ 

0,2987,en_32250379_32235720_1_1_1_1_1,00.html. 21 Group of Twenty Finance Ministers and Central 

Bank Governors, ‘‘Leaders’ Statement: The 

Pittsburgh Summit’’ (September 24–25, 2009). 22See Group of Twenty Finance Ministers and 

Central Bank Governors, Annex III, ‘‘G20 AntiCorruption Action Plan: G20 Agenda for Action on 

Combating Corruption, Promoting Market Integrity, 

and Supporting a Clean Business Environment,’’ p. 

2 (November 11–12, 2010). 

23Financial Action Task Force, ‘‘International 

Standards on Combating Money Laundering and the 

Financing of Terrorism & Proliferation—The FATF 

Recommendations,’’ February 2012, 

Recommendation 10, pp. 14–15, available at 

http://www.fatf-gafi.org/dataoecd/49/29/ 

49684543.pdf. Following a review to update and 

strengthen global AML/CFT standards, the FATF 

issued its revised Recommendations on February 

16, 2012. 

24Basel Committee on Banking Supervision, 

‘‘Customer Due Diligence for Banks,’’ 2001, p. 2, 

available at www.bis.org/publ/bcbs85.pdf. 

25 International Organization of Securities 

Commissions, ‘‘Principles on Client Identification 

and Beneficial Ownership for the Securities 

Industry,’’ p. 2 (May 2004). 

26 Id. 

27 Id. 

28Financial Crimes Enforcement Network, ‘‘The 

Role of Domestic Shell Companies in Financial 

Crime and Money Laundering: Limited Liability 

Companies,’’ (November 2006), available at http:// 

www.fincen.gov/news_room/rp/files/ 

LLCAssessment_FINAL.pdf. 

cases, implementing these provisions 

will require the cooperation of foreign 

governments to address impediments 

under foreign law. Requiring U.S. 

financial institutions to obtain similar 

ownership information would put the 

United States in a better position to 

work with foreign governments to 

combat offshore tax evasion and other 

financial crimes. 

The Importance of CDD in Promoting 

Financial Transparency and Protecting 

the Financial System From Abuse 

Consistent With International Standards 

An effective CDD program supports 

effective suspicious activity monitoring, 

strengthens national anti-money 

laundering and counter-financing of 

terrorism (AML/CFT) regimes, and 

promotes the integrity of the 

international financial system as a 

whole. This importance was recognized 

by the G20 in several Leaders’ 

Statements supporting the strengthening 

of CDD procedures. During the 

Pittsburgh Summit in 2009, the G20 

asked the Financial Action Task Force 

(FATF) 20 to ‘‘help detect and deter the 

proceeds of corruption by prioritizing 

work to strengthen standards on 

customer due diligence.’’ 21 In 

November 2010, the G20 specifically 

urged the FATF to clarify and 

strengthen beneficial ownership as an 

element of CDD and as a key component 

of its Anti-Corruption Action Plan.22

Additionally, effective adoption and 

implementation of CDD by financial 

institutions is consistent with the 

FATF’s global AML/CFT standards to 

combat money laundering and the 

financing of terrorism.23

The G20 recognition of the 

importance of CDD is also reflected in 

the work of other international standard 

setting bodies. In October 2001, the 

Basel Committee on Banking 

Supervision (BCBS) published a report 

on CDD, supporting the FATF’s efforts 

in fighting money laundering. The 

report states that sound CDD-related 

procedures are not only critical in 

combating financial crime, but ‘‘critical 

in protecting the safety and soundness 

of banks and the integrity of the banking 

systems.’’ 24 Similarly, in light of the 

FATF’s and other international 

organizations’ work, in October 2002 the 

International Organization of Securities 

Commissions (IOSCO) established a 

Task Force on Client Identification and 

Beneficial Ownership to survey existing 

securities regulatory regimes relating to 

the identification of clients and 

beneficial owners and to develop 

principles that address aspects of the 

CDD process.25 In May 2004, IOSCO 

published a report describing principles 

for client identification and beneficial 

ownership in the securities industry.26

Among other things, the report noted 

that while ‘‘[t]he CDD process is a key 

component of securities regulatory 

requirements intended to achieve the 

principal objectives of securities 

regulation, the protection of investors; 

ensuring that markets are fair, efficient 

and transparent; and the prevention of 

the illegal use of the securities 

industry,’’ it also ‘‘contributes to the 

pursuit of other policy goals related to 

the prevention of the illegal use of the 

securities industry such as money 

laundering and the financing of 

terrorism that are generally within the 

competence of other authorities.’’ 27

III. Treasury’s Efforts To Address CDD, 

Including Beneficial Ownership Issues 

The identification of beneficial 

ownership interests as noted previously 

has become increasingly relevant to 

AML/CFT efforts both within the United 

States and beyond its borders. Treasury 

also has consistently engaged with the 

Federal financial regulatory agencies 

and financial institutions for the 

purpose of understanding and clarifying 

the efforts of financial institutions with 

respect to CDD and identifying 

beneficial ownership interests. Most 

notably: 

i. Following the adoption of the Act 

in 2001, the Treasury Department and 

the federal financial regulatory agencies 

engaged the financial industry in order 

to develop customer identification 

program (‘‘CIP’’) and special due 

diligence requirements in accordance 

with Sections 326 and 312 of the Act, 

respectively. 

ii. In November 2006, FinCEN issued 

a report on ‘‘The Role of Domestic Shell 

Companies in Financial Crime and 

Money Laundering: Limited Liability 

Companies.’’ The report highlights the 

need for financial institutions to assess 

and manage the risks of providing 

financial services to shell companies in 

order to identify and report potential 

money laundering activity.28

iii. In 2008, FinCEN submitted a 

survey to industry to solicit feedback on 

how and when financial institutions 

obtain and retain beneficial ownership 

information. The survey results 

indicated certain inconsistencies in 

financial institutions’ understanding of 

requirements related to collecting and 

maintaining beneficial ownership 

information both within and across 

industries. 

iv. In November 2009, the Department 

of the Treasury’s then-Assistant 

Secretary, and current Under Secretary, 

David Cohen, testified before the Senate 

Committee on Homeland Security and 

Governmental Affairs and outlined 

Treasury’s comprehensive plan, the 

elements of which are designed to 

enhance the transparency of legal 

entities with respect to beneficial 

ownership. Treasury’s plan involves: (i) 

Working with Congress to promote 

legislation that enhances transparency 

of legal entities in the company 

formation process; (ii) clarifying and 

strengthening requirements for U.S. 

financial institutions with respect to the 

beneficial ownership of legal entity 

accountholders, and (iii) clarifying and 

facilitating the implementation of 

international standards regarding 

beneficial ownership, including with 

respect to company formation by 

jurisdictional authorities and CDD by 

financial institutions. 

v. In March 2010, FinCEN, jointly 

with the Board of Governors of the 

Federal Reserve System, the Federal 

Deposit Insurance Corporation, the 

National Credit Union Administration, 

the Office of the Comptroller of the 

Currency, the Office of Thrift 

Supervision, and the Securities and 

Exchange Commission, and in 

consultation with staff of the 

Commodity Futures Trading 

Commission, issued the Beneficial 


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29See generally, supra note 7. 

30See 31 CFR 1020.220(a), 1023.220(a), 

1024.220(a), and 1026.220(a). 

31See 31 CFR 1020.220(a)(2)(i)(A), 

1023.220(a)(2)(i)(A), 1024.220(a)(2)(i)(A), and 

1026.220(a)(2)(i)(A). 

32See, e.g. 31 CFR 1023.100(d) and Customer 

Identification Programs for Broker-Dealers, 68 FR 

25,113, 116 (May 9, 2003). 

33 31 CFR 1020.220(a)(2), 1023.220(a)(2), 

1024.220(a)(2), and 1026.220(a)(2). 

34 Id. 

35 31 CFR 1020.220(a)(2)(ii), 1023.220(a)(2)(ii), 

1024.220(a)(2)(ii), and 1026(a)(2)(ii). 

36 31 CFR 1020.220(a)(2)(ii)(C); 

1023.220(a)(2)(ii)(C); 1024.220(a)(2)(ii)(C); and 

1026.220(a)(2)(ii)(C). This verification method 

applies only when the financial institution cannot 

verify the customer’s true identity using the 

verification methods described in the rule. 

However, the preamble to the final CIP Rule noted 

that, in addition to the requirements of this 

paragraph, ‘‘the due diligence procedures required 

under other provisions of the BSA or the securities 

laws may require broker-dealers to look through to 

owners of certain types of accounts.’’ Customer 

Identification Programs for Broker-Dealers, 68 FR 

25113, 116, n. 30 and accompanying text (May 9, 

2003). 

37Among other persons, the definition of 

‘‘customer’’ for purposes of the CIP requirement 

excludes: Existing customers, as long as the 

financial institution has a reasonable belief that it 

knows the customer’s true identity; Federally 

regulated banks; banks regulated by a state bank 

regulator; governmental entities; and publicly 

traded companies. See, e.g., 31 CFR 1020.100(c)(2), 

1023.100(d)(2), 1024.100(c)(2), 1026.100(d)(2). 

Ownership Guidance to clarify and 

consolidate existing regulatory 

expectations for obtaining beneficial 

ownership information for certain 

accounts and customer relationships.29

vi. In November 2011, the Department 

of the Treasury’s Assistant Secretary 

Daniel Glaser testified before the Senate 

Committee on the Judiciary, 

Subcommittee on Crime and Terrorism 

to discuss efforts to combat 

international organized crime. In his 

testimony, Assistant Secretary Glaser 

discussed the importance of financial 

transparency in mitigating threats posed 

by transnational organized crime and 

other forms of illicit finance as well as 

the Treasury Department’s work to 

clarify and strengthen CDD 

requirements for financial institutions. 

vii. In February 2012, the Department 

of the Treasury’s Deputy Assistant 

Secretary Luke Bronin testified before 

the House Committee on the Judiciary, 

Subcommittee on Crime, Terrorism, and 

Homeland Security to discuss key 

vulnerabilities in the U.S. financial 

system related to transnational 

organized crime. The testimony 

included highlighting the importance of 

CDD as essential to an AML regime. 

Additionally, Deputy Assistant 

Secretary Bronin discussed the 

importance of effective implementation 

of CDD and the need to clarify, 

consolidate, and strengthen CDD 

requirements for financial institutions. 

IV. Elements of CDD 

Based on the past efforts outlined 

above and ongoing industry and 

regulatory consultation and outreach, 

FinCEN believes that an effective CDD 

program includes the following 

elements: 

(i) Conducting initial due diligence on 

customers, which includes identifying 

the customer, and verifying that 

customer’s identity as appropriate on a 

risk basis, at the time of account 

opening; 

(ii) Understanding the purpose and 

intended nature of the account, and 

expected activity associated with the 

account for the purpose of assessing risk 

and identifying and reporting 

suspicious activity; 

(iii) Except as otherwise provided, 

identifying the beneficial owner(s) of all 

customers, and verifying the beneficial 

owner(s)’ identity pursuant to a riskbased approach; and 

(iv) Conducting ongoing monitoring of 

the customer relationship and 

conducting additional CDD as 

appropriate, based on such monitoring 

and scrutiny, for the purposes of 

identifying and reporting suspicious 

activity. 

FinCEN’s understanding of how U.S. 

financial institutions currently perform 

certain aspects of CDD in accordance 

with these elements under existing 

regulations and FinCEN’s proposal for 

codifying these elements in a CDD rule 

are described below. 

A. Identification and Verification of the 

Customer 

Various AML obligations are 

dependent on financial institutions at 

least obtaining, and in some instances 

verifying, certain basic customer 

identification information. For example, 

financial institutions subject to the CIP 

rules implementing Section 326 of the 

Act must identify and verify the identity 

of certain ‘‘customers’’ seeking to open 

an account.30 In identifying such 

customers, a financial institution must 

obtain the customer’s name; for 

individuals, date of birth, address, and 

an identification number (e.g., taxpayer 

identification number, passport number, 

or alien identification card number) and 

for a person other than an individual 

(such as a corporation, partnership or 

trust), a principal place of business, 

local office, or other physical location, 

and identification number.31 For the 

purposes of the CIP requirement, the 

definition of ‘‘customer’’ is the 

accountholder, regardless of whether 

the accountholder is also the beneficial 

owner.32

In addition to identifying customers 

covered by the CIP rule, a financial 

institution’s CIP must include riskbased procedures for verifying the 

identity of each customer to the extent 

reasonable and practicable such that the 

institution can form a reasonable belief 

that it knows the true identity of each 

customer.33 These procedures must be 

based on the institution’s assessment of 

the relevant risks, including those 

presented by the various types of 

accounts maintained by the institution, 

the various methods of opening 

accounts provided by the institution, 

the various types of identifying 

information available, and the 

institution’s size, location, and customer 

base.34 Further, the CIP must include 

procedures that describe when the 

financial institution will use 

documents, non-documentary methods, 

or a combination of both methods to 

verify a customer’s identity.35 In 

addition, for customer relationships 

where the customer is not an individual, 

based on the financial institution’s risk 

assessment of the account, the financial 

institution must obtain information 

about the individuals with authority or 

control over such account.36 Consistent 

with these explicit regulatory 

requirements and guidance, FinCEN is 

exploring an express customer 

identification and risk-based 

verification component of CDD, which 

does not create a new CIP obligation, 

but would be satisfied by compliance 

with the financial institution’s current 

CIP obligations. The identification and 

verification component of a CDD 

requirement may state, generally: 

Covered financial institutions shall 

identify, and on a risk-basis verify, the 

identity of each customer, to the extent 

reasonable, such that the institution can form 

a reasonable belief that it knows the true 

identity of each customer. 

If a financial institution is compliant 

with its current CIP obligations, a 

financial institution would be compliant 

with this part of the CDD program rule 

and therefore there will be no new or 

additional regulatory obligation. 

FinCEN notes that, although certain 

customers are exempt from the CIP 

requirements (i.e., the customers that 

are excluded from the definition of 

‘‘customer’’ for purposes of the CIP 

requirement),37 those customers would 

not be exempt from the requirements to 

understand the nature and purpose of 

the account and to conduct ongoing 

monitoring. As discussed below, 

FinCEN is seeking comment on whether 

the beneficial ownership requirement 


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38See, e.g., 31 CFR 1020.320(a)(2)(iii), 

1023.320(a)(2)(iii), 1024.320(a)(2)(iii), and 

1026.320(a)(2)(iii). 

39See 61 FR 4328 (February 5, 1996). 

40See, e.g., FIN–2006–G009, Application of the 

Regulations Requiring Special Due Diligence 

Programs for Certain Foreign Accounts to the 

Securities Industries (May 10, 2006). (‘‘A clearing 

firm’s anti-money laundering program should 

contain risk-based policies, procedures, and 

controls for monitoring introduced business, which 

includes knowing whether the introducing firm 

may establish or maintain correspondent accounts 

for foreign financial institutions and the nature and 

scope of that business, including the nature of the 

introducing firm’s account base.’’) See also FIN– 

2008–G002, Customer Identification Program Rule 

No-Action Position Respecting Broker-Dealers 

Operating Under Fully Disclosed Clearing 

Agreements According to Certain Functional 

Allocations (Mar. 4, 2008). 

41 31 CFR 1010.605(e)(1). 

42 31 CFR 1010.620(b)(1). 

43 31 CFR 1010.610(b)(1)(iii)(A). 

44See supra note 36. 

45Supra note 7. 

46 31 CFR 1010.605(a). 

47Securities Exchange Act Rule 13d–3, 17 CFR 

240.13d–3. 

should apply with respect to those 

exempt customers. 

B. Understanding the Nature and 

Purpose of the Account 

As a general business matter, financial 

institutions seek to understand the 

needs of their customers in order to 

serve them. Financial institutions 

should understand the nature and 

purpose of an account or customer 

relationship so that they can 

appropriately assess the risk presented 

by the relationship and appropriately 

monitor for suspicious activity. 

Pursuant to suspicious activity reporting 

procedures, financial institutions 

compare the available facts of a 

transaction or series of transactions, 

including their type, volume, and 

possible purpose, against the type of 

transaction in which the customer 

would normally be expected to 

engage.38 In other words, in discerning 

whether a transaction or series of 

transactions is suspicious, a financial 

institution must determine if the 

activity varies from the normal activities 

or activities appropriate for the 

particular customer or class of customer, 

and has no apparent reasonable 

explanation.39 FinCEN has also issued 

guidance highlighting the need to 

understand the nature and purpose of 

an account, in order to assess the risk 

and determine the appropriate level of 

due diligence for the account.40

Accordingly, and in keeping with the 

SAR obligation and related regulatory 

guidance, FinCEN is specifically 

considering including an express 

obligation to understand the nature and 

purpose of the account or customer 

relationship as an element of a CDD 

program rule. This element of a CDD 

program rule may state, generally: 

covered financial institutions shall 

understand the nature and purpose of the 

account and expected activity associated 

with the account for the purpose of assessing 

the risk and identifying and reporting 

suspicious activity. 

Because in FinCEN’s view, a financial 

institution must understand the nature 

and purpose of an account in order to 

assess risk and satisfy its obligation to 

appropriately detect and report 

suspicious activity, FinCEN does not 

believe that this will impose a new or 

additional requirement. 

C. Obtaining Beneficial Ownership 

Information 

Potential Beneficial Ownership 

Obligation Under a CDD Program Rule 

Under existing FinCEN regulations, 

there are two limited situations where 

financial institutions are expressly 

obligated to obtain beneficial ownership 

information. Specifically, under the 

rules implementing Section 312 of the 

Act, there are two situations where 

certain ‘‘covered financial 

institutions’’ 41 are required to take 

reasonable steps to obtain beneficial 

ownership information: (i) covered 

financial institutions that offer private 

banking accounts are required to take 

reasonable steps to identify the nominal 

and beneficial owners of such 

accounts; 42 and (ii) covered financial 

institutions that offer correspondent 

accounts for certain foreign financial 

institutions are required to take 

reasonable steps to obtain information 

from the foreign financial institution 

about the identity of any person with 

authority to direct transactions through 

any correspondent account that is a 

payable-through account, and the 

sources and beneficial owner of funds or 

other assets in the payable-through 

account.43

In addition to these explicit 

requirements to obtain beneficial 

ownership information, under the CIP 

rules, a financial institution’s CIP must 

address situations where, based on the 

financial institution’s risk assessment of 

a new account opened by a customer 

that is not an individual, the financial 

institution will obtain information about 

individuals with authority or control 

over such account.44 Moreover, FinCEN 

and the federal financial regulatory 

agencies have issued guidance stating 

that there are other situations when 

financial institutions should consider 

whether it is appropriate to obtain 

beneficial ownership information.45

Consistent with these explicit and 

implicit beneficial ownership 

information obligations, FinCEN is 

considering expanding the requirement 

to obtain beneficial ownership 

information to all customers. Such a 

beneficial ownership information 

requirement would constitute an 

essential element of an effective CDD 

program. This element of the CDD 

program rule may state, generally: 

Except as otherwise provided, financial 

institutions shall identify the beneficial 

owner(s) of all customers, and verify the 

beneficial owners’ identity pursuant to a riskbased approach. 

FinCEN anticipates that it would 

provide additional guidance regarding 

customers that may be considered low 

risk (and therefore exempt for purposes 

of this beneficial ownership 

requirement), as well as identifying 

types of customers that may simply 

necessitate identification of the 

beneficial owner, and those that are of 

heightened risk requiring both 

identification and verification of the 

beneficial owner. Similar to the CIP 

requirement, FinCEN also anticipates 

that it would provide guidance to 

financial institutions on what they 

should do in the event they are unable 

to identify or verify a beneficial owner. 

This component of the CDD program 

rule would create a new express 

regulatory obligation to obtain beneficial 

ownership information, given the 

limited circumstances in which 

financial institutions are currently 

expressly obligated to obtain this 

information. 

Potential Additional Definition of 

Beneficial Owner 

In the limited instances where 

reasonable steps to obtain beneficial 

ownership information are currently 

required, FinCEN has defined the 

beneficial owner of an account as ‘‘an 

individual who has a level of control 

over, or entitlement to, the funds or 

assets in the account that, as a practical 

matter, enables the individual, directly 

or indirectly, to control, manage or 

direct the account * * *’’ 46 This 

definition was designed specifically for 

accounts referred to above where 

beneficial ownership information is 

required and may not be useful for 

application to the wide range of other 

accounts offered by financial 

institutions. 

In addition to FinCEN’s current 

definition of beneficial owner, federal 

regulatory agencies 47 and various 

international organizations and foreign 

jurisdictions define beneficial 

ownership in ways that may be useful 


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48See e.g., FATF Recommendations, General 

Glossary, p. 110, available at http://www.fatfgafi.org/dataoecd/49/29/49684543.pdf; European 

Parliament and Council, ‘‘Third European Union 

Money Laundering Directive,’’ 2005/60/EC, Article 

3(6) (October 26, 2005); United Kingdom Money 

Laundering Regulations, 2007 No. 2157 Part 2, p. 

10 (December 15, 2007). 

49Legal entities would generally include all 

entities that are established or organized under the 

laws of a state or of the United States, including 

corporations, limited liability companies, limited 

partnerships, and similar entities. 

in assisting financial institutions with 

understanding beneficial ownership in 

the CDD framework.48 For purposes of 

the CDD program requirement discussed 

above, and not affecting the limited 

instances in which beneficial ownership 

information is currently required, 

FinCEN is considering a definition to be 

used that would, in the case of legal 

entities, include: 

(1) Either: 

(a) Each of the individual(s) who, directly 

or indirectly, through any contract, 

arrangement, understanding, relationship, 

intermediary, tiered entity, or otherwise, 

owns more than 25 percent of the equity 

interests in the entity; or 

(b) If there is no individual who satisfies 

(a), then the individual who, directly or 

indirectly, through any contract, 

arrangement, understanding, relationship, 

intermediary, tiered entity, or otherwise, has 

at least as great an equity interest in the 

entity as any other individual, and 

(2) The individual with greater 

responsibility than any other individual for 

managing or directing the regular affairs of 

the entity. 

FinCEN anticipates that such a specific 

and limited definition of beneficial 

ownership may be necessary to 

accommodate the vast array of complex 

ownership structures of legal entities 49

that may become customers of financial 

institutions. FinCEN further anticipates 

that this specific limited definition 

would be applied generally to legal 

entity customers pursuant to the explicit 

beneficial ownership requirement 

described above, while the existing 

definition would continue to be applied 

for purposes of 31 CFR 1010.610 and 

1010.620. 

FinCEN emphasizes that the potential 

new beneficial ownership requirement 

and definition discussed in this ANPRM 

is not intended to supersede existing 

BSA obligations to obtain beneficial 

ownership information. 

Potential Exemptions From Beneficial 

Ownership Requirement 

FinCEN recognizes that there may be 

instances in which obtaining beneficial 

ownership information about a legal 

entity customer may not be warranted 

given the AML/CFT risk or other factors 

associated with that entity. For example, 

FinCEN is considering whether legal 

entity customers that are exempt from 

identification as customers under the 

CIP Rules (e.g., financial institutions 

regulated by a federal regulatory agency 

and publicly traded companies), should 

also be exempt from the beneficial 

ownership requirement, both because 

beneficial ownership information for 

these entities may not be particularly 

relevant to the money laundering risks 

associated with such entities, and 

because their beneficial ownership 

information is readily available to law 

enforcement and regulators. 

Accordingly, FinCEN seeks comment on 

a potential exemption from the 

beneficial ownership requirement for 

legal entity customers that are exempt 

under the CIP Rules. 

FinCEN recognizes that financial 

institutions may not have beneficial 

ownership information on existing 

customers (which are also exempt from 

the CIP Rules), outside those requiring 

such information, and is also 

considering whether and how a 

potential beneficial ownership 

requirement would apply to existing 

customers of financial institutions. In 

this regard, FinCEN is considering 

adopting a risk-based approach similar 

to that utilized in the case of the CIP 

Rules, whereby this potential 

requirement would apply to all new 

customers. With respect to existing 

customers, FinCEN is seeking comment 

on how a beneficial ownership 

identification requirement could be 

phased into ongoing CDD. 

Beneficial Owners of Assets in Accounts 

Held by Intermediaries 

Given the particular money 

laundering risks posed by some legal 

entities, the beneficial ownership 

requirement and potential definition of 

‘‘beneficial owner’’ under consideration 

as discussed above are designed to 

identify the beneficial owner of a legal 

entity customer, as distinct from the 

beneficial owner of assets in an account. 

However, there may be instances in 

which obtaining information about the 

beneficial owners of assets in an 

account may be warranted instead, such 

as where a legal entity (e.g. a foreign or 

regulated or unregulated domestic 

financial institution) opens an account 

for the benefit of its customers (as 

opposed to for its own benefit), as those 

customers could pose a money 

laundering risk through their ability to 

access the financial system through that 

account relationship. In such instances, 

FinCEN recognizes that the potential 

definition of ‘‘beneficial owner’’ 

described above may not generally be 

relevant or appropriate for AML/CFT 

purposes. 

Accordingly, FinCEN seeks comment 

on potential alternative definitions of 

‘‘beneficial owner’’ in instances where 

obtaining information about the 

beneficial owners of assets in an 

account may be warranted. FinCEN also 

seeks comment on how financial 

institutions currently address the 

potential money laundering risks 

presented by the beneficial owners of 

assets in an account pursuant to 

financial institutions’ existing legal 

obligations and expectations under 

FinCEN’s regulations and related 

guidance, whether there are any issues 

or practical difficulties in doing so, and 

whether further guidance or rulemaking 

on this particular issue would be 

beneficial. 

FinCEN recognizes that there may be 

impediments to identifying the 

beneficial owner of assets in an account 

in certain instances and account 

structures (e.g., omnibus accounts or 

other intermediated accounts), such as 

where there are layers of intermediated 

relationships or where there are 

numerous beneficial owners of assets in 

the account. FinCEN seeks comment on 

the difficulties associated with 

identifying beneficial owners of assets 

of such an account. FinCEN further 

requests comment on whether a 

potential explicit obligation to identify 

the beneficial owners of assets in an 

account should be based upon the 

financial institution’s risk assessment of 

the customer, or whether a more 

specific obligation would be 

appropriate. 

Customer Acting as an Agent 

FinCEN believes that, although the 

use of legal entities to mask beneficial 

ownership presents the primary illicit 

finance vulnerability and accordingly 

the need for beneficial ownership 

identification, the question of beneficial 

ownership can also arise in the context 

of accounts established by an individual 

or entity (e.g. law or accounting firm) 

which could be acting on behalf of 

another individual or individuals 

without disclosing this fact. FinCEN is 

considering how to best address this 

potential vulnerability. A possible 

solution would be to require any 

individual or entity (other than a 

regulated financial institution) opening 

an account at a financial institution to 

state that he, she, or it is not acting on 

behalf of any other person. Such 

approach would be analogous to 

longstanding FinCEN transaction 

reporting requirements, under which a 

financial institution must record 

identifying information with respect to 


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50See, 31 CFR 1010.312. 

51See generally, 31 CFR 1020.320(a)(2)(i)–(iii), 

1023.320(a)(2)(i)–(iii), 1024.320(a)(2)(i)–(iii), and 

1026.320(a)(2)(i)–(iii). 

‘‘any person or entity on whose behalf 

such transaction is to be effected.’’ 50 For 

individuals and entities acting on behalf 

of another person, the beneficial 

ownership element of a CDD program 

requirement would apply to the person 

on whose behalf the account is being 

opened. FinCEN seeks comment on this 

approach, as well as suggestions for 

other approaches. 

Obtaining and Verifying Beneficial 

Ownership Information 

FinCEN anticipates that, in general, 

the individual opening the account on 

behalf of a legal entity customer will 

identify its beneficial owner, and that 

covered financial institutions will 

generally be able to rely upon the 

beneficial ownership information 

presented by the customer, absent 

information that indicates reason to 

question the veracity of the information 

or an elevated risk of money laundering 

or terrorist financing. Verification of the 

beneficial owner could have two 

possible meanings. One meaning would 

require verifying the identity of the 

individual identified by the customer as 

the beneficial owner of the account, i.e., 

verifying the existence of the identified 

beneficial owner. This would 

presumably be accomplished by using 

procedures similar to those currently 

required pursuant to the CIP Rules (e.g., 

obtaining a copy of a government-issued 

identity document of the individual), 

but applied to the identified beneficial 

owner rather than to an individual 

customer. The second possible meaning 

would require that the financial 

institution verify that the individual 

identified by the customer as the 

beneficial owner, is indeed the 

beneficial owner of the customer, i.e., to 

verify the status of the identified 

individual. FinCEN is considering that, 

in each case the required procedures 

would need to be reasonable and 

practicable, and sufficient to form a 

reasonable belief that the financial 

institution knows the identity or status, 

as the case may be, of the beneficial 

owner. FinCEN is seeking comment 

below regarding these two possible 

meanings, and the appropriateness and 

challenges associated with each. 

D. Conducting Ongoing CDD 

Due diligence is an on-going 

obligation, and for this reason financial 

institutions should have in place 

policies and procedures to maintain the 

accuracy of their customer risk profiles 

and risk assessments. Financial 

institutions should update CDD 

information as necessary based on the 

overall risk of the customer, and may 

need to update or conduct additional 

CDD in association with specific events 

that would result in material changes in 

a customer’s risk profile, such as 

volume of alerts or red flags relating to 

the account, change in control, change 

in occupation or account purpose, or the 

occurrence of a transaction or activity 

that is unusual for the customer. 

Pursuant to suspicious activity 

reporting requirements, financial 

institutions must report a transaction 

that: (i) Involves funds derived from 

illegal activity or is conducted to hide 

or disguise funds or assets derived from 

illegal activity as part of a plan to 

violate or evade any federal law or 

regulation or to avoid any federal 

transaction reporting requirement; (ii) is 

designed to evade any requirements of 

the BSA or its implementing 

regulations; or (iii) has no business or 

apparent lawful purpose or is not the 

sort in which the particular customer 

would normally be expected to engage, 

and the financial institution knows of 

no reasonable explanation for the 

transaction after examining the available 

facts, including the background and 

possible purpose of the transaction.51

Financial institutions’ ongoing 

monitoring and due diligence are 

critical elements of effectively 

complying with current suspicious 

activity reporting requirements. 

FinCEN is exploring an ongoing 

monitoring and due diligence 

requirement as an express element of a 

CDD program rule. This element of the 

CDD program rule may state: 

Consistent with its suspicious activity 

reporting requirements, covered financial 

institutions shall establish and maintain 

appropriate policies, procedures, and 

processes for conducting on-going 

monitoring of all customer relationships, and 

additional CDD as appropriate based on such 

monitoring for the purpose of the 

identification and reporting of suspicious 

activity. 

FinCEN understands that the obligations 

in this potential element of an ongoing 

CDD monitoring rule are already 

included in the requirements contained 

in the AML program and SAR rules and, 

therefore, there would be no new or 

additional requirement. 

V. Issues for Comment 

Existing CDD requirements are an 

implicit, but essential, part of 

complying with AML program 

regulations. However, as discussed 

above, FinCEN is considering expressly 

requiring that financial institutions 

conduct CDD as part of their existing 

AML program requirements, and as part 

of this requirement, collect beneficial 

ownership information for all 

customers, with limited exceptions. For 

this reason, FinCEN is seeking comment 

from industry and other interested 

parties concerning the implementation 

of CDD programs in general pursuant to 

existing rules and guidance described 

above. FinCEN is also interested in 

better understanding what types of CDD 

information are currently collected, 

specifically in relation to beneficial 

ownership information, and under what 

circumstances the information is 

collected. 

1. Aside from policies and procedures 

with respect to beneficial ownership, 

what changes would be required in a 

financial institution’s CDD processes as 

a result of the adoption by FinCEN of an 

express CDD rule as described in this 

ANPRM? 

Aside from beneficial ownership, 

FinCEN believes that the other elements 

of a potential CDD rule as described 

above are already being implemented by 

a substantial number of financial 

institutions, due to three of the four 

proposed elements of CDD being 

explicit or implicit under existing 

FinCEN regulations and related 

regulatory and supervisory expectations. 

For this reason, FinCEN believes an 

explicit regulatory requirement with 

respect to these elements of CDD should 

not be onerous, particularly for those 

industries where CIP requirements are 

already in place. However, FinCEN is 

interested in obtaining a better 

understanding from all industry sectors 

of anticipated issues and concerns that 

may arise from creating an explicit 

regulatory requirement with respect to 

these three potential elements of CDD, 

including any additional costs that 

would be incurred to comply with these 

three elements. 

2. What changes would be required in 

a financial institution’s CDD process, as 

a result of the adoption by FinCEN of a 

categorical requirement to obtain (and 

in some cases verify) beneficial 

ownership information, as described in 

this ANPRM? Is FinCEN’s suggested 

alternate definition of ‘‘beneficial 

owner,’’ discussed above, a clear and 

easily understood definition for the 

purpose of obtaining beneficial 

ownership information for legal entities 

in the context of complying with a CDD 

obligation? If not, would you suggest a 

better definition? In addition, how do 

financial institutions currently address 

the money laundering risks that might 

be presented by the beneficial owners of 

assets in an account held by an 


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intermediary, what difficulties are 

presented in this regard, would further 

guidance or regulation be appropriate, 

should any requirement in this area be 

risk-based, and how should FinCEN 

define beneficial ownership for this 

purpose? 

FinCEN is seeking comment on the 

impact on financial institutions of the 

adoption of a categorical requirement to 

obtain beneficial ownership information 

for most customers, as described in this 

ANPRM. FinCEN is also seeking 

comment as to whether financial 

institutions have concerns regarding the 

proposed alternative definition of 

beneficial ownership discussed above 

and whether it may cause difficulties 

with financial institution compliance 

with a categorical beneficial ownership 

obligation. In addition, FinCEN is 

seeking comment on whether it would 

be confusing to adopt an alternate 

definition of beneficial ownership as 

proposed for a general CDD program 

requirement, except in the limited 

instances in which the current 

definition for beneficial owner that is 

required pursuant to 31 CFR 1010.610 

and 1010.620 would continue to be 

used, and whether the potential 

beneficial ownership requirement and 

associated potential definition would be 

relevant with respect to certain types of 

intermediated accounts, such as 

omnibus accounts, and if not, what 

definition would be more appropriate. 

Also, please comment on appropriate 

exemptions from a potential beneficial 

ownership requirement, including with 

respect to existing customers, and the 

practicality of phasing a requirement 

into ongoing CDD. Please also comment 

on possible approaches to preventing 

the misuse of a financial institution 

account by an individual or entity 

acting on behalf of another without 

disclosing this fact. Finally, please 

comment regarding the costs of 

complying with a categorical beneficial 

ownership requirement, in the case 

where the beneficial ownership 

requirement would apply only to new 

customers, as well as where it would 

apply to all existing customers. 

3. Under what circumstances does a 

financial institution currently obtain 

beneficial ownership information on a 

customer or accountholder? 

Current FinCEN regulations require 

financial institutions to obtain 

beneficial ownership information as a 

component of CDD on private banking 

and foreign correspondent customers. 

Existing BSA obligations, including 

regulatory and supervisory expectations, 

require financial institutions to collect 

this information, as appropriate, as part 

of CDD/EDD on higher-risk customers. 

For this reason, FinCEN requests 

information from industry regarding the 

circumstances under which a financial 

institution currently determines that it 

is necessary or prudent to obtain 

beneficial ownership information from a 

customer, who is neither a private 

banking nor foreign correspondent 

customer, whether as part of their 

customer identification program 

procedures, anti-money laundering 

program requirements, transaction/ 

account monitoring procedures, or for 

other purposes. For example, are there 

types of customers, types of accounts, 

levels of account activity, forms of 

suspicious activity, or other indicia that 

lead a financial institution to make 

decisions as to when there may be no 

risk, moderate risk or substantial risk in 

not obtaining beneficial ownership 

information? 

4. How do financial institutions 

currently obtain beneficial ownership 

information? 

FinCEN requests information on how 

financial institutions collect such 

information and, specifically, what 

methods, both documentary and nondocumentary, are used to identify and/ 

or verify the beneficial owner (e.g. 

public documents, identification 

numbers, etc.). When or if financial 

institutions collect beneficial ownership 

information other than as specifically 

required pursuant to 31 CFR 1010.610 

and 1010.620, FinCEN requests 

comments on whether financial 

institutions use the same definition of 

beneficial ownership as that which is 

applicable under these regulations for 

private banking and certain foreign 

correspondent accounts, or other 

definitions, such as those referenced 

above in the description of a potential 

additional definition of beneficial 

owner. 

5. Is the current, primarily risk-based, 

approach to a CDD program 

requirement resulting in varied 

approaches across industries or varied 

approaches within industries? 

FinCEN is seeking comment on 

whether financial institutions are aware 

of varied approaches either across or 

within industries relating to current 

CDD expectations, including beneficial 

ownership obligations. For example, 

FinCEN seeks comment on whether 

financial institutions are aware of 

circumstances in which one financial 

institution may turn down an account 

due to lack of beneficial ownership 

information, later to learn that the 

accountholder has established an 

account with another institution that 

did not require the accountholder to 

provide beneficial ownership 

information. Alternatively, are there 

circumstances under which financial 

institutions have concerns about their 

ability to rely on CDD undertaken by 

other financial institutions due to 

inconsistent practices or expectations? 

6. Are there other elements of CDD 

that would be more effective in 

facilitating compliance with AML 

program requirements and other 

obligations under FinCEN’s regulations? 

The four elements of CDD listed above 

were selected based on consistency with 

existing regulatory requirements and 

expectations; the importance of 

beneficial ownership information and 

other elements of CDD to financial 

investigations pertaining to money 

laundering, terrorist financing, and tax 

evasion, and IEEPA violations; and, 

consistency with international 

standards and financial transparency. 

FinCEN seeks comment on whether 

other elements of CDD, aside from those 

listed in this ANPRM would be more 

effective and efficient in advancing 

these interests. 

7. What information should be 

required in order to identify, and verify 

on a risk basis, the identity of the 

beneficial owner? 

Should the required identification 

information on beneficial owners be 

consistent with the customer 

identification information currently 

required under the CIP regulations (i.e., 

name, address, date of birth and 

identification number) or should 

additional information be required? In 

addition, what should be required of 

financial institutions to verify the 

identity of the beneficial owner? 

FinCEN is exploring two possible 

meanings for verification of beneficial 

ownership information: One meaning 

would require verifying the identity of 

the natural person identified by the 

customer to be the beneficial owner. 

This would require that the financial 

institution, for example, obtain a copy 

of a government-issued identification 

document bearing a photograph of the 

individual identified by the customer as 

its beneficial owner, to verify that the 

individual exists. The second meaning 

would require verifying that the 

individual identified by the customer as 

its beneficial owner is, in fact, the 

beneficial owner of the legal entity 

customer. FinCEN is seeking comment 

as to challenges posed by each of these 

possible verification requirements. 

8. Are there any products and 

services, or customers that should be 

exempted from the requirement to 

obtain beneficial ownership information 

due to there being (i) substantially less 

risk of money laundering or terrorist 

financing associated with the account; 

(ii) limited value associated with the 


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Federal Register / Vol. 77, No. 43 / Monday, March 5, 2012 / Proposed Rules 13055 

beneficial ownership information in 

mitigating money laundering/terrorist 

financing risk; or (iii) an inability to 

obtain the required information due to 

other legal requirements? 

FinCEN is seeking comment to 

determine if there are certain types of, 

or thresholds for, products, services, or 

customers, with respect to which a 

financial institution should not be 

required to obtain beneficial ownership 

information, due to substantially 

reduced risk. For example, should 

customers that are exempt from the CIP 

Rules, also be exempt from beneficial 

ownership identification? Additionally, 

FinCEN is seeking comment as to 

whether there are certain products or 

services offered by financial institutions 

that, due to ancillary statutory or 

regulatory obligations, would prohibit 

compliance with a CDD requirement to 

obtain beneficial ownership information 

as outlined in this ANPRM. FinCEN is 

also seeking comment on whether there 

are significant differences in risks or 

perceived ability to obtain beneficial 

ownership information with respect to 

foreign versus domestic customers and/ 

or beneficial owners. 

9. What financial institutions should 

not be covered by a CDD rule based on 

products and services offered? 

FinCEN is considering whether a CDD 

program rule as described in this 

ANPRM should be more widely 

applicable to financial institutions not 

currently subject to a CIP Rule, and is 

seeking comments from industry and 

interested parties to determine if there 

are types of financial institutions 

currently covered under FinCEN’s 

regulations and subject to SAR and 

AML Program rules, that should not be 

covered by a CDD obligation, either 

because the products and services 

offered are not consistent with the 

information sought in a CDD obligation 

or for any other reason. 

10. What would be the impact on 

consumers or other customers of a CDD 

program including the elements 

identified above? 

FinCEN is seeking comment regarding 

the potential impact on consumers or 

customers of financial institutions. 

What are the benefits and challenges of 

the above suggested CDD requirements 

that may exist between financial 

institutions and customers taking into 

account the objective of increasing the 

inclusion in the financial system of 

traditionally underserved individuals? 

Will a CDD program affect the 

willingness or ability of consumers or 

others to use or access certain financial 

institutions or services? 

VI. Conclusion 

With this ANPRM, FinCEN is seeking 

input on the questions set forth above. 

FinCEN also is soliciting comments on 

the impact to law enforcement or 

authorities, regulatory agencies, and 

consumers, and welcomes comments on 

all aspects of the ANPRM, and all 

interested parties are encouraged to 

provide their views. 

Dated: February 28, 2012. 

James H. Freis, Jr., 

Director, Financial Crimes Enforcement 

Network. 

[FR Doc. 2012–5187 Filed 3–2–12; 8:45 am] 

BILLING CODE 4810–02–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[EPA–R04–OAR–2012–0118; FRL–9642–9] 

Approval and Promulgation of 

Implementation Plans; Alabama: 

Removal of State Low-Reid Vapor 

Pressure Requirement for the 

Birmingham Area 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Proposed rule. 

SUMMARY: EPA is proposing to approve, 

through parallel processing, a draft 

revision to the Alabama State 

Implementation Plan (SIP), submitted 

by the Alabama Department of 

Environmental Management (ADEM), 

on January 10, 2012. The proposed 

revision modifies Alabama’s SIP to 

move Chapter 335–3–20 ‘‘Control of 

Fuels,’’ which includes the regulation 

that governs the State’s 7.0 pounds per 

square inch (psi) requirement for the 

low-Reid Vapor Pressure (RVP) fuel 

program in Jefferson and Shelby 

Counties (hereafter referred to as the 

‘‘Birmingham Area’’) from the active 

measures portion of the Alabama SIP to 

the contingency measures portions of 

the maintenance plans for the 

Birmingham Area for the ozone national 

ambient air quality standards (NAAQS 

or standards), and of the proposed 

maintenance plans for the 1997 annual 

fine particulate matter (PM2.5) standards, 

and the 2006 24-hour PM2.5 standards, 

if finalized. If this change to the SIP is 

finalized, the federal RVP requirement 

of 7.8 psi will apply for the Birmingham 

Area. EPA is proposing to approve this 

SIP revision because the State has 

demonstrated that it is consistent with 

section 110 of the Clean Air Act (CAA 

or Act). 

DATES: Comments must be received on 

or before April 4, 2012. 

ADDRESSES: Submit your comments, 

identified by Docket ID No. EPA–R04– 

OAR–2012–0118, by one of the 

following methods: 

1. www.regulations.gov: Follow the 

on-line instructions for submitting 

comments. 

2. Email: benjamin.lynorae@epa.gov. 

3. Fax: (404) 562–9019. 

4. Mail: EPA–R04–OAR–2012–0118, 

Regulatory Development Section, Air 

Planning Branch, Air, Pesticides and 

Toxics Management Division, U.S. 

Environmental Protection Agency, 

Region 4, 61 Forsyth Street SW., 

Atlanta, Georgia 30303–8960. 

5. Hand Delivery or Courier: Lynorae 

Benjamin, Chief, Regulatory 

Development Section, Air Planning 

Branch, Air, Pesticides and Toxics 

Management Division, U.S. 

Environmental Protection Agency, 

Region 4, 61 Forsyth Street SW., 

Atlanta, Georgia 30303–8960. Such 

deliveries are only accepted during the 

Regional Office’s normal hours of 

operation. The Regional Office’s official 

hours of business are Monday through 

Friday, 8:30 to 4:30, excluding federal 

holidays. 

Instructions: Direct your comments to 

Docket ID No. EPA–R04–OAR–2012– 

0118. EPA’s policy is that all comments 

received will be included in the public 

docket without change and may be 

made available online at 

www.regulations.gov, including any 

personal information provided, unless 

the comment includes information 

claimed to be Confidential Business 

Information (CBI) or other information 

whose disclosure is restricted by statute. 

Do not submit through 

www.regulations.gov or email, 

information that you consider to be CBI 

or otherwise protected. The 

www.regulations.gov Web site is an 

‘‘anonymous access’’ system, which 

means EPA will not know your identity 

or contact information unless you 

provide it in the body of your comment. 

If you send an email comment directly 

to EPA without going through 

www.regulations.gov, your email 

address will be automatically captured 

and included as part of the comment 

that is placed in the public docket and 

made available on the Internet. If you 

submit an electronic comment, EPA 

recommends that you include your 

name and other contact information in 

the body of your comment and with any 

disk or CD–ROM you submit. If EPA 

cannot read your comment due to 

technical difficulties and cannot contact 

you for clarification, EPA may not be 


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