Beneficial Ownership Fact Sheet
Significant Increases in Anti-Money Laundering Rules
Last updated: April 1, 2019
Overview of the Rule:
Generally, the Beneficial Ownership rule requires financial institutions to develop processes and procedures in order to identify and verify owners of a legal entity that is the institution’s customer. The rule is one element of a series of laws and regulations designed to prevent and identify money laundering or illicit finance.
Covered financial institutions are defined in statute and regulation and generally include banks, broker-dealers in securities, credit unions, and mutual funds.
Legal Entity Customer:
The rule defines Legal Entity Customers as corporations, limited liability companies, or other entities that are created by the filing of a public document with a Secretary of State or similar office, a general partnership, and any similar entity formed under the laws of a foreign jurisdiction that opens an account. The rule also excludes a number of entities, generally government, large companies, and regulated entities.
Under the new guidelines, there is a two-pronged test to identify natural persons related to the legal entity: control and ownership. The control test requires the identity of a single person with significant responsibility to control or manage the organization (e.g., a CEO). The ownership test includes all individuals who directly or indirectly own 25% of the legal entity customer.
At a minimum, the institution must collect the Beneficial Owner(s) name, date of birth, physical address, and identification number (see Additional Background & History for more details).
Effects on CRE:
Since most real estate transactions involve legal entities specifically set up for the transaction, regulated financial institutions now must collect and maintain additional customer data with each new account. There also may be privacy and other concerns related to these requirements.