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Beneficial Ownership Frequently Asked Questions

Effective May 11, 2018, all banks and credit unions will be subject to new rules under the Bank Secrecy Act that are designed to aid the government in the fight against crimes such as terrorism or other national security threats.

Provided below are a few Frequently Asked Questions to help our business clients understand the new requirements.

Contents

Frequently Asked Questions. 2

Q1: What is the purpose of the Customer Due Diligence (CDD) Rule?. 2

Q2: Does the CDD Rule apply to all banks and credit unions?. 2

Q3: What is a legal entity customer?. 2

Q4: Who is a beneficial owner?. 2

Q5: Are banks and credit unions required to collect any information about beneficial ownership from the legal entity customer?. 2

Q6: What beneficial ownership information will be collected from legal entity customers?. 2

Q7: How will this information be collected?. 2

Q8: Are any legal entities exempt from the Rule?. 2

Q9: Are existing business clients exempt from the Rule?. 2

Q10: What if the people who have been identified as beneficial owners or control persons are not clients of the Bank? Do I still need to provide their personal information to the Bank?. 3

Q11: Where will beneficial ownership data be stored?. 3

Q12: Is beneficial ownership information required for personal accounts?. 3

What is New for Our Business Clients?. 3

Beginning May 11, 2018: 3

Entities required to file with the Michigan Department of Licensing and Regulatory Affairs (LARA) 3

Definitions. 4

 

 

Frequently Asked Questions

Q1: What is the purpose of the Customer Due Diligence (CDD) Rule?

The Financial Crimes Enforcement Network (FinCEN) is a bureau of the U.S. Department of the Treasury. FinCEN was created to administer and enforce compliance with the directives contained in what is commonly known as the “Bank Secrecy Act” (BSA).

FinCEN issued the CDD Rule to strengthen certain BSA requirements for financial institutions. The CDD Rule imposes a new requirement for financial institutions to identify and verify the identity of beneficial owners of legal entity customers.

 

Q2: Does the CDD Rule apply to all banks and credit unions?

Yes, all banks and credit unions must comply no later than May 11, 2018.

The rule also applies to mutual funds, brokers or dealers in securities, futures commission merchants, and introducing brokers in commodities.

 

Q3: What is a legal entity customer?

A legal entity customer is a corporation, limited liability company (LLC), or other entity that is created by the filing of a public document with a Secretary of State or, in the case of Michigan, the Michigan Department of Licensing and Regulatory Affairs (LARA). A legal entity customer is a general partnership, as well, whether registered with the LARA or not. The definition also includes limited partnerships, business trusts that are created by filing with a state office, and any other entity created in this manner.

 

Q4: Who is a beneficial owner?

The Rule defines a beneficial owner as:

  • [Ownership Prong] each individual, if any, who owns, directly or indirectly, 25% or more of the equity interest of a legal entity customer; and
  • [Control Prong] a single individual with significant responsibility to control, manage, or direct a legal entity customer, including an executive officer or senior manager (g., a Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Managing Member, General Partner, President, Vice President, or Treasurer); or any other individual who regularly performs similar functions. This list of positions is illustrative, not exclusive, as there is significant diversity in how legal entities are structured.

 

Q5: Are banks and credit unions required to collect any information about beneficial ownership from the legal entity customer?

Yes, banks and credit unions must collect information on individuals who are beneficial owners of a legal entity customer.

 

Q6: What beneficial ownership information will be collected from legal entity customers?

Information such as name, date of birth, address, and social security number or other government identification number (passport number or other similar information in the case of foreign persons) for individuals who own 25% or more of the equity interest of the legal entity (if any), and an individual with significant responsibility to control/manage the legal entity at the time a new account (i.e., loan, corporate credit card, certificate of deposit, deposit account, safe deposit box) is opened and/or maintained.

 

Q7: How will this information be collected?

A certification form will be used to obtain the required beneficial ownership information. A representative of the legal entity must sign the certification form.

 

Q8: Are any legal entities exempt from the Rule?

A legal entity customer does not include sole proprietorships, unincorporated associations, certain trusts, and natural persons opening accounts on their own behalf.

 

Q9: Are existing business clients exempt from the Rule?

No. Unlike CIP, any time an existing business client opens a new account, a new safety deposit box, gets or renews a loan, applies for a corporate credit card or renews a certificate of deposit, we are required to collect beneficial ownership information and have a new certification form signed.

 

Q10: What if the people who have been identified as beneficial owners or control persons are not clients of the Bank? Do I still need to provide their personal information to the Bank?

Yes. Regardless of customer status, information about the beneficial owners and control person must be provided in order to comply with the regulation.

 

Q11: Where will beneficial ownership data be stored?

The Bank will maintain beneficial ownership information in its system of record. The Bank maintains strict privacy policies and procedures. Client information, including beneficial ownership information, will not be shared.

 

Q12: Is beneficial ownership information required for personal accounts?

No. Beneficial ownership information will only be collected for business relationships with the Bank.

 

What is New for Our Business Clients?

Beginning May 11, 2018:

The Bank will continue to do the following for a new business client:

  • Identify the business client by requesting documents such as Articles of Incorporation, Articles of Organization, or Partnership Agreements;
  • Confirm that the business entity was registered with the Michigan Department of Licensing and Regulatory Affairs (LARA) by looking the business up; and
  • Identify the signers on a business account by requesting their full legal name, driver’s license, date of birth and SSN.

The Bank will also do the following for all business clients:

  • Identify any new signers on a business account by requesting their full legal name, driver’s license, date of birth and SSN;
  • Identify the natural person opening the account by full legal name and title;
  • Acquire the name of any natural person who owns 25% or more of the business entity;
  • Acquire the name of a natural person who has significant managerial authority over the business entity;
  • Identify the individuals named by requesting their full legal name, whether their ownership is direct or indirect, their percentage of ownership, their date of birth; their street address, their SSN; take a copy of their driver’s license or other government photo ID; and
  • Obtain a signature on the certification form.

Entities required to file with the Michigan Department of Licensing and Regulatory Affairs (LARA) 

  • Business Corporations
  • Nonstock (Not-for-Profit) Corporations
  • Cooperatives
  • Limited Partnerships
  • Limited Liability Companies
  • Limited Liability Partnerships
  • General Partnership (optional registration)
  • Common Law Trusts (also called Business Trusts)
  • Foreign (Out-of-State) entities of the same types listed above, licensed to transact business in Wisconsin
  • Unincorporated Cooperative Associations
  • Veterans organizations
  • Certain types of religious corporations

Definitions

  •  Control Prong. One individual with significant managerial responsibility in a legal entity.
  •   Corporation. A corporation is a general-purpose entity in which management is exercised by a board of directors elected by shareholders. Ownership in a corporation is reflected in the shares held by the individual shareholder.
  •   Direct Ownership. Direct owner refers to an individual or business entity that own shares or are partners in any legal entity. For example, if you own 25% of a business entity, you are a direct owner. A direct owner is not necessarily an individual (natural person) and can also be another entity as in the case where the parent company is a direct owner of its subsidiary. See Indirect Ownership.
  •   FinCEN. FinCEN is the Financial Crimes Enforcement Network. FinCEN is a bureau of the U.S. Department of the Treasury. FinCEN’s mission is to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities.
  •   General Partnership. A general partnership is an arrangement by which two or more persons agree to share in all assets, profits, and financial and legal liabilities of a business. Such partners have unlimited liability, which means their personal assets are liable to the partnership’s obligations. In fact, any partner can be sued for the entirety of a partnership’s business debts. Another attribute of the general partnership is that every partner has so-called “agency powers,” which means any partner can bind the entire business to a contract or business deal.
  •   Indirect Ownership. A person can be an indirect owner by owning a business entity that owns another business entity. For example, if you own 100% of company A which owns 25% of company B then you are an indirect owner of company B, owning 25%. In this case, we are required to collect Beneficial Ownership information on the indirect owner because we are required to collect this information on any natural person owning 25% or more of a legal entity. See Direct Ownership.
  •   Legal Entity Customer. A legal entity customer means a corporation, limited liability company, or other entity that is created by the filing of a public document with a Secretary of State or, in the case of Michigan, Michigan Department of Licensing and Regulatory Affairs (LARA), or a general partnership, whether registered with the WDFI or not.
  •   Limited Liability Company (LLC). A limited liability company has members (similar to a partnership) who may directly manage the company or who may vest management in one or more managers. It combines features of a partnership and a corporation. “Ownership” of the LLC is reflected in the individual “member's interest,” i.e., the member’s share of the profit and losses of the company, rights to receive distribution of assets, and to participate in the management of the company.
  •  Ownership Prong. A natural person owning 25% or more of a legal entity.
  •  Pooled Investment Vehicles. Pooled investment vehicles include hedge funds, private equity funds, venture capital funds, and other types of privately offered pools that invest in securities, as well as investment companies that are registered with the SEC under the Investment Company Act. Non-excluded pooled investment vehicles include non-US managed mutual funds, hedge funds and private equity funds.





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