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Robert C. Gabrielski
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Robert C. Gabrielski
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Establishing Bank or Financial Accounts in the US – Consider the Impact of New FinCEN Rules on Beneficiaries

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The Customer Due Diligence (“CDD”) regulations issued by the Financial Crimes Enforcement Network (FinCEN) became effective on May 11, 2018.  The regulations enacted under the Bank Secrecy Act clarify customer due diligence requirements for banks and other financial institutions.  These rules are part of an international effort to combat the use of legal entities such as corporations, limited liability companies, and partnerships from financers of terrorism, money launderers, tax evaders, and other financial criminals.

Under the CDD regulations, financial institutions are generally required to gather identifying information on individuals who own or control legal entities when those entities seek to establish bank accounts in the U.S.  For example, the rules require financial institutions to verify and gather identifying information on an individual who owns 25% or greater equity interest in a legal entity such as a limited liability company.  While the definition of a legal entity does not include a trust, and the rules do not require the institution to look through a trust to its beneficiaries, a financial institution may nevertheless ask for beneficiary information when an individual has a 25% beneficial ownership (in addition to requesting information about the trustee who has control over the account).  A financial institution may also ask for identifying information on a beneficiary at a lower threshold, based on the institution’s own risk assessment.  And some institutions may do so under a more stringent corporate policy for the collection and verification of customer data.

Advisors of trusts and estates should be aware of the potential impact of these rules and be prepared to explain to their clients the reasons for additional requests from financial institutions.  Moreover, if the internal policy of a certain financial institution is more stringent and expansive than the CDD rules, it is possible that another institution will not be, which may be more desirable for privacy-inclined clients.

For more information on these CDD rules, see Frequently Asked Questions (FAQ) published by FinCEN here.

If you have any questions about this post, please contact me at rcgabrielski@norris-law.com.

The opinions expressed here are based on the laws as of the date written. The laws are subject to change, and if they do change, the statements expressed would also be subject to change.

DISCLAIMER: To ensure compliance with requirements imposed by the U.S. Treasury Regulations, we inform you that any tax advice contained in this blog is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

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