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It’s called “Follow the Money”

New Beneficial Ownership Rules Coming for All Commercial Accounts

The US Treasury is about to require that banks gather information about beneficial ownership for all corporate accounts.  The rule,  which will be subject to comment before becoming a final , is likely to insist that financial institutions gather beneficial ownership information on all new corporate accounts, according to a February 9 article in the Online Edition of The Wall Street Journal.  (See sourcelink at the end of this article.)

How bad will that be?

It won’t be a catastrophe,  but it will be a headache, particularly for community banks.  Customers already are vocal about the BSA rules.  In a move that could assuage some industry concerns, financial institutions wouldn’t have to vet that ownership data for accuracy. Instead, they would rely on the customer to vouch for the information.

Rules now require the bank to get info only on “Private Banking” accounts.  The new rules will include all “Corporate Accounts”, presumably that will be any account opened by a business or other commercial enterprise, including non-profit organization.

The Wall Street Journal
Updated February 8, 2013, 7:33 p.m. ET

Treasury Eases Off on Bank Rules

The Treasury Department is backing away from an earlier proposal that would have imposed some of the toughest rules on banks to fight money laundering. However, the government will still force financial institutions to collect more data than they do now.

The Treasury in coming weeks is set to propose new antimoney-laundering rules, beefing up regulation in an area that recently has led to record fines for illicit money transfers.

The proposal, which will be subject to comment before becoming a final rule, is likely to insist that financial institutions gather beneficial ownership information—who is in charge and who profits—on new corporate accounts, officials said. But in a move that could assuage some industry concerns, financial institutions wouldn’t have to vet that ownership data for accuracy. Instead, they would rely on the customer to vouch for the information.

“The way we originally articulated it was not as clear as we could have been, so we worked on simplifying that,” said Chip Poncy, director of the Treasury’s terrorist financing and financial crimes office. “There’s going to be some relief that…we’re clarifying and simplifying obligations, and we’re proposing a more flexible definition of beneficial ownership.”

The banking industry applauded the idea of less onerous rules.

“All indicators are that it seems to be working in the right direction,” said Rob Rowe, vice president and senior counsel at the American Bankers Association. “We certainly recognize the importance of the information. We just want to make sure we’re not running around in circles like a gerbil on a wheel not getting anywhere,” Mr. Rowe said.

The proposal targeting money laundering comes after a Senate committee last year criticized U.K. lender HSBC Holdings PLC for what it called rampant violations of money-laundering rules. HSBC reached a $1.9 billion settlement in December to resolve the matter. State and federal agencies reached a settlement with U.K. bank Standard Chartered PLC for $667 million last year for allegedly violating sanctions that restrict doing business with Iran and other countries. HSBC has said it accepted responsibility for its actions. Standard Chartered has said it had improved sanctions-compliance procedures and stopped doing business with Iran.

Officials said they want financial institutions to have a better understanding of who benefits from or who controls a legal entity such as a corporation, for example the top shareholder and a senior manager. The proposed rules may require identifying those with at least 10% stake in a company and managers with a say over day-to-day operations, though thresholds and definitions may change, according to a person with knowledge of the process.

The Treasury’s Financial Crimes Enforcement Network, which is developing the rule, and other government agencies held a series of public hearings late last year around the country in an effort to explain their goals and gather input. Mr. Poncy said the give-and-take was invaluable, and the Treasury is “weeks not months” from a final proposal.

The White House’s Office of Management and Budget could review the proposal, a step that could delay the process, according to one person with knowledge of the rule making. The final rule could come this year.

Financial institutions collect and verify customer data for accounts. They might check a driver’s license from a person opening a checking account. But they collect and verify information about the ultimate beneficiary of the account only in certain circumstances, such as on larger foreign-controlled accounts, some private banking accounts or accounts that raise red flags.

Banks and other financial institutions are also required to file some reports, including accounts of suspicious activity, under the Bank Secrecy Act.

The goal is to prevent financial institutions from taking on shell companies without asking for ownership details. A shell company doesn’t have active business operations or significant assets.

Under the proposal, a bank, broker, dealer or mutual fund likely wouldn’t have to double-check to make sure the customer isn’t lying about who is behind the account.

Mr. Poncy said simply collecting the additional information would prove valuable to law-enforcement agencies, which could use it to investigate or build a case, and the banks themselves, which could use it to monitor accounts.

The Treasury appears likely to leave a second tier of financial companies like casinos and gem dealers out of the rules, at least for now, an official said. But, separately, the Treasury is considering rules for casinos that could involve requiring more specific customer identification requirements, Treasury officials said.

Some critics of banks worry that they have been too cavalier policing their own operations and want the new requirements to ensure that there aren’t loopholes for money launderers.

“I appreciate that this is more for a bank to do. But at the same time we have certainly seen the need for banks to know who they are dealing with and to deal with those accounts appropriately,” said Heather Lowe, director of government affairs at Global Financial Integrity, a Washington, D.C., research firm that seeks to reduce the illicit flow of funds internationally.

—Alexandra Berzon contributed to this article.