FinCEN Beneficial Owner Requirements

Effective May 11, 2018, the Financial Crimes Enforcement Network (FinCEN) bureau of the United States Department of the Treasury implemented new rules requiring Financial Institutions (including merchant acquirers) to identify, and verify the identity of, all benefic ial owners  and a responsible individual of all Legal Entity Customers at the time a new account is opened.

Purpose of the new regulations

The new regulations are aimed at preventing financial crimes conducted through accounts created and operated anonymously through a “straw man” or nominee. The information collected under the new regulations will assist financial institutions in assessing risks in opening new accounts, as well as facilitate investigation of compliance with tax and other targeted FinCEN regulations.

What is a Legal Entity Customer?

A Legal Entity Customer is defined as a corporation, limited liability company, general partnership, and any other entity created by filing a public document with the secretary of state or similar office, such as a business or statutory trust, as well as a similar business entity formed in a foreign country.

Legal Entity Customers do not include, for example, sole proprietorships, unincorporated associations, estate-planning trusts, or natural persons opening accounts on their own behalf.

Identifying the beneficial owners of Legal Entity Customers

The New Regulations require that Covered Financial Institutions (CFI’s), which includes merchant acquirers, enact due diligence procedures to identify the beneficial owners of Legal Entity Customers. The beneficial owners identified for each Legal Entity Customer must include:

  • Ownership: Each individual (if any) who directly or indirectly owns 25% or more of the equity interests of a Legal Entity Customer. Depending on the facts, up to four individuals may need to be identified; and

  • Control: At least one individual with “significant responsibility to control, manage, or direct a Legal Entity Customer” (including an individual acting in an executive office or senior management position, such as a Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Managing Member, General Partner, President, Vice President, or Treasurer).

What information is collected from the Control Owner and Beneficial Owners?

  1. Full Name
  2. Address
  3. Date of Birth
  4. Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN)

Businesses that are not technically impacted

Some entities, including Sole Proprietorships, Individuals, Unicorporated Associations, and Trusts not created by state filings are not technically impacted by the new FinCen requirement. However, merchant acquirers will still require that the Full Name, Address, Date of Birth, and SSN or ITIN be collected for the control owner of the entity.

Nonprofit Corporations do not need to provide beneficial ownership information, but will need to provide the Full Name, Address, Date of Birth, and SSN or ITIN be collected for the control owner of the entity.

Businesses Exempted from the FinCEN requirement

Some businesses are exempted from the FinCEN requirement, as the beneficial owner information is always available to the public. They are:

  • Regulated Financial Institutions
  • Government Departments and Agencies
  • Public Entities listed on the New York, American, or NASDAQ stock exchange

In Summary...

When opening a new bank or credit card processing account, merchants will be required to provide the Full Name, Address, Date of Birth, and Social Security Number or Individual Taxpayer Identification Number for one control owner of the business, as well as each individual who owns 25% or more of the legal entity. 

This requirement applies to all merchant acquirers, as it is a government regulation.

Questions? Please contact us.