FinCEN Beneficial Officer Ruling: There’s More Than Meets the Eye

There’s a been a lot of buzz lately about the latest FinCEN ruling for Customer Due Diligence. Back in February of last year, FinCEN posted the final ruling on their website. Maybe you’ve already read it. If not, you can take a look at it here. It’s 62 pages of really boring legal speak explaining the final ruling.

Basically, FinCEN’s ruling is that criminal can currently use our financial system to hide their clandestine activities because there is no process in place to check the legality of all individuals involved in a legal entity’s business. And while I agree with FinCEN’s ruling, I’d like to delve a little deeper into the topic to give you a different viewpoint you might not have thought of before.

You see, while FinCEN is looking at this ruling from a protection standpoint, I have a slightly different perspective because I work in data (You can learn more about me here Click here). I uniquely understand the specific requirements FinCEN is asking of institutions because it’s what I deal with on a daily basis.

So, what I’d like to do is share with you my opinion on some of the more crucial points in the latest FinCEN ruling.

Read on… Point #1: The purpose of this regulatory action is to prevent criminal from using loopholes in our current system to hide. They can access our financial institutions anonymously and that needs to be put to stop.

The crux of the matter is that we were blindsided by the Panama Papers - a set of financial documents that revealed criminals and enemies of the state had their fingers in a lot more businesses than we had previously thought possible. This lead to FinCEN adding a new ruling that demands all covered financial institutions do due diligence on all individuals registered to a business.

FinCEN doesn’t really explain this too much in their ruling, but it’s important to understand what caused the creation of the Beneficial Officership Identification section of FinCEN CDD requirements.

The Panama Papers revealed multiple holes in our current system allowing people like Vladimir Putin to hide their financial dealings behind clean-looking businesses. By allowing someone else to set up an account in the business name and only retaining ownership of the company (information that isn’t readily accessible), such criminals and shady personalities are able to move money around without detection.

The problem here is that by using a company where not all the officers are checked with the vigor as the person opening the account, they could get away with some truly scary acts, and the financial institution would be none the wiser.

Point #2: FinCEN believes the 4 core elements of Customer Due Diligence are Customer Identification, Beneficial Ownership Identification, developing a customer risk profile, and performing ongoing monitoring to detect and report suspicious activity.

Here’s where my background comes in. All 4 of the core elements of FinCEN’s Customer Due Diligence requires information that the institution itself does not have access to. Whether you want to run a background check on a customer, or find all the responsible officers for a company, you have to use a 3rd party to find and validate that information.

Now don’t get me wrong: I support Customer Due Diligence. But the problem comes when an institution isn’t aware of what to look for in a 3rd party provider. Without proper understanding of where that 3rd party is getting their data (and trust me, source of data is a massive problem in my industry), they can’t trust that they information they are getting is accurate or even valid.

So here are the guidelines I suggest that compliance officers follow when they are looking for a 3rd party data provider for their background checks, TIN Verifications, and Responsible Officer searches.

  • It must be real-time. A real-time connection to government data sources means that you are always getting the most up-to-date information and the most accurate information.
  • It shouldn’t be afraid to offer API access. If either they won’t give you API access, or they don’t even offer it, something is wrong with their data and they don’t want to you having unfettered access to it. I’d stay away.
  • It needs to have knowledgeable staff. If you call in with a question and the staff doesn’t even know what CDD or KYC means, I’d rethink using them as your provider.
In addition, I think it’s also a good idea for compliance officers to get a guided tour of the system so they can see everything the solution they have chosen can do. Doing so will allow you to see the strengths and weaknesses of the product while helping you see what reducancies you may have in your current processes.

Point #3: FinCEN understands that when it comes to the beneficial ownership identification, you’re only able to do your “best effort”.

Finally, I’d like to just briefly touch on this point, because I find it interesting FinCEN would release a ruling without a solid solution in place for institution to comply with it. The “best effort” criteria makes this seem like it is a wishlist item for FinCEN rather than something they can actually enforce.

Overall, I agree that we should looking at the beneficial owners of a company. But without a standard in place for what “best effort” means, the depth of compliance is going to be sporadic across all the different institutions. One may think that just asking their customer if there is any other owners or officers in the company is enough to cover the “best effort” requirement.

Yet, if the company is hiding some nefarious secrets, they can not be relied on to provide accurate information.

Ideally, and I believe that FinCEN will start to enforce this shortly after the May 2018 adopting date, “best effort” will require that all covered institutions search for responsible officers via a 3rd party (just like they current do for customer identification). Up until now, no such 3rd party answer was available to the majority of covered institutions. Now, however, I am pleased to announce that has the first and only Legal Entity Responsible Officer search database, built from the ground up to help you comply with FinCEN’s latest ruling.

And, of course, matches the criteria I gave above of being real-time, offering API access (and batch matching too!) and our staff is extremely knowledgeable about all of our products, including our responsible officer search tool.

I’d personally like to offer you a FREE personal demo of our new legal entity responsible officer search. Simply Click here to get started.

If you have been worried about FinCEN’s final ruling, you really should get your own FREE personal demo of our new search. You’re going to be amazed at the information it can provide you.

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