US Treasury emphasizes CDD/KYC & UBOs in AML Compliance


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AML Transparency: CDD Final Rule & UBO proposal

The U.S. Treasury added new teeth to CDD requirements, and it’s urging the U.S. Congress to pass its proposed transparency legislation for Ultimate Beneficial Owners. These “actions to strengthen financial transparency and combat the misuse of companies to engage in illicit activities” are central to AML efforts, according to a Treasury press release.

According to the Treasury, the CDD Final Rule further addresses the requirement “that financial institutions – including banks, brokers or dealers in securities, mutual funds, futures commission merchants, and introducing brokers in commodities – collect and verify the personal information of the real people (also known as beneficial owners) who own, control, and profit from companies when those companies open accounts.”

Many elements of this rule have long been required in some form, but the new rule “harmonizes” and “makes explicit” the CDD required to achieve BSA/AML Compliance. Specifics of the new rule include the following: Financial institutions are formally tasked with “(1) identifying and verifying the identity of the beneficial owners of companies opening accounts; (2) understanding the nature and purpose of customer relationships to develop customer risk profiles; and (3) conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.”

Regarding UBOs, financial institutions will have to identify and validate the identity of any individual who owns 25 percent or more of a legal entity, and an individual who controls the legal entity.

AML Partners CEO Frank Cummings said these requirements align with the regulatory emphasis on adopting and working a true Risk-based Approach.

“These requirements make sense in terms of analyzing and tracking risk for money laundering and terror financing,” Cummings said. “This is the antithesis of checkbox compliance; rather, this focus on transparency requires financial institutions to be entirely clear on the identity of their customers, the risk those customers pose, and the behaviors by a customer that should trigger closer scrutiny. This type of clarity and specificity can help financial institutions hone their AML Compliance efforts so that they spend their Compliance time and resources on true AML Risk rather than shots in the dark.”

Treasury Secretary Jacob Lew also urged Congress to provide full reciprocity with Foreign Account Tax Compliance Act (FATCA) partners and to approve bilateral tax treaties currently pending in the Senate.

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