USA Patriot Act Important Information About Opening a Legal Entity (Business) Account
Effective May 11, 2018, Federal Regulation requires Rally Credit Union to implement opening procedures for all Business Accounts. The rule includes provisions that address identifying the beneficial owners of legal entity accounts.
What is it?
The Financial Crimes Enforcement Network (“FinCEN”) issued the Customer Due Diligence (CDD) rule to amend existing regulations in order to clarify and strengthen CDD requirements for certain financial institutions. The CDD rule outlines explicit customer due diligence requirements and imposes a requirement to identify and verify the identity of beneficial owners of “legal entity” customers. Beneficial owners are individuals who fit within at least one of the following “prongs”:
- Any individual who, directly or indirectly, owns 25% or more of the legal entity customer; and
- One individual who has “significant responsibility to control, manage, or direct the legal entity”.
- Managing Member
- General Partner
- Vice President
- any other person who “regularly performs similar functions”
For CDD the “legal entity customer” includes:
- Limited Liability Companies
- Limited Partnerships
- General Partnerships
- Business Trusts
- Any other entity created by a filing with a state office
The definition of “legal entity customer” does NOT include:
- Natural Persons
- Sole Proprietorships
- Unincorporated Associations
- Trusts (other than statutory trusts created by a filing with a state office)
- Certain legal entities, including the following, are excluded from the Final Rule:
- Federal or state regulated financial institutions (e.g., federally regulated banks, brokers or dealers in securities, mutual funds, futures commission merchants, and introducing brokers in commodities)
- Bank and Savings and Loan holding companies
- State-regulated insurance companies
- Publicly held companies listed on the New York, American, or NASDAQ Stock Exchanges
- Registered investment advisers and investment companies
- SEC-registered exchanges or clearing agencies
- Entities registered with the SEC
Rally may still need to identify an individual that has significant control of an entity in certain situations. This includes religious organizations, charities, and non-governmental organizations.
Will I need to provide the required information on accounts that I already have?
The CDD rule is not retroactive so it will primarily involve new accounts opened with Rally. However, we will have to obtain the required information on existing accounts when changes are made to the accounts (CD renewal, etc.).
Who does the rule impact?
Covered financial institutions. Specifically, the rule covers federally regulated banks, federally insured credit unions, mutual funds, brokers or dealers in securities, futures commission merchants, and introducing brokers in commodities.
Why do we have to do it?
Since we are a covered financial intuition, Rally is required to comply with the rule.
For more information about the CDD rule, please review the FinCEN FAQ regarding Customer Due Diligence Requirements.
We proudly support all efforts to protect and maintain the security of our members and our country.