US banks have implemented the Treasury’s new customer due diligence (CDD) regime, requiring verification of beneficial owners’ identities for new business customers and reporting to law enforcement.

The rules, finalized during the Obama administration after extensive consultation, faced a delayed implementation to allow banks adequate preparation time.

Key Definitions and Requirements

A beneficial owner is defined as anyone holding 25% or more equity in a legal entity, or anyone exercising control over it. However, complex ownership structures create interpretation challenges. The Financial Crimes Enforcement Network (FinCEN) released guidance clarifying that the 25 per cent equity interest is held either directly or indirectly, no matter how complex its corporate structure.

FinCEN acknowledges that lower ownership percentages might warrant CDD in higher-risk situations, though 25% remains the legal threshold.

Treatment of Existing Customers

Banks may rely on previously conducted CDD if customers certify information remains current. Renewal of existing products requires only customer assertion that CDD data is still valid. New accounts with the same institution for operational purposes generally don’t trigger new CDD requirements.

Broader Transparency Goals

These rules represent one component of efforts to align US business transparency standards internationally. The Treasury has acknowledged needing federal legislation requiring companies to disclose beneficial owners at formation—a longstanding gap in anti-money laundering protections.