New FinCEN Rule Requires Private and Other Federally Unregulated Banks to Establish AML Programs

Chiesa Shahinian & Giantomasi PC

On Tuesday, September 15, 2020, the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) published a Final Rule (Fed. Reg. 2020-20325) designed to help enforce the USA PATRIOT Act of 2001 by eliminating the anti-money laundering (“AML”) program exemption for private banks, credit unions that are not federally insured, some trust companies, and other institutions not supervised by federal regulators such as the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Securities and Exchange Commission.

The new rule requires each federally unregulated bank to establish and implement an in-house AML program that, at a minimum, includes —

  • Internal policies, procedures, and controls establishing:

    • A Customer Identification Program (“CIP”), that includes: (1) verifying the identity of any person seeking to open an account; (2) maintenance of customer verification records (e.g., name, address, etc.); and (3) determining whether the person appears on any government agency lists of known or suspected terrorists or terrorist organizations.

    • A Beneficial Ownership protocol for identifying and verifying the identity of the beneficial owners of the banks’ legal entity customers (subject to certain exclusions and exemptions), in compliance with FinCEN’s “CDD Rule.”

  • Designation of a Compliance Officer.

  • Ongoing employee training program.

  • Independent auditing to test AML programs.

Additionally, the new FinCEN rule requires federally unregulated banks to comply with the enhanced due diligence policies, procedures, and controls for any correspondent or private banking accounts that they establish, maintain, administer, or manage for a non-U.S. person, so as to enable the financial institution to detect and report suspicious transactions that may involve money laundering. Covered institutions must also abide by the enhanced scrutiny requirements for the accounts of senior foreign political figures (including their family members or close associates) to detect and report transactions that may involve the proceeds of foreign corruption.

The new FinCEN rule is expected to roll into effect in mid-November and covered institutions likely will be expected to fall into compliance with the rule by mid-March 2021. CSG’s Banking and Finance Group, co-led by Shirley U. Emehelu, former Chief of Asset Recovery and Anti-Money Laundering for the U.S. Attorney’s Office (DNJ), stands ready to counsel clients covered by the rule on the design, implementation, training, and testing of their AML programs.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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