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June 2, 2016

Stroock Special Bulletin

By: Michael Basile

On May 11, 2016, the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) issued final rules (the “Final Rules”) under the Bank Secrecy Act (the “BSA”) that expand customer due diligence (“CDD”) requirements applying to banks, broker-dealers, mutual funds, futures commission merchants and introducing brokers (“Covered Institutions”).  Under the Final Rules, a Covered Institution is required to supplement its current anti-money laundering (“AML”) program to (i) verify the identity of the “beneficial owners” of a Covered Institution’s “legal entity customers” (subject to certain exemptions, as noted below) (“Customers”), and (ii) monitor suspicious activity and update customer information (including information regarding beneficial ownership) against risk profiles established for each Customer.  Covered Institutions must comply with the Final Rules by May 11, 2018 (the “Effective Date”).

According to FinCEN, the Final Rules are necessary to clarify and strengthen CDD under the BSA regime, and are intended to “enhance financial transparency and help safeguard the financial system against illicit use.”  The Final Rules are viewed by FinCEN as synergistic with both domestic efforts to prevent abuse of the financial system (e.g., by assisting law enforcement to identify certain bad actors attempting to conceal illicit activity) and recent international efforts to promote an information exchange with other jurisdictions (most recently, under the Foreign Account Tax Compliance Act (“FATCA”)).

This Stroock Special Bulletin summarizes and discusses practical applications of the Final Rules, which generally will require a Covered Institution to complement its existing AML program to require risk-based analyses on an ongoing basis, a higher standard of diligence than required by the current BSA regime.