Beneficial Ownership and Lending: Have we considered all possibilities?

April showers brought May flowers, or in the BSA world, beneficial ownership is finally here. The BAT has been fielding questions left and right about some of the nuances of the new CDD requirements. The BAT has speculated on the implications of CDD as the fifth pillar for years now and one thing is clear: Examiners are focusing on CDD and EDD more than they ever have before. TCA continues to observe an uptick in findings and recommendations in current exams. Until now, the primary focus has been on an implementation plan, policy and procedure updates, staff training, etc.

We no longer will have to wait to know examiners’ expectations; we are now at the point of compliance. BSA Officers and frontline staff have tried to think of every account opening situation imaginable, but there is always something new or something that makes one question. TCA received the following question last week: There is an application for a commercial loan. In this case, borrowers applied for a commercial loan in their individual names (not as guarantors), but the intention is to hold title in the name of a legal entity. From a technical perspective, the bank’s customer is the two individuals; however, the bank has knowledge that the collateral will be held in name of a legal entity. Should the bank obtain the beneficial ownership information?

As part of our response to the bank, we brought up a similar, unrelated scenario.

Husband and wife both own a house but the husband wants to obtain a mortgage with only his name on the note (maybe the wife has credit concerns and they can obtain a better rate this way.) The husband is the customer, but the wife still signs the mortgage. A bank does not need CIP info on the wife since she is not on the note.

Compare the situation where I am the customer (borrower), but the authorized person from the legal entity has to sign the mortgage since the legal entity owns the collateral. Since the legal entity is not the customer (not on the note), neither CIP nor beneficial ownership would apply since this is an individual account.

As part of our underwriting, a bank may still gather information on the legal entity to verify that the person signing the mortgage/collateral agreement has authority to act on the legal entity’s behalf, but that is a safety and soundness consideration to ensure the lien is enforceable and it does not change the BSA requirements.

Banks, so far, have prepared for beneficial ownership primarily from a hypothetical standpoint. This is the perfect type of question that the answer is not always black and white but requires one to step back and evaluate the facts.

TCA will continue to collaborate with clients as we work through the beneficial ownership maze.

CTR Question of the Month

Question: A Store Manager cashed an $8,000 check for the business to fill an ATM. During the same visit, the store manager cashed a payroll check of $3,054. How should the CTR be completed?

Answer: You need two Part I’s for filing this CTR. For the first Part I, the Store Manager, check 2a since part of the transaction is conducted on behalf of the store owner. If the withdrawal and check cashed is drawn on an account at the bank, list the account numbers from which the funds were withdrawn and check “Multiple transactions” and the amount listed should be $11,054.00

The second Part I is for the business withdrawal for $8,000 (without multiple transactions) since the cash for the ATM was on behalf of the business. Also, check box 2c since this was on the business’s behalf. In addition, the account number the $8,000 item was drawn on.

June 1, 2018Were you ready for Currency Transaction Report (CTR) Version 1.3?

Discrete filers have been able to use Version 1.3 since fall 2017, and both discrete or batch filers are required to be compliant with version 1.3 as of June 1, 2018. There are minor changes from version 1.2 and 1.3, but there is one question the BAT receives:

Is my bank correctly preparing Part IV and Part III?

Remember, the goal of adding part IV to the CTR is to make it substantially similar to the Suspicious Activity report (SAR). FinCEN has confirmed to TCA, and in the May 2017 announcement, what information should be completed in Part IV and Part III.

Part IV— This should contain the legal name and address of the bank. The RSSD number on this page should correspond to that address – it will always be the same.

Part III— This should be completed where the transaction or transactions occurred. Some key points to remember:

  • You can have multiple Part III sections if there are multiple locations.
  • The amount in Box 41 or 42 should correspond to the cash involved for that location.
  • If a transaction occurred at the main bank, Part III and Part IV will match .

Are you testing your CDD compliance? Let TCA do a CDD checkup to review policy, procedures or opened legal entity accounts

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