Using CU*BASE to Comply with New Rules for Tracking Beneficial Ownership
FinCEN has issued new rules under the Bank Secrecy Act that require financial institutions to identify and verify the identity of the
beneficial owners of all legal entity members (corporations, etc.). Under the final rule, credit unions are required to have
written procedures to identify and verify beneficial owners of legal entity members who open new accounts on or after May 11, 2018. In addition to identifying and collecting data on these individuals, credit unions will need to perform, at a minimum, OFAC screening on all beneficial owners.
Understanding the Types of Beneficial Owners
There are two prongs into which a qualified beneficial owner could fit.
The Ownership Prong:
- Natural persons
- At least 25% ownership of the entity
NOTE: No more than four people can be designated under the Ownership Prong.
The Control Prong:
- Natural person with significant managerial control over the entity
NOTE: Only one person can be designated under the Control Prong.
Recommendations for Tracking Beneficial Owners in CU*BASE GOLD
To ensure that the automated OFAC scans are run on beneficial owners, you will need non-member records to store these names (except for any that already happen to be natural-person members of the credit union, of course). You’ll use the CU*BASE GOLD
Secondary Names feature to create links from the legal entity to each beneficial owner name.
You’ll also need a mechanism to tag the memberships that are subject to these new rules to help ensure that appropriate due diligence is performed on those accounts. This can be done via
Tracker notes on the membership as well as via a CU-defined
Due Diligence flag.
Starting with the 18.10 release CU*BASE now lets you use the new "Misc. Owner" relationship type for these secondary names links. Names under the Ownership Prong that you already added as beneficiaries can be maintained to switch the relationship type from Beneficiary (B) to the new Miscellaneous Owner type (M). You can also add a free-form text comment to the secondary name link itself, which can contain a brief description of the relationship, similar to what you will be documenting in detail in the Tracker.
Following are recommendations for using existing CU*BASE tools to comply with the new requirements:
Create Secondary Names Records
CU*BASE lets you log three types of Secondary Names relationships on any membership: Joint Owners (type J), Beneficiaries (type B), and Misc. Owners (type M). We recommend linking the name under the beneficial ownership Control Prong as a regular joint owner (J). For names under the Ownership Prong, set them up as Miscellaneous Owners (M). This technique lets you link names to the membership for reference purposes without granting them any authority to process transactions on the account.
TIP: If the beneficial owner also happens to be a credit union member, the link is set up the same way as a non-member record. In Step 3, simply enter the account number of that member in place of a non-member SSN/TIN.
Configuring Your Organizational Membership Designations
Use Tool #523 Membership Designation Configuration to adjust the configuration for the Membership Designation codes for which the new rules apply, so that the “Misc owner label” reads “Benef Owner” or something similar. Also make sure to use the Procedures feature to explain to your staff what that means and how they should work with that account.
Tracking Accounts for Beneficial Ownership Due Diligence
Step 1: If necessary, use Tool #247 Configure Due Diligence Codes to choose one of the available due diligence codes you wish to use for these special types of accounts. You could even create two of them: one for accounts that have beneficial owners designated on them, and another for those that still need to be identified and set up.
Step 2: Tag all of the accounts that have been identified as needing (or having) beneficial owners via Tool #15 Update Membership Information.
Step 3: If necessary, use Tool #277 Configure Tracker Types to create a new Tracker Type specifically for use with beneficial ownership details. (You could make use of an existing Tracker Type if you wish, but be sure to at least create a special Memo Type to make it easier to find this data.) The sample below shows a special Tracker type of “BD” used only for beneficial owner due diligence purposes:
Step 4: Use Tool #260 Configure Memo Type Codes for Trackers to create a Memo Type code, to be used when entering the list of beneficial owners and other details (which prong, % ownership, etc.). The sample below shows a special Memo Type type of “BO” (attached to the special Tracker Type shown earlier) used only for beneficial owner due diligence purposes:
Step 5: If necessary, create a new Tracker on each of the accounts on which beneficial ownership rules apply. (This step only needs to be done once per membership.)
Step 6: Add conversation notes to the Tracker to explain the relationships ties to that membership, as shown in the sample below:
Other Tips to Consider
- To assist with the data-gathering phase, you could use Tool #523 Membership Designation Configuration to create special Membership Designation codes just for accounts that have been set up with beneficial owner data (or ones that still need that work to be done). Then use Tool #15 Update Membership Information to change the Membership Designation on your accounts.
- Names under the Ownership Prong that you already added as beneficiaries can be maintained to switch the relationship type from Beneficiary (B) to the new Miscellaneous Owner type (M). Use Tool #3 Open/Maintain Memberships/Accounts and select the Secondary Names option to proceed to the "Modify Secondary Names Linked to This Membership" screen.
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