Q: What means of identity verification are sufficient to reliably confirm beneficial ownership under the CDD Rule?
A: Covered financial institutions must verify the identity of each beneficial owner according to risk-based procedures that contain, at a minimum, the same elements financial institutions are required to use to verify the identity of individual customers under applicable Customer Identification Program (“CIP”) requirements. This includes the requirement to address situations in which the financial institution cannot form a reasonable belief that it knows the true identity of the legal entity customer’s beneficial owners. Although the CDD Rule’s beneficial ownership verification procedures must contain the same elements as existing CIP procedures, they are not required to be identical to them. For example, a covered financial institution’s policies and procedures may state that the institution will accept photocopies of a driver’s license from the legal entity customer to verify the beneficial owner(s)’ identity if the beneficial owner is not present, which is not permissible in the CIP rules. (See Question 6.)
A financial institution’s CIP must contain procedures for verifying customer identification, including describing when the institution will use documentary, non-documentary, or a combination of both methods for identity verification. Covered financial institutions may use the same methods to verify the identity of the beneficial owner of a legal entity customer. In addition, in contrast to the CIP rule, the CDD Rule expressly authorizes covered financial institutions to use photocopies or other reproduction documents for documentary verification. Documentary verification may include unexpired government-issued identification evidencing nationality or residence and bearing a photograph or similar safeguard, such as a driver’s license or passport. Non-documentary methods of verification may include contacting a beneficial owner; independently verifying the beneficial owner’s identity through the comparison of information provided by the legal entity customer (or the beneficial owner, as appropriate) with information obtained from other sources; checking references with other financial institutions; and obtaining a financial statement.
Financial institutions should conduct their own risk-based analysis to determine the appropriate method(s) of verification and the appropriate documents or types of photocopies or reproductions to accept in order to comply with the beneficial owner verification requirement.
The above FAQ was included in FinCEN’s 2nd set of CDD FAQs that were released in April 2018. The FAQs are provided to assist financial institution in understanding the scope of the customer due diligence / beneficial ownership rule. The 2018 FAQs may be found here: