[Federal Register Volume 77, Number 135 (Friday, July 13, 2012)]
[Proposed Rules]
[Pages 41334-41336]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-17065]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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 

  Federal Register / Vol. 77, No. 135 / Friday, July 13, 2012 / 
Proposed Rules  

[[Page 41334]]



DEPARTMENT OF THE TREASURY

Financial Crimes Enforcement Network

31 CFR Chapter X

RIN 1506-AB15


Request for Comments: Customer Due Diligence Requirements for 
Financial Institutions; Public Hearing

AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.

ACTION: Notice of public hearing; request for comment.

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SUMMARY: FinCEN is announcing the first in an intended series of public 
hearings to continue gathering information on its Advance Notice of 
Proposed Rulemaking (ANPRM) on Customer Due Diligence (CDD) 
Requirements for Financial Institutions, published in the Federal 
Register on March 5, 2012.\1\ In particular, FinCEN seeks further 
clarification on the issues described in this Notice. FinCEN invites 
various components of the law enforcement and regulatory communities to 
participate. In addition, FinCEN invites other interested parties, 
including industry representatives, to attend and/or provide comments 
at this first public hearing, to be held on July 31, 2012 at the U.S. 
Department of the Treasury building in Washington, DC FinCEN will also 
provide information in this Notice about how to submit comments and/or 
attend the hearing and what procedures to follow to submit information 
to the Treasury Department to obtain entry to the hearing site.
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    \1\ Financial Crimes Enforcement Network, ``Customer Due 
Diligence Requirements for Financial Institutions,'' 77 FR 13046 
(March 5, 2012), available at http://www.regulations.gov/#!docketDetail;D=FINCEN-2012-0001;dct=FR%252BPR%252BN%252BO%252BSR.

DATES: This public hearing will be held on July 31, 2012, beginning at 
9:30 a.m., Eastern Time, and ending at 5 p.m., in Washington, DC 
Requests to attend the hearing and/or provide oral comments, written 
outlines of the oral comments, and the personal identification 
information required of those individuals who wish to enter the 
Treasury Department building, must be received on or before July 24, 
2012. More information on the intended subsequent hearings will be 
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provided at a later date.

ADDRESSES: Requests to attend and/or provide comments: Requests to 
attend and/or provide comments at the Public Hearing must be submitted 
by email to the FinCEN BSA Resource Center at [email protected], or by mail to FinCEN, P.O. Box 39, Vienna, VA 22183. 
Include ``CDD Public Hearing'' in the body of the text or the 
``subject'' line of the email.
    Meeting site: This public hearing will be held at the United States 
Department of the Treasury, located at 1500 Pennsylvania Avenue 
Northwest, Washington, DC 20220.
    Inspection of comments and outlines: Written comments and outlines 
may be inspected, between 10 a.m. and 4 p.m., in the FinCEN reading 
room in Vienna, VA. Persons wishing to inspect the comments submitted 
must request an appointment with the Disclosure Officer by telephoning 
(703) 905-5034 (not a toll free call). In general, FinCEN will make all 
written comments, including outlines, publicly available by posting 
them on http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: FinCEN: Regulatory Policy and Programs 
Division, Financial Crimes Enforcement Network, (800) 949-2732 and 
select option 6.

SUPPLEMENTARY INFORMATION:

Information About Attending and/or Providing Comments at the Hearing

    Individuals requesting to attend and/or provide oral comments 
should provide the following information in their request, which must 
be submitted to FinCEN at the address appearing in this Notice under 
the heading ADDRESSES: Request to attend and/or provide oral comments: 
(1) The name of the person wishing to attend and/or provide comments; 
(2) the person's contact information (telephone number and email 
address); (3) the organization(s) the person represents, if any; and, 
if wishing to provide comments, (4) a separate written, one to two-page 
outline of the proposed comments. FinCEN is requesting a written 
outline of comments in advance of the hearing for scheduling purposes. 
Given space and time limitations, not all requests to attend and/or 
provide oral comments may be honored. However, any outlines received 
will be made part of the public record for the hearing.
    Based upon the requests received, FinCEN will develop an agenda for 
witness oral comments, will notify those commenters scheduled as part 
of the agenda, and will post the agenda on FinCEN's Web site (address: 
www.fincen.gov). Each comment, as well as a general summary of the 
hearing's discussion will be made available for public inspection after 
the public hearing; as such, information that a respondent does not 
desire to be made public, such as a phone number, should not be 
included in the outline of the comment discussed above. Information 
about the webcast will be posted on FinCEN's Web site prior to the 
public hearing, and the public hearing will be made available via 
webcast.
    Due to security requirements and to facilitate entry to the meeting 
site, anyone wishing to attend must contact [email protected], or (202) 354-6400 no later than July 24, 2012, in 
order to provide the following required clearance information: For U.S. 
citizens: Full name, business affiliation, date of birth, and Social 
Security number; For foreign nationals: Full name, business 
affiliation, date of birth, passport number, and the country where the 
passport was issued. When arriving for the meeting, attendees must 
present a government-issued photo or passport identification and should 
arrive at least one-half hour prior to the start time of the meeting. 
The public meeting is physically accessible to people with 
disabilities. Individuals requiring special services, such as sign 
language interpretation, are asked to indicate this to [email protected].
    For those unable to attend in person, written comments to the 
detailed questions may also be submitted for the record by email or 
mail to the respective address above by July 31, 2012. FinCEN will make 
such written comments publicly available by posting them on http://www.regulations.gov.

Request for Hearing Comments

    On March 5, 2012, FinCEN published an Advance Notice of Proposed 
Rulemaking (ANPRM) to solicit public comment on a wide range of 
questions pertaining to the development of a

[[Page 41335]]

Customer Due Diligence (CDD) regulation that would codify, clarify, 
consolidate, and strengthen existing CDD regulatory requirements and 
supervisory expectations, and establish a categorical requirement for 
financial institutions to identify the beneficial owner(s) of their 
customers, subject to risk-based verification. The comment period for 
the CDD ANPRM ended on June 11, 2012, and all comments are currently 
under review. During this ongoing comment review process, FinCEN 
identified comment letters submitted by multiple law enforcement 
agencies stating a requirement for financial institutions to identify 
beneficial ownership of their customers, as discussed in the ANPRM, 
would significantly enhance law enforcement's ability to conduct 
financial investigations of all manners of financial crimes. FinCEN has 
also identified several issues raised by commenters, on which it is 
soliciting further clarification through oral comment and dialogue 
during the July 31, 2012 public hearing. Such clarification would 
assist FinCEN in adequately considering the issues as it moves forward 
in the rulemaking process. In addition to any other topics or concerns 
a respondent wishes to address at this public hearing, FinCEN 
specifically seeks clarification, including examples where appropriate, 
on the following issues:
    1. Multiple comment letters indicated that some financial 
institutions already identify beneficial ownership of their customers 
in certain circumstances. FinCEN seeks detailed information as to how 
and when those financial institutions currently obtain beneficial 
ownership information, including, but not limited to: (i) The 
circumstances in which financial institutions obtain beneficial 
ownership information other than in connection with the regulations 
implementing Section 312 of the USA PATRIOT ACT,\2\ (ii) the basis for 
determining that such circumstances warrant the collection of 
beneficial ownership information, (iii) the specific procedures 
financial institutions currently use to obtain beneficial ownership 
information in such circumstances, including the definition of 
``beneficial owner'' used, and (iv) how those circumstances and 
procedures vary across different lines of business, product type, 
customer profile and geographic location.
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    \2\ 31 CFR 1010.610(b)(1)(iii)(A) and 1010.620(b)(1).
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    2. FinCEN seeks detailed information as to whether and how 
financial institutions currently verify beneficial ownership 
information obtained from their customers. The information sought 
includes, but is not limited to, whether and how financial institutions 
verify: (i) The identity of the individual identified by the customer 
as the beneficial owner of the customer, and (ii) that the individual 
identified by the customer as the beneficial owner, is indeed the 
beneficial owner of the customer (i.e., the status of the identified 
individual).
    3. FinCEN seeks detailed information as to the costs associated 
with obtaining beneficial ownership information under current 
practices, and the expected costs associated with obtaining beneficial 
ownership information as discussed in the ANPRM.
    4. FinCEN seeks detailed information as to the costs associated 
with verifying beneficial ownership information to the extent this is 
done under current practices, and the expected costs associated with 
verifying beneficial ownership information as discussed in the ANPRM.
    5. Multiple comment letters expressed concern regarding the 
definition of ``beneficial owner'' in connection with a categorical 
requirement for financial institutions to identify beneficial ownership 
of their customers, as discussed in the ANPRM. FinCEN seeks detailed 
information about potential alternative definitions, and why such 
alternatives would be preferable from a financial institution's 
perspective.
    6. As reflected in multiple comment letters, certain financial 
institutions already identify beneficial ownership of their customers 
in certain circumstances in order to manage risk more effectively. 
FinCEN seeks detailed information about how identifying beneficial 
owners enhances a financial institution's ability to manage risk. 
FinCEN also seeks detailed information as to the circumstances and 
account relationships in which beneficial ownership information may not 
be relevant for financial institutions in managing risk.
    7. Many commenters have suggested FinCEN consider requiring 
financial institutions to obtain beneficial ownership information of 
their customers on a risk basis. FinCEN seeks detailed information as 
to (i) how financial institutions would expect to assess risk in 
determining whether to obtain beneficial ownership information (e.g., 
what specific factors would a financial institution consider); (ii) 
specific examples of any customer or account relationships or red flags 
that would be considered of higher risk for purposes of obtaining and 
verifying beneficial ownership information, and similarly any such 
relationships that would be considered of lower risk for purposes of 
obtaining and verifying beneficial ownership information; and (iii) how 
financial institutions would obtain and verify beneficial ownership 
information on a risk basis. For those financial institutions that 
already obtain beneficial ownership information on a risk basis, FinCEN 
seeks detailed information as to when they obtain it--during the 
onboarding process, or after a review of the account activity? If the 
latter, would the review of the account activity be a part of a 
periodic/routine review conducted by the financial institution or based 
upon the identification of red flags? Do financial institutions 
reassess risk presented periodically or based upon red flags 
identified? What steps do financial institutions take when new risks 
have been identified?
    8. FinCEN seeks additional detailed information as to the abilities 
and limitations of a financial institution in mitigating risk 
associated with its customer's underlying clients in the context of 
intermediated accounts. The information sought includes, but is not 
limited to: (i) The factors a financial institution considers when 
conducting diligence on its customer (i.e., the intermediary) to assess 
the risk of the account (e.g., whether the customer is (1) a domestic 
or foreign entity, (2) regulated or unregulated for anti-money 
laundering purposes, etc.), (ii) whether, and if so, in what 
circumstances and what type of information does a financial institution 
obtain from its customer (i.e., the intermediary) about the customer's 
underlying clients, and (iii) any monitoring or other procedures 
applied to the customer's account to identify suspicious activity and 
mitigate risks that may be associated with the customer's underlying 
clients.
    9. FinCEN seeks detailed information as to how financial 
institutions currently conduct due diligence on trust accounts. The 
information sought includes, but is not limited to: (i) How financial 
institutions assess risk with respect to trust accounts, as opposed to 
accounts held by natural persons or legal entities, and (ii) what 
information a financial institution obtains about the trust, including 
identifying information about the trustee.
    10. FinCEN seeks detailed information as to the differences, if 
any, in obtaining beneficial ownership information from foreign legal 
entity customers compared to domestic legal entity customers.
    11. Lack of transparency in the formation and operation of ``shell

[[Page 41336]]

companies'' \3\ may be a desired characteristic for certain legitimate 
business activity, but it is also a vulnerability that allows these 
companies to disguise their ownership and purpose. FinCEN seeks 
detailed information as to whether and how financial institutions 
identify whether legal entity customers are ``shell companies.''
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    \3\ The term ``shell company,'' as used herein, refers to non-
publicly traded corporations and limited liability companies that 
typically have no physical presence (other than a mailing address) 
and generate little to no independent economic value. See FinCEN 
Guidance, FIN-2006-G014, ``Potential Money Laundering Risks Related 
to Shell Companies'' (November 9, 2006).
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Conclusion

    With this public hearing, FinCEN is seeking clarification on the 
issues raised by commenters regarding the CDD ANPRM set forth above.

    Dated: July 9, 2012.
Nicholas Colucci,
Acting Director, Financial Crimes Enforcement Network.
[FR Doc. 2012-17065 Filed 7-12-12; 8:45 am]
BILLING CODE 4810-02-P