news.cuna.org/articles/113935-compliance-exemptions-exceptions-for-new-cdd-rule

Compliance: Exemptions, exceptions for new CDD rule

March 26, 2018

The May 11 effective date of the new Customer Due Diligence (CDD) rule is approaching, after which credit unions will be required to obtain identifying information about the beneficial owners of their legal entity accounts.

A recent CUNA CompBlog post details some of the rule’s exceptions and exemptions.

 

The rule defines beneficial owners as:

  • Each individual, if any, who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, owns 25% or more of the equity interests of a legal entity customer: and
     
  • A single individual with significant responsibility to control, manage, or direct a legal entity customer, including:
    • An executive officer or senior manager (e.g. a chief executive officer, chief financial officer, chief operating officer, managing member, general partner, president, vice president, or treasurer); or
    • Any other individual who regularly performs similar functions.

A credit union may be exempt from the requirements to identify and verify the beneficial owner(s) of a legal entity member only to the extent the credit union opens an account that is:

  • At the point-of-sale to provide credit products, including commercial private label credit cards, solely for the purchase of retail goods and/or services at these retailers, up to a limit of $50,000;
     
  • To finance the purchase of postage and for which payments are remitted directly by the credit union to the provider of the postage products;
     
  • To finance insurance premiums and for which payments are remitted directly by the credit union to the insurance provider or broker;
     
  • To finance the purchase or leasing of equipment and for which payments are remitted directly by the credit union to the vendor or lessor of this equipment.

These four exemptions do not apply to transaction accounts through which a legal entity member can make payments to, or receive payments from, third parties.

Additionally, if there is the possibility of a cash refund on the account activity identified in one of these four exemptions then beneficial ownership of the legal entity member must be identified and verified by the credit union as required by the new rule, either at the time of initial remittance, or at the time such refund occurs.

The Treasury’s Financial Crimes Enforcement Network (FinCEN) has provided some exceptions to the rule, legal entities that are considered very unlikely to foster money laundering. The full list of 19 entities can be found on CUNA’s CompBlog.

In addition to the CompBlog, CUNA’s Compliance Community contains discussion boards and a number of other resources for credit union compliance professionals around the country.