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Daniel P. Stipano quoted in ACAMS article, “Banks question what CDD rule exemption means for sovereign clients”


Daniel P. Stipano

Daniel P. Stipano was quoted on March 13, 2018 in an ACAMS article, “Banks question what CDD rule exemption means for sovereign clients,” which discussed the customer due diligence rule and how financial institutions are trying to determine if their foreign government accounts are exempt from the beneficial ownership requirements. The article stated, “The long-anticipated ‘CDD rule,’ finalized in 2016 by the Treasury’s Financial Crimes Enforcement Network, or FinCEN, will require banks to take reasonable steps to identify individuals owning at least 25 percent of any legal entity for which they hold accounts, and one person who exercises significant control over the firm in question. The rule, which becomes fully effective May 11, has exclusions from the requirements, including most trusts and subsidiaries of most financial institutions. Another is ‘a non-U.S. governmental department, agency or political subdivision that engages only in governmental rather than commercial activities.’ In the text of the final rule, FinCEN said it granted the exemption in response to comments that pointed out foreign governmental bodies technically have no beneficial owners due to their sovereign nature. The bureau noted the argument is reasonable as long as the account was used for sovereign activities and not purely commercial transactions."

Stipano added, “An example of likely sovereign activities include managing payroll and funding militaries, while commercial activities would involve investment contracts or other activity a conventional business could do as well.”

The article further noted that FinCEN stated it doesn’t expect employees of covered institutions to engage in any legal analysis regarding the distinction between “sovereign” and “commercial.” Stipano noted, “If account activity seems mixed between commercial and governmental, ignoring the exemption and applying the new rule is the safest move.”