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Daniel P. Stipano quoted in ACAMS article, “US bankers question which corporate services trigger CDD rule, and when”


Daniel P. Stipano

Daniel P. Stipano was quoted on November 15, 2018 in an ACAMS article, “US bankers question which corporate services trigger CDD rule, and when,” which discussed the difficulty for U.S. financial institutions to apply the customer due-diligence rule when handling complex corporate transactions. The article stated, “Multiple lenders involved in a single corporate transaction may have to resolve differences in how they interpret the CDD rule, such as when they collect identifying data on individuals who hold less than 25 percent of a legal-entity client. The rule provides lenders with a mechanism to address some of those challenges, at least in theory, by permitting reliance on another financial institution’s due-diligence checks on a legal entity’s beneficial owners. But the reliance must be ‘reasonable under the circumstances,’ according to FinCEN. The firm conducting the due diligence must also fall under the Bank Secrecy Act and annually certify its compliance with the same set of CDD requirements as the relying institution.”

Stipano noted, “The reliance provision is an attractive option, particularly in the area of loan syndication, but meeting the three conditions is a big ask. There has to be a contract in place between the two institutions whereby the one that is actually going to do the CIP customer identification program/CDD is doing it on behalf of the one that’s doing the relying.”

The article also stated that “FinCEN clarified that lenders opening multiple accounts for the same legal entity can rely on the CDD conducted on the customer’s beneficial owners the first time around.”

Stipano added, “Banks operating in this regulatory gray area have to balance their compliance obligations with their profit motive rapidly, as quick decision-making can spell the difference between a corporate client receiving the loan or going bankrupt. They all want to be in compliance with the rule to avoid being beaten up by regulators. But if they are being overly concerned and doing something they are not required to do and their competitors are not doing that, that puts them at a competitive disadvantage.”

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