Banks are required to verify the identity of the individuals (natural persons) who own or control LLCs when opening bank accounts.
This includes LLCs owned by US citizens and US residents as well as LLCs owned by foreign nationals (non-US citizens and non-US residents).
The Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of Treasury, issued the “Customer Due Diligence Requirements for Financial Institutions” (CDD Rule), effective July 11th, 2016. Applicable financial institutions must comply by May 11th, 2018.
The purpose of the CDD Rule, FinCEN, and the BSA are to assist the United States government in monitoring illegal financial activity. For example, preventing Americans and non-Americans from using LLCs (and other legal entities) for things like sanction evasion, money laundering, fraud, and tax evasion.
What types of LLCs are included in the new rules?
Any and all types of LLCs fall under the definition of “legal entities”, as per Section 1010.230 (see e, # 1) of Title 31 of the Code of Federal Regulations.
Note: A Sole Proprietorship isn’t a legal entity, but a Single-Member LLC taxed as a Sole Proprietorship (which is the default tax election) is a legal entity. For more information, please see how are LLCs taxed.
The type of taxation with the IRS doesn’t affect the beneficial ownership requirements; all LLCs are affected.
It also doesn’t matter if the LLC owners (“members”) are US citizens, US residents, non-US citizens, non-US residents, or foreign nationals.
Furthermore, it doesn’t matter if the LLC was formed in the United States or if it was formed in a foreign country. And it doesn’t matter how long the “chain of ownership” is. For example, if a company owns a company, which in turn owns another company, the individual people behind the “parent company” are the Beneficial Owners.
In summary, the new laws are written in such a way that it doesn’t matter who owns the LLC, how many “layers” there are, where the LLC was set up, how the LLC was set up, or how the LLC is taxed.
All Beneficial Owners of the LLC need to be reported (and their identities verified) when opening up an LLC bank account.
The 2-step approach to LLC “Beneficial Owners”
The 2-step approach to defining a Beneficial Owner is:
- the “ownership prong” (who are the ultimate owners, owning 25% or more)
- and the “control prong” (who controls the LLC, regardless of ownership)
Note: The control prong was created to avoid the loophole of the ownership prong. For example, an LLC with 5 Members, each owning only 20%, wouldn’t have to disclose the beneficial owners. However, under the control prong, the beneficial owners would be disclosed.
Section 1010.230 (see d) of Title 31 of the Code of Federal Regulations defines what it means to be a Beneficial Owner.
In the context of an LLC, a Beneficial Owner is:
- any person, who directly or indirectly (through any contract, arrangement, understanding, relationship or otherwise) owns 25% or more of the LLC
- any person with significant responsibility or authority to control, manage, or direct an LLC
If a trust owns 25% or more (directly or indirectly) of an LLC, the Beneficial Owner is the Trustee.
Furthermore, if a nominee or “straw man” (with no control or management) is in place as an LLC Member, Manager, Officer, or any similar position, they are not a Beneficial Owner.
Another way to think of the Beneficial Owner is who is/are the “ultimate owner(s)”?
What information about Beneficial Owners is collected?
In addition to information collected about your LLC (LLC name, address, EIN Number), the Beneficial Ownership forms ask for personal information, such as:
- date of birth
- current physical residential address or business address
- a government identification number (such as your Social Security Number)
Other possible forms of identification that may be accepted by the bank are:
- state-issued ID with a photograph
- other US government-issued IDs with a photograph
- US government-issued ID with a photograph
- US passport
- Non-resident alien card with a photograph and identification number
If you are a non-US resident or non-US citizen (“foreign national”) and you don’t have a Social Security Number, the bank will ask for either:
- your Individual Taxpayer Identification Number (if you have a US tax filing obligation)
- foreign passport number
- *foreign driver’s license number or other government-issued ID
*If you’re a foreign national, the bank may accept your foreign driver’s license number (or another form of official identification), but this isn’t specified in the new laws, so it’s up to the bank and their own internal policies.
There isn’t going to be a “black and white” rule on this, so if you’re a foreign national opening an LLC bank account in the US, we recommend calling the bank ahead of time and speaking with the branch manager. This will help you determine which documents and forms of identification you need to bring in to open your LLC bank account.
The 4 core requirements of the CDD Rule
While the Final CDD Rule is over 60 pages, the 4 core responsibilities for banks and financial institutions are to:
- identify and verify the identity of customers
- identify and verify the identity of the Beneficial Owners of companies opening accounts
- understand the nature and purpose of customer relationships to develop customer risk profiles
- conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information
Beneficial Owner Declaration Forms for Banking
The branch where you open your LLC bank account should provide you with their own Beneficial Ownership Declaration Form.
However, we’ve heard of a few cases where the bank has asked LLC owners to provide their own form.
While we think this is kind of weird (and it might be a good idea to check out other banks), here is a standardized form provided by FinCEN: Certificate of Beneficial Owners Form.
You can also find template examples from other major US banks listed below:
Note: These forms are provided as examples only. They may not be the most up-to-date versions for each bank’s Beneficial Owners forms. If you haven’t opened your LLC bank account yet, make sure to call the bank ahead of time and ask which forms are necessary. Again, the bank will most likely provide this form when you go into the branch location.
Beneficial Ownership Certification (BB&T Bank)
Certification of Beneficial Owners (Fifth Third Bank)
Certification Regarding Beneficial Owners of Legal Entity Customers (TD Bank)
Certification Regarding Beneficial Owners of Legal Entity Customers (Wells Fargo)
Certification Regarding Beneficial Owners of Legal Entity Customers (Navy Federal)
Wikipedia: Beneficial ownership
FDIC: Manual of Examination – Bank Secrecy Act
Wikipedia: Financial Crimes Enforcement Network
FinCEN: Customer Due Diligence FAQs July 2016
FinCEN: Customer Due Diligence FAQs April 2018
Federal Deposit Insurance Corporation Introduction to BSA
FinCEN: Appendix A – Financial Crimes Enforcement Network Programs
FinCEN: Information on Complying with the Customer Due Diligence (CDD) Final Rule
US Department of Treasury: History of Financial Crimes Enforcement Network (FinCEN)
FinCEN: FinCEN Reminds Financial Institutions that the CDD Rule Becomes Effective Today
Bank Secrecy Act of 1970 (31 US Code Subchapter II – Records and Reports on Monetary Instruments Transactions