The Beneficial Owner requirements apply to beneficial owners of legal entity customers. Generally, a legal entity customer is an entity that is created by filing documents with a formal government agency, say, for example, the Secretary of State. Keep in mind. However, that may not be the process in every state.
Kevin explains more in the video.
Legal Entities-
The key is to remember that what we're dealing with, as a rule of thumb, is an entity created by filing documents with some formal government agency to create it. So it's usually like the Secretary of State, but not in all states. Some states have other entities, or they're called something different, but they're creating a legal entity. So now, I hate to define it with the definition, but we're talking about things that you go to the state for. If it's a DBA or doing business as, and there isn't an actual legal entity created, they're just using a name that is not a legal entity. If it's just me and I have a doing business as I didn't create a legal entity, that wouldn't trigger this requirement.
In many states, you can go to any Yahoo attorney, and they can draw up trust papers for you or a couple of individuals. And by virtue of that trust agreement, the trust exists, but they didn't go and create a legal entity with the state, so a trust would not be a legal entity. Now some states, keep in mind there are some states where they have a formalized trust, where you go to the Secretary of State, and they create that trust for you. But again, that would be the exception. You see those less often, but there are some states where a trust would be an entity. The key here is, did you have to go to the state or the Secretary of State to create it? Okay. So, now there are some exclusions on there.
And again, these match up with your CTR exclusions pretty well, but things like federal or state-regulated financial institutions, so other banks, government departments, or agencies. The one that's kind of funny one is number three there, entities established under US law or state law. Based on the definition I gave you, that might be confusing. You say, "Wait, didn't you just tell me that a legal entity is an entity that you go to the state and have it created?" What they're talking about under this exception are entities that the legislature created. So, they passed a law and created a state entity. Okay? So, that's what they're getting at under that one. But again, subsidiaries of publicly traded companies, a lot of these, the logic underpinning them is that they... We're very comfortable, or the government is comfortable that they're not a shell company, so they've carved out a lot of these exceptions.
What you should do is incorporate this into your program so that it's very clear. And if anybody has a question on whether or not their customer is a legal entity or not, they may want to get maybe another set of eyes on it so that they're very clear that if they've decided they don't have to collect it, that everybody's on the same page that they are not a legal entity.
Published
2023/02/01