FATF Gives US Higher Grade for Due Diligence and Beneficial Ownership

By Daniel Bethencourt

An intergovernmental group formally upgraded its previously subpar assessment of U.S. customer due-diligence requirements Tuesday, nearly two years after the Treasury Department tasked banks and other institutions with gathering more details about their account holders.

In a 12-page report, the Paris-based Financial Action Task Force, or FATF, said that essentially in response to the Treasury Department’s customer due-diligence rule, the U.S. is now “largely compliant” instead of “partially compliant” with the group’s 10th recommendation for vetting customers and identifying the persons behind corporate accounts.

FATF gave the U.S. the lower rating in December 2016 after an evaluation noted a lack of available details on the beneficial owners of legal entities and few requirements for identifying who controls them. The first deficiency, according to the group, represented “one of the fundamental gaps” in the country’s anti-money laundering regime at the time.

The group also took issue with the imposition of only minimal AML regulations on investment advisors and other non-bank businesses in the U.S., but still found the country compliant or largely compliant with 30 of its 40 technical recommendations and praised its aggressive prosecutions and coordination with law enforcement.

Examiners completed their visit in February 2016. Five months later, U.S. officials finalized a rule for banks and other institutions to collect identifying data on any individual who owns at least 25 percent of any legal entity for whom they hold an account, name at least one person who controls the day-to-day operations of the entity and monitor for significant changes in AML risk.

FATF on Tuesday retroactively updated its assessment in light of the rule, which took effect in May 2018, but still noted that “a few minor technical gaps remain” in the U.S., including a lack of a requirement to collect ownership details for “other trust relevant parties for legal arrangements.”

The U.S. as a result will remain under the group’s enhanced follow-up process until it addresses those and other criticisms.

U.S. AML rules still do not directly cover registered investment advisors, according to FATF, but 54 percent of the firms are in practical terms required by their banks and broker dealers to comply, and more than 75 percent of registered IAs have “some form of AML/CFT [combating the financing of terrorism] policies” in place.

“The IA sector is assessed to be relatively lower risk in light that there are few (if any) ML-related typologies,” FATF found.

FATF decided to award the U.S. a higher score for due diligence despite the fact that the Treasury Department’s rule does not explicitly require covered institutions to verify the ownership information they obtain from their clients, unless they consider them high-risk or have reason to doubt their attestations.

The group outlined its expectation that financial institutions check the data they receive to some degree in a 2012 summary, specifically advising that AML-regulated firms take “reasonable measures to verify the identity of the beneficial owner, such that the financial institution is satisfied that it knows who the beneficial owner is.”

U.S. financial institutions can currently rely on the ownership data their customers provide “if reliance is reasonable, but you can only know if reliance is reasonable after the fact, after the institution has discovered suspicious activity,” said Ross Delston, an AML attorney in Washington, D.C.

Contact Daniel Bethencourt at

Topics : Anti-money laundering , Counterterrorist Financing
Source: U.S.: Department of Treasury , U.S.: FinCEN , U.S.: Congress , U.S.: Department of State , U.S.: OFAC , U.S.: White House/U.S. President
Document Date: March 31, 2020