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FinCEN CDD Beneficial Ownership Rule

United States

2001

AML/CFT

Overview

The FinCEN Customer D ue Diligence (CDD) Beneficial Ownership Rule, adopted in 2016 and effective from 2018, strengthened the U.S. Bank Secrecy Act (BSA) by requiring financial institutions to identify and verify the beneficial owners of legal entity customers. The rule addresses risks of money laundering, terrorist financing, and tax evasion by eliminating the anonymity of shell companies and enhancing financial transparency.

It introduced a uniform definition of beneficial ownership, requiring identification of any individual with 25% or more ownership as well as a control person. Institutions must incorporate these checks into their AML programs, update records when risk triggers arise, and retain information for regulatory and law enforcement use.

The regulation applies to banks, broker-dealers, mutual funds, futures commission merchants (FCMs), and introducing brokers in commodities,bringing them in line with international FATF standards and complementing later laws such as the Corporate Transparency Act (2021).

Key Obligations

Collect and verify information on beneficial owners (≥25% ownership) and control persons of legal entities
Conduct Customer Due Diligence (CDD) at onboarding and maintain updated records
Apply Enhanced Due Diligence (EDD) for high-risk customers and politically exposed persons (PEPs)

Integrate beneficial ownership checks into AML compliance programs
Retain records for at least 5 years

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FAQ

Which institutions must comply?

Banks, broker-dealers, mutual funds, FCMs, and commodity brokers.

What’s the ownership threshold?

Beneficial owners with 25% or more ownership, plus at least one control person.

Is ongoing monitoring required?

Yes. Institutions must update information based on risk and trigger events.

What are the penalties for non-compliance?

Civil monetary penalties, enforcement actions, and reputational risk.