Gallet Dreyer & Berkey, LLP | Anonymous Need Not Apply – Entities Getting Bank Accounts
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Anonymous Need Not Apply – Entities Getting Bank Accounts

2/6/19 | By: Jay L. Hack, Esq.| GDB 2019 Winter Newsletter
You go to a bank to open an account for your company and the account officer gives you the third degree. Why do they make it so hard? Don’t they want your money?

Don’t blame the bank. Federal regulations force banks to find out who owns and manages the bank’s “legal entity” customers. The bank must identify every natural person who directly or indirectly owns 25% or more of an entity customer AND at least one person who is an executive officer or manager. “Customer” is defined broadly to include borrowers, depositors and anyone else with an asset account at a bank. The bank is prohibited from opening a deposit account or making a loan for any entity customer unless it gets the information.

Here are some things you should know:
  1. What if no one owns at least 25%? Then you should list no one as an owner.
  2. Do we still have to list an executive officer or manager even if no one owns 25%? Yes.  You must provide information about at least one person no matter how diverse the ownership.
  3. What if a 25% owner is also an executive officer? You may list the same person in both capacities.
  4. What if my company is owned by two other companies? The bank must drill down to indirect owners. If Company A is owned 60% by Company B and John owns 50% of Company B but none of Company A directly, then John is considered to own 30% of Company A.
  5. Who chooses which executive officer or manager to list? The regulation gives little guidance. The bank may require that it be a chief executive officer or chief financial officer.
  6. Is the bank allowed to ask for more details? Yes. The bank may require disclosure, for example, of all 20% owners or at least two executive officers.
  7. Does the bank have to investigate the information I give? No, the bank may rely on what you say if it knows no facts indicating that the information may be unreliable. However, you will have to certify that the information is true and lying to the bank is a federal crime.
  8. Must the bank get proof of identity of the owners and the executive officer? Yes. The bank must follow procedures similar to the procedures for opening an account for an individual. Bring copies of drivers’ licenses or passports for all owners and one executive officer/manager when you open a deposit account. The bank must also get a residence or business address for each person.
  9. How long does the bank keep the information? Five years after the account is closed. If the same information is used to open multiple accounts, the information and your certification must be kept for five years after the last account closes and the last loan is repaid.
  10. What happens if my company has a 30 day certificate of deposit that is rolled over every month? Each rollover requires recertification. Banks may avoid monthly recertification by requiring you to notify it of any change in the information you provide. You must then give notice of any change, such as if 25% ownership changes, an executive officer is replaced, or someone moves to a new address.
  11. How about trusts as owners of legal entities? In most cases, such as trusts under wills, living trusts and credit shelter trusts, the trust is not a legal entity and is treated as an individual. If such a trust owns 25% of a corporation, the trustee, rather than the trust, is listed as an owner. If there is more than one trustee of the same trust, then at least one must be listed.
  12. What if the trustee is a corporation? The corporation is listed as the owner, with no requirement to drill down to the owners of the trustee unless the bank has such a requirement as part of its customer identification program.
  13. What if I do business personally under a trade name (known as a d/b/a)? A d/b/a is not a legal entity and the rule does not apply. However, a limited liability company (LLC) is an entity even if it is disregarded for tax purposes as a partnership.
  14. What about charities and not-for-profit corporations? They are exempt from the disclosure rule, regardless of whether they qualify as tax-exempt charities.