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Compliance Alliance Featured Q&A

Question:

Would our bank be required to obtain a Certificate of Beneficial Ownership on a guarantor to a loan?

Answer:

Like so many BSA-related principles, this ultimately tends to be a risk-based determination that is reliant upon the bank’s CIP, CDD, and other relevant BSA / AML policies, procedures, and past practices. With that said, under 31 CFR 1010.230, the bank is required to establish and maintain written procedures that are reasonably designed to identify and verify beneficial owners of legal entity customers. A “legal entity customer,” strictly speaking, is:  “[…] a corporation, limited liability company, or other entity that is created by the filing of a public document with a Secretary of State or similar office, a general partnership, and any similar entity formed under the laws of a foreign jurisdiction that opens an account.”
 
As touched on above, the requirement applies to the bank’s legal entity customer. So, generally, if the guarantor is simply guaranteeing a loan made to another entity (and assuming they are not also a borrower or co-applicant), they would not be considered to be “opening an account” under this rule (nor the “CDD Rule”) and therefore not strictly subject to the Beneficial Ownership Rule’s requirements.  

However, there is always the possibility that the bank’s own CIP / BO / CDD policies/procedures may impose stricter requirements based on risk, so as always, the bank should be sure to review those in making this risk-based determination, as well.

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