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Will Panama Papers Lead to FinCEN Panama Rules?

The recent disclosure of the so-called “Panama Papers” has brought customer due diligence of nominee companies into renewed focus. Perhaps coincidentally, the disclosure of these papers comes as the Financial Crimes Enforcement Network (FinCEN) appears to be reaching the homestretch on finalizing its proposed rules that impose enhanced customer due diligence requirements on financial institutions. On April 13, FinCEN submitted a final version of the rule to the Office of Management and Budget (OMB) for review.

As discussed previously, the proposed rule’s enhanced customer due diligence requirements would require covered financial institutions to (1) identify and verify the natural persons who are the principal beneficial owners of legal entity customers and (2) codify explicit customer due diligence requirements for covered financial institutions to (a) understand the nature and purpose of customer relationships and (b) conduct ongoing customer monitoring, both of which would become required elements of a core anti-money laundering (AML) program.

Interestingly, on April 8, FinCEN also submitted to OMB for review proposed rules to impose AML programs on banks that do not have a Federal functional regulator. The proposed rule would remove the AML program exemption for banks and similar financial institutions that lack a Federal functional regulator. Banks that could be captured by the proposed rule include private banks, non–federally insured credit unions, and certain trust companies. If eventually finalized, we would expect FinCEN to also impose customer identification program and enhanced due diligence requirements on these banking entities.

Copyright © 2022 by Morgan, Lewis & Bockius LLP. All Rights Reserved.National Law Review, Volume VI, Number 116
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About this Author

Ignacio Sandoval, Morgan Lewis, Securities lawyer
Associate

A member of the firm’s securities industry practice, Ignacio A. Sandoval advises broker-dealers on matters relating to their obligations under federal securities laws and self-regulatory organization rules. Prior to joining Morgan Lewis, he was a special counsel in the Office of Chief Counsel in the SEC’s Division of Trading and Markets. Ignacio’s SEC experience includes matters involving domestic and foreign broker-dealer registration matters, anti-money laundering obligations, alternative trading systems, and high-frequency traders.

202-739-5201
Charles Horn, financial services attorney, Morgan Lewis
Partner

Charles M. Horn is a partner in Morgan Lewis's Investment Management and Securities Industry Practice. Mr. Horn focuses his practice on regulatory and transactional matters, primarily in the areas of banking and financial services. He works on behalf of domestic and global financial institutions of all sizes on regulatory, supervisory, enforcement and compliance matters before all major federal financial institutions regulatory agencies, and leading state financial regulatory agencies.

202-739-5951
Melissa R.H Hall, Financial services attorney, Morgan Lewis
Of counsel

Melissa R. H. Hall represents US and overseas banks, nonbank financial services companies, investors in financial services, and technology companies in regulatory and corporate matters. She advises them on a wide range of state and federal financial regulatory laws and regulations. She provides counsel on financial regulatory compliance and enforcement, including state and federal licensing requirements, consumer financial products and compliance, payment systems, corporate and transactional matters, financial institution investment and acquisition, and the development...

202-739-5883
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