On May 11th, 2016, the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the Department of the Treasury, published a Final Rule (the “Rule”) on customer due diligence after a four-year rulemaking process. The Rule requires covered financial institutions, including banks, money services businesses, broker-dealers, mutual funds, and commodities brokers, to enhance their customer due diligence procedures by collecting and verifying information about the individuals who own or control the legal entity customers of the financial institution. These individuals are referred to in the Rule as “beneficial owners.” The Rule also adds a “fifth pillar” to the minimum requirements of an anti-money laundering (“AML”) compliance program by explicitly requiring financial institutions to develop and update customer risk profiles and customer information and to conduct ongoing AML monitoring. As a concession to numerous commenters, the Rule provides a two-year compliance deadline instead of the oneyear deadline in the proposed rule (the “Proposed Rule”).

The Rule is the culmination of a rulemaking proceeding that began in March 2012 with an advance notice of proposed rulemaking and continued with the Proposed Rule issued in August 2014. The rulemaking appeared to receive fresh impetus following the Panama Papers and other data leaks alleging the use of shell entities to evade financial reporting obligations.