May 14, 2018 - The US Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) published new Customer Due Diligence Requirements for Financial Institutions (the “CDD Rule” which became effective on May 11, 2018. When FinCEN published the CDD Rule, it noted that beneficial ownership identification and verification of legal entities is one of the core elements of customer due diligence (CDD) and should be a requirement of any covered financial institution’s anti money laundering (AML) program. The CDD Rule contains explicit CDD requirements for certain financial institutions under the Bank Secrecy Act and requires those financial institutions to identify and verify the identity of the beneficial owners of certain legal entity customers.
FinCEN published a Form of Certification Regarding Beneficial Owners of Legal Entity Customers (BOC Form) in connection with the new CDD Rule, but the form was not suited to the syndicated loan market. At the request of members of the LSTA’s Primary Market Committee, the LSTA has worked with SIFMA to develop one BOC Form that may be used by their members and loan market participants required to obtain such information from a borrower/issuer. That version is available here. In addition, we have revised the LSTA’s Form of Revolving Credit Facility to address these issues (available here) by, for example, expanding the conditions precedent to reference this and including a covenant that requires the borrower to deliver the certificate).
We understand that agent banks are taking different approaches on obtaining and sharing the beneficial owner information with other syndicate lenders who are also required to obtain that information under the CDD Rule. At this time, there is no market approach for handling this, and it seems that banks are proposing to gather and disseminate the information in different ways. The LSTA will monitor this issue in the coming weeks/months to see if a market approach develops but recommends that members carefully consider the privacy issues as they develop their own internal processes to share the information (the LSTA has not engaged external counsel to vet the privacy issues raised by the sharing of this potentially confidential and sensitive information).