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Guidance on Customer Identification
Programs |
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Written by: James Underwood
The federal banking agencies, the Financial Crimes Enforcement Network
and the Department of the Treasury, are adding guidance to clear
up the discrepancies within the Customer Identification Program
or CIP. The CIP, which is the regulation implementing Section 326
of the USA PATRIOT Act, has received numerous questions from the
industry seeking further clarification on various aspects of the
CIP rule. The federal banking agencies, Financial Crimes Enforcement
Network, and Treasury have provided answers to some of these questions
for instance: who is the customer? , what is the definition of an
account?, and what is the extent of the CIP needed?
One of the problems with the CIP was figuring out who the customer
was, so a formal definition of a customer was given. A customer
is defined as someone who opens a new account. While this is still
a broad definition, some of the examples for people who need a CIP
are as follows:
- • Someone receiving a loan or 3rd party loans
- • New borrower substituting for an existing borrower
- • If receiving a credit card from the bank
- • The signer for a minor opening an account
- • The trust if a trust is established for employee benefits
or the contact if no trust is established
- • All signees on a trust account
- • Either the 3rd party on an escrow account or whoever
establishes the contract
- • All of the partners in a partnership
- • Both of the members of a joint account
Some instances where a CIP is not required are:
- • Bank subsidiaries and non-bank subsidiaries
- • Savings and loan companies and non-bank subsidiaries
- • Transfer of funds and transfers by administrators of
terminated plans
- • An affiliate of the bank
The definition of an account posed problems as well, so a formal
definition was given. An account is a formal banking relationship
established to provide/engage in services, dealings or other financial
transactions including deposit accounts, transaction accounts, asset
accounts, credit or extension of credit accounts, safety deposit
boxes, cash management/ trust services, and bank products and services
that relate to deposit, lending or custody of funds or other assets
on behalf of a customer. Some account issue examples are an account
opened by power of attorney for a competent person. In this case,
the customer is named power of attorney for the account. However,
if it is for someone who lacks legal capacity, then the person who
has power of attorney becomes the customer. If there is a situation
with a loan renewal or a COD then roll over, there is a new account
every time, however it does not require new CIP information each
time.
The extent to which CIP is needed or if it is needed at all is an
issue of many banks, so banks have been given a good idea of what
they need and how long they need it for. First, they must have a
taxpayer ID number or be in the process of applying for one. A trust
must have a trust taxpayer ID that is the employer’s employee
identification number or EIN. The bank does not have to establish
the accuracy of every document received; they just need to know
that what they have allows them to know the true identity of the
client. For banks to prove that they know a customers true identity,
they must show that they have an active, longstanding relationship
through history of account statements, information sent to the IRS
and loans that were made and repaid. The banks must keep all of
the CIP documents that they use. The original identifying information
must be kept along with anything else acquired for at least 5 years
after the account has been terminated.
Related Information:
Contact Nichols,
Cauley & Associates by Email,
phone, or online
form with your questions.
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