On September 15, 2020, the Financial Crimes Enforcement Network (FinCEN) issued a final rule that requires state chartered non-depository trust companies, including private trust companies (PTCs), to implement anti-money laundering (AML) programs that comply with the Bank Secrecy Act (BSA). The rule became effective on November 16, 2020, and PTCs have until March 15, 2021, to comply with the rule.
A PTC is an entity formed and operated by one or more high-net-worth families to serve in fiduciary and non-fiduciary roles for the family members and their related trusts and entities. PTCs and other state chartered trust companies previously were exempt from the BSA’s AML requirements because the rules applied only to financial institutions with a federal functional regulator such as the Office of the Comptroller of the Currency or the US Securities and Exchange Commission. FinCEN decided to eliminate this exemption for financial institutions without a federal functional regulator to further reduce money laundering and the funding of terrorist activities that FinCEN believes could occur under that exemption.
The FinCEN rule establishes minimum AML/BSA requirements for PTCs and other state chartered non-depository trust companies. Specifically, all PTCs are now required to maintain an AML program, which must include:
Internal controls to ensure the PTC’s ongoing compliance with the BSA and its regulations
Independent testing of the PTC’s AML program by trust company personnel or an outside party
Designation of an individual responsible for coordinating and monitoring the PTC’s compliance with the BSA and its regulations
Training for appropriate PTC personnel
Appropriate risk-based procedures for conducting ongoing customer due diligence.
While the FinCEN rule sets out these general requirements, it does not impose a one-size-fits-all AML program for PTCs. Instead, each PTC is expected to review its operations, clients and general risk profile for money laundering activities to determine the appropriate AML program for that institution.
PTCs are already subject to certain BSA reporting requirements, such as implementing a customer identification program and client due diligence requirements, identifying beneficial owners of entities, and filing certain currency transactions reports and suspicious activity reports. PTCs should review their existing BSA policies before March 15, 2021, to ensure compliance with the current BSA reporting requirements and the new requirements imposed on PTCs under the FinCEN rule. Failure to comply with the new rule could result in penalties.
If you are involved in the operation of a PTC and would like more information on how this new rule affects your organization, please contact your regular McDermott lawyer.