Due diligence procedure

The proposed rules regarding classification and action on pre-existing accounts are a significant departure from the guidance contained in the prior notices and include changes that should reduce the affected customer population and streamline the remediation process.

Pre-existing account requirements

These new guidelines put more focus on electronic searches and modify the types of documents that must be reviewed when paper searches are required. These reviews are still focused on specified US indicia, which have been expanded to include a US telephone number.

The biggest and, for many, the most welcome changes are the removal of the private banking distinction and a raised threshold for the enhanced due diligence process, to accounts with an aggregate value of 1,000,000 $.

For these “high value” accounts, FFIs will have to conduct paper searches that would be limited to documentation, current account files, and certain correspondence. FFIs would also be required to question any relationship managers associated with these accounts to confirm that they do not have actual knowledge the client is a US person.

Searches are not required for individual accounts that are not already documented as US with a balance or value of less than 50,000 $ or for certain insurance contracts or entity accounts not already documented as US with a balance or value of less than 250,000 $.

Another important change is the introduction of de-minimis levels for entity accounts and insurance contracts as well as the fact that enhanced due diligence will generally not be required in situations where the FFI has a valid Form W-8BEN and other documentary evidence on file.

The new rules also clarify the basis for identifying FFIs within the current entity population. 

New account requirements

Compared to previous notices, the proposed FATCA rules also simplify the documentation requirements for new accounts to some extent by relying more on existing Anti-Money Laundering (AML)/Know Your Customer (KYC) policies and requirements. New accounts include any accounts opened on or after the effective date of an FFI’s agreement with the IRS (generally 1 July 2013).

Generally, an FFI will be able to rely on a Form W-8 or other government citizenship or residency documentation (such as a passport) to establish an individual’s status as a foreign payee when opening an offshore account.

The FFI is required to review any documentation provided at account opening to determine if US indicia exists. If US indicia is identified as part of the review, the FFI must generally obtain additional documentation to support non-US status. 

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