AML/KYC: Identifying Beneficial Owners of Legal Entities

When a business opens a bank account in the United States, federal law requires the bank to identify the real people behind the entity. The process for identifying beneficial owners of legal entities comes from 31 CFR 1010.230, the Customer Due Diligence (CDD) Rule, and it works through two tests: anyone who owns 25 percent or more of the company must be named, and one individual with significant control over the company must also be named. For each person listed, the bank collects a full legal name, date of birth, residential or business street address, and a Social Security number or passport number, all attested on a signed certification form.¹

Which Businesses Have to Do This

The rule applies to any entity created by filing a public document with a Secretary of State or similar office, any general partnership, and any comparable foreign entity that opens a U.S. account. That sweeps in corporations, LLCs, limited partnerships, and statutory business trusts.¹ FinCEN has confirmed that business trusts created by a state filing are included, but ordinary trusts, which are contractual arrangements between a grantor and trustee that typically require no state filing to form, are not.²

Sole proprietorships are not covered. A sole proprietorship has no legal existence separate from its owner, so the bank already knows who the owner is.

Foreign entities registered to do business in any U.S. state or tribal jurisdiction fall within the rule even if their primary operations are overseas.¹

The Two Tests for Beneficial Ownership

The rule uses two independent tests, the ownership prong and the control prong, so a single entity can produce multiple beneficial owners identified under different prongs.

The Ownership Prong

Any individual who directly or indirectly owns 25 percent or more of the equity interests in the entity must be identified.¹ Exactly 25 percent counts. Indirect ownership counts too: if you own 50 percent of Company A, and Company A owns 50 percent of Company B, your indirect stake in Company B is 25 percent, and you must be identified when Company B opens an account.

No one may meet this threshold. A company with five equal owners at 20 percent each has zero beneficial owners under the ownership prong. The control prong then fills the gap.

The Control Prong

Regardless of the ownership analysis, exactly one individual must be identified as having significant responsibility to control, manage, or direct the entity. This person typically holds a title like CEO, CFO, COO, Managing Member, General Partner, President, or Treasurer, though the rule reaches anyone who regularly performs similar functions.¹ Only one person needs to be named here, even if the management team is large.

Together, the two prongs guarantee that every account identifies at least one real person, the control person, and potentially more if significant equity holders exist.

When a Trust Owns Part of the Entity

Layered structures involving trusts raise a common question: who gets named? When a trust owns 25 percent or more of a legal entity customer, the trustee is identified as the beneficial owner under the ownership prong. If there are multiple co-trustees, the bank must collect and verify the identity of at least one, though it may choose to identify additional co-trustees based on its own risk assessment.³

If the trustee is itself a legal entity, such as a bank trust department or a law firm, that entity is listed as the beneficial owner under the ownership prong. The control prong still requires naming a natural person with management authority over the legal entity customer. Because the two prongs operate independently, naming only an institutional trustee does not satisfy both.³

Information to Provide for Each Beneficial Owner

For each person identified under either prong, the bank collects the following through a standardized Certification of Beneficial Owners form (Appendix A to the regulation) or an equivalent method:¹

Full legal name.
Date of birth.
A residential or business street address. Post office boxes do not qualify.
An identification number: a Social Security number for U.S. persons, or a passport number and country of issuance for non-U.S. persons. Foreign individuals may instead provide an alien identification card number or the number of another government-issued document that includes a photograph.

The form also requires the name and title of the natural person opening the account, plus the name and address of the legal entity. For each owner identified under the ownership prong, state the percentage of equity held. For the control person, indicate their title or the nature of their authority.

The person opening the account signs the certification, attesting that the information is true and accurate. Bring valid photo identification, an unexpired driver’s license or passport, for every individual listed, so the bank can verify identities on the spot. If a name mismatch, expired document, or address inconsistency surfaces, the bank will request additional documentation, and unresolved issues can result in the bank refusing to open the account or restricting access to an existing account’s funds.

When the Bank Has to Ask Again

Before 2026, banks had to collect beneficial ownership information every time a legal entity customer opened a new account, even if the customer already had other accounts at the same bank. On February 13, 2026, FinCEN issued an exceptive relief order (FIN-2026-R001) that narrowed the trigger significantly.⁴ Banks now must identify and verify beneficial owners in only three situations:

When a legal entity customer opens its first account with the institution.
When the bank has knowledge of facts that reasonably call into question the accuracy of previously collected beneficial ownership information.
When the bank’s own ongoing due diligence procedures indicate that an update is warranted.

Banks must still monitor accounts on an ongoing basis for suspicious transactions and, where risk warrants, update customer information including beneficial ownership details.⁵

Loan Renewals and Routine Reviews

Renewing a loan or rolling over a certificate of deposit creates a new account in the bank’s system, but the bank does not need to collect beneficial ownership information again if the customer confirms the previously provided information remains accurate and the bank has no reason to doubt it. Routine periodic reviews are not, by themselves, a trigger for re-collection.³

A genuine ownership change does trigger the obligation. If a co-founder sells their 30 percent stake, the new beneficial owner’s identity must be collected, certified, and verified. Minor updates like an address change for an existing verified owner can typically be handled through the bank’s normal record-updating processes without a full re-certification.³

Entities That Skip the Process Entirely

The regulation carves out entity types that do not qualify as “legal entity customers” and therefore have no beneficial ownership obligation at account opening. The major categories include:¹

Banks and credit unions regulated by a federal functional regulator or a state bank regulator.
Issuers with securities registered under the Securities Exchange Act of 1934 or that file reports under that Act.
Investment companies, investment advisers, exchanges, clearing agencies, and other entities registered with the SEC.
Registered commodity pool operators, commodity trading advisers, swap dealers, and similar CFTC-registered participants.
State-regulated insurance companies.
Public accounting firms registered under the Sarbanes-Oxley Act.
Bank and savings holding companies.
Pooled investment vehicles operated or advised by an excluded financial institution.
Non-U.S. governmental entities, but only those that engage exclusively in governmental rather than commercial activities.

Penalties for False Information

The person who signs the Certification of Beneficial Owners form attests under penalty of law that the information is true. Willfully providing false beneficial ownership information to a financial institution violates the Bank Secrecy Act. Under 31 U.S.C. 5322, a willful violation can bring a fine of up to $250,000, imprisonment for up to five years, or both.⁶

If the violation occurs while the person is also violating another federal law, or as part of a pattern of illegal activity involving more than $100,000 in a 12-month period, the maximum penalties double, to $500,000 in fines and 10 years in prison.⁶ A convicted person must also forfeit any profits gained from the violation and, if they were an officer or employee of a financial institution, repay any bonus received during the year of the violation or the following year.

How This Differs From the Corporate Transparency Act

The bank’s beneficial ownership process is separate from the beneficial ownership reporting requirement under the Corporate Transparency Act (CTA), which requires certain companies to file reports directly with FinCEN. As of March 26, 2025, FinCEN finalized an interim rule that exempts all domestic entities, every corporation, LLC, or other entity created by filing with a U.S. state or tribal office, from CTA reporting.⁷ Only foreign entities registered to do business in a U.S. state or tribal jurisdiction must file BOI reports with FinCEN.⁸

That exemption does not change the bank CDD requirement. Even if your LLC no longer files a BOI report with FinCEN, your bank still must identify and verify your beneficial owners when you open your first account there. The two obligations serve different purposes: the CTA creates a central federal registry, while the CDD rule ensures each financial institution knows who it is doing business with.

1
eCFR. 31 CFR 1010.230 – Beneficial Ownership Requirements for Legal Entity Customers
2
Financial Crimes Enforcement Network (FinCEN). FAQs for CDD Final Rule
3
Financial Crimes Enforcement Network (FinCEN). Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions
4
FinCEN.gov. FinCEN Issues Exceptive Relief to Streamline Customer Due Diligence Requirements
5
Financial Crimes Enforcement Network (FinCEN). FinCEN Exceptive Relief Order, FIN-2026-R001
6
Office of the Law Revision Counsel. 31 USC 5322 – Criminal Penalties
7
Financial Crimes Enforcement Network (FinCEN). Beneficial Ownership Information Reporting Requirement Revision and Deadline Extension
8
Financial Crimes Enforcement Network (FinCEN). Beneficial Ownership Information Reporting