CIP Rule: Who Is a Customer? What Entities Are Excluded from Customer Status?
As per Section 326 (CIP Rule) of the USA PATRIOT Act, the Customer Identification Program (CIP) rule applies to any customer that is opening an account or establishing a formal banking relationship with a financial institution.
How Anti-Money Laundering (AML) Regulators Define Who Is a Customer
AML regulators define a customer as any individual or legal entity (e.g., corporations, non-profit entities, and trusts) who:
- opens an account, engaging in a relationship
- opens an account for another individual who lacks legal capacity, or
- contracts directly with a financial institution for the provision of financial products and services
Excluded from “Customer” Status
Below are entities and individuals that are not considered as customers from an AML regulatory perspective:
- federally regulated banks
- governmental agencies and financial regulators
- state-regulated banks and other financial institutions
- publicly traded companies
- a “customer” does not include any individual or entity that begins a process but then ends up getting declined at the initial stage. For example, an individual or entity whose loan application was denied due to credit issues.
In situations when an account is opened by an agent or person with power of attorney on behalf of another (competent person), the individual with power-of-attorney status is not the customer.
The customer is the competent person for whom the account has been opened.
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On the other hand, when an account is opened by an agent or person with power of attorney on behalf of another person who is “incompetent” or lacks “legal capacity,” then the customer will be the agent or person with power of attorney.
In those situations, where an account has been opened to act as a pension account, employee benefit plan, employer-provided retirement account or stock option employee account, the following entities are considered as the “customer.”
- When the above accounts have been established by a trust, then the bank’s “customer” will be the trust.
- When the above accounts have not been set up by a trust, then the financial firm’s “customer” will be the employer or investment company/manager that has contracted with the bank to establish the account.
Data processing, transfer of data, and information warehousing and data storage on behalf of a third party are not considered as providing an “account.”
Regulated Financial Institutions (Correspondent Banking Clients)
Although the CIP rule exempts regulated banks (commercial banks, bank holding companies, credit unions, etc.) from the Customer Identification Program, most financial firms have a policy of performing CIP on all of their relationships, regardless of the CIP rule exemption.
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