The wait is finally over, after years of waiting we now have the final Customer Due Diligence Rule. This new rule will require financial institutions to enhance their AML programs to further scrutinize entity accounts and their beneficial owners. The panel will detail key requirements and dates while comparing the CDD rule to the EU 3rd directive.

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AML Enhanced Customer Due
Diligence - “Beneficial Owner
Rule”
September 14, 2016

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Agenda
• Purpose
• Introductions
• Background of the Rule
– Parallels to European Union / Panama Papers
• The Rule and effective Dates
• Operational Implications & Action
• What is coming next?
• Q & A

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Crissie Wisdom
AML Compliance Officer
Fraud prevention Manager
Invesco, Inc.
Crissie Wisdom is the Anti-Money Laundering Compliance Officer for
Invesco’s U.S. operations and serves as Fraud Prevention Manager for
Invesco’s U.S. transfer agency. In her role, Crissie coordinates and oversees
AML programs for Invesco’s two broker/dealers, the Invesco Funds, Invesco Trust Company and a
series of Registered Investment Advisers including Invesco Advisers, Invesco PowerShares and WL
Ross & Co.
A graduate of Texas Tech University, Crissie holds FINRA Series 6 and 26 licenses and is a certified
Anti Money Laundering Specialist (CAMS) and certified Fraud Examiner (CFE). Crissie currently
serves as a member of the Administrative Committee of the Invesco Trust Company Board of
Trustees.
crissie.wisdom@invesco.com

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Penny Whiting-Stewart
AVP/Sr. Operations Analyst
Wells Fargo Asset Management
Penny Whiting-Stewart, Assistant Vice President of Wells Fargo Funds
Management, has been with the company for over 16 years and brings
over 35 years’ experience in mutual funds, banking, back-office operations,
operational risk and compliance and regulatory support to the Transfer
Agency Operations group (TA Operations). Penny serves as an escalation point on behalf of TA
Operations for the Risk and Compliance, Legal, and Client Service teams. Her primary areas of
focus include operational risk and control, fraud mitigation, policies and procedures, audit
engagements, regulatory initiatives and prospectus review. Penny currently represents Wells
Fargo Funds Management on the DST Regulatory & Compliance Advisory Steering
Committee. She has also served as a member of the ICI Transfer Agent Advisory Committee and
ICI International Operations Advisory Committee on behalf of TA Operations.
penny.whiting.stewart@wellsfargo.com

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Jeff Clevenger
AML Compliance Officer
Waddell & Reed
Jeff Clevenger has been with Waddell & Reed since 2010 and is the AML
Compliance Officer and Assistant Vice President of Compliance Support.
He is responsible for the firm’s AML Program, excessive trade monitoring,
prospectus compliance and third party intermediary oversight. Prior to his
current position, Jeff worked for more than 15 years at Boston Financial Data Services as a
Compliance Officer and was responsible for the compliance operations of the Kansas City office.
Jeff earned an M.B.A. from University of Missouri in Kansas City.
jclevenger@waddell.com

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Greg Barner
Compliance Solutions Manager
DST Systems, Inc.
Greg is DST’s Compliance Solutions Manager where he is focused on
generating strategic compliance solutions across DST’s various business
lines. Throughout Greg’s career he has been responsible for the Asset
Management Regulatory department where he defined the product vision
and strategy while leading the System and Customer Support Center, Full Service AML
Compliance and Risk, Tax Reporting and Withholding, and Escheatment operational teams. Greg
serves as the Leader of the Regulatory Compliance Advisory Group Steering Committee, which
determines direction for our regulatory products with high ranking individuals from 20 of DST’s
largest clients. He also represents client interests through his participation in seminars and
webinars for industry hot topics. Greg earned a Bachelor of Business Administration in Computer
Information Systems from Central Missouri State University.
gmbarner@dstsystems.com

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Background of the Rule
Crissie Wisdom

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Make Room for the Fifth Pillar

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How Did We Get Here?
• In 2010, the U.S. issued guidance cautioning financial
institutions to evaluate the risk of beneficial owners but
stopped short of actually requiring that beneficial owners be
identified.
• In 2012, FinCEN issued a notice of proposed rulemaking for
beneficial owner identification.
• In May 2016 FinCEN finalized the Customer Due
Diligence/Beneficial Owner rule with very few changes from
the proposal.

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Panama Papers
Intermediaries
Hidden
Owners
Tax
Havens

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Can’t get to Panama?
Just go to Delaware
“The United States has been considered a laggard in the global
push to shine light on the murky world of shell companies.”
The New York Times April 2016
“It takes less than an hour to incorporate a company in
Delaware, and the state is so eager to attract businesses that the
office of its secretary of state stays open until midnight Monday
through Thursday — and until 10:30 p.m. on Friday. Nearly half
of all public corporations in the United States are incorporated in
Delaware.”
The New York Times June 2012

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The 4th AML Directive
“4MLD”
Customer Due Diligence
• Firms must determine extent of CDD required - Simplified,
Standard or Enhanced.
Beneficial Ownership
• Introduces a requirement for member states to establish a
central register to store beneficial ownership details
Politically Exposed Persons
• Expands definition of politically exposed to consider domestic
PEPs as well as foreign

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The Rule and effective Dates
Penny Whiting-Stewart

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Four core elements
• Customer identification and verification (CIP programs
currently satisfy this element);
• Beneficial ownership identification and verification;
• Understanding the nature and purpose of customer
relationships to develop a customer risk profile; and
• Ongoing monitoring for reporting suspicious transactions and,
on a risk-basis, maintaining and updating customer
information

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So, if my CIP obligations are met,
I’m good – right?
• Not so fast – The final rule defines “beneficial owner” using a
two-pronged test of ownership and control:
– Ownership Prong
• Identify each individual who owns 25% or more of the equity interests
• If no individual owns 25% or more, then no identification is noted under this prong
• A financial institution may, based on its own risk assessment, lower the percentage
threshold for all customers or its high risk customers, or
• It may require identification of other individuals who are not covered by the
beneficial ownership definition
– Control Prong
• Must identify one individual who exercises significant control
– NOTE: If an individual is both a 25% owner and meets the definition for control, the same individual
could be identified as a beneficial owner under both prongs.

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Verification of beneficial owners
• May collect beneficial owner information on standard certification form
(see Appendix A of the final rule), or by any other means that comply
https://www.gpo.gov/fdsys/pkg/FR-2016-05-11/pdf/2016-10567.pdf
• Must verify identity of beneficial owners by using existing risk-based CIP
practices.
– AML procedures must document approach to verify and procedures for
response when identity cannot be verified
– May rely on documentary or non-documentary methods as with CIP
• Obligation to update beneficial owner is triggered when the FI becomes
aware of information relevant to assessing or reevaluating the risk posed
by the customer/shareholder.
• Not required to validate the status of a beneficial owner.

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Understand the nature and
purpose
• Expected to identify transactions that are not normal for the
customer/shareholder – unusual activity
• Per FinCEN - should be consistent with existing rules and
guidance for unusual or suspicious activity

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Ongoing monitoring
• Conduct ongoing monitoring on a risk basis
– Maintain and update customer information when event triggered
– Identify and report suspicious transactions/activity
– “Customer” for this purpose also includes beneficial owners of legal
entity customers/shareholders

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Who’s in – Who’s out?
• Fully included entities:
– Corporations
– Limited Partnerships
– Limited Liability Companies
• Partially included entities (Control Prong only):
– Certain Charities and Non-profits
– Pooled investment vehicles managed by non-excluded FI’s
• Excluded entities:
– Most trusts
– Sole proprietorships or unincorporated associations
– Omnibus/Financial Intermediary underlying customers
– Entities already excluded by CIP rules
• ERISA Plans, Banks, Investment Advisers, Publicly Traded Companies

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Dates and other stuff!
• Effective date of the final rule:
– July 11, 2016, which is 60 days from the publication of the rule in the
Federal Register
• Implementation date:
– Implement and comply by May 11, 2018, two years from the date the
final rule was published in the Federal Register
• Record retention:
– Identification, certification form, any other ID info obtained = 5 yrs.
after account closure
– Description of documents relied on, non-documentary methods,
results of measures taken, resolution of discrepancies = 5 yrs. after the
record is made

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Operational
Implications & Action
Jeff Clevenger
with panelists

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Bottom Line for Operations
I’m a fund operations professional. What should
I be doing right now?

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What is Next?
• Fully define “beneficial owner” within your firm and develop a risk based approach
to verification
– Ownership and control prongs
– Clearly define when an owner is verified and what is necessary when
verification fails or is incomplete
• Update policy and procedures
– Risk based approach based on firm’s business model
– Customer identification and suspicious activity procedures
– Prospectuses and selling agreements
• Update forms and self service products
– Define beneficial owner on applicable forms
– At a minimum, must gather four data elements of any beneficial owners
• Communicate policy to business partners
– Financial advisors and third party intermediaries

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Question & Answer

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AML Enhanced Customer Due
Diligence - “Beneficial Owner
Rule”
Crissie Wisdom
AML Compliance Officer
Fraud prevention Manager
Invesco, Inc.
Penny Whiting-Stewart
AVP/Sr. Operations Analyst
Wells Fargo Asset Management
Jeff Clevenger
AML Compliance Officer
Waddell & Reed
Greg Barner
Compliance Solutions Manager
DST Systems, Inc.