Who counts as a beneficial owner of a legal entity customer under the CDD rule?

A beneficial owner of a legal entity customer is each individual who owns 25 percent or more of its equity interests, plus one individual with significant responsibility to control, manage, or direct it. The rule is written for covered financial institutions, and the library entry for it lists banks and broker-dealers as the institutions it applies to, so MSB, stablecoin and fintech readers should confirm whether it reaches them directly or only through a bank partner's onboarding requirements.

What the rule says:

• Ownership prong: each individual, if any, who directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, owns 25 percent or more of the equity interests (31 CFR 1010.230(d)(1)).
• Control prong: a single individual with significant responsibility to control, manage, or direct the entity. This includes an executive officer or senior manager (for example, a Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Managing Member, General Partner, President, Vice President, or Treasurer), or any other individual who regularly performs similar functions (31 CFR 1010.230(d)(2)).
• If a trust owns 25 percent or more, the beneficial owner for the ownership prong is the trustee (31 CFR 1010.230(d)(3)).
• If an entity listed in paragraph (e)(2) as not being a legal entity customer owns 25 percent or more, no individual need be identified for that entity's interests (31 CFR 1010.230(d)(3)).
• Pooled investment vehicles operated or advised by a financial institution not excluded under (e)(2), and nonprofit corporations or similar entities that have filed organizational documents with the appropriate State authority as necessary, are subject only to the control prong (31 CFR 1010.230(e)(3)).

In practice:

• Plan for up to four individuals under the ownership prong, depending on the facts, and exactly one under the control prong (Note to paragraph (d)).
• The same person may satisfy both prongs, so check for overlap before counting people (Note to paragraph (d)).
• Apply the 25 percent test to indirect holdings and arrangements, not just names on the cap table (31 CFR 1010.230(d)(1)).
• You may identify additional individuals if you deem it appropriate on the basis of risk (Note to paragraph (d)).

The full list of excluded entity types is in 31 CFR 1010.230(e)(2); check it for your customer.

Sources

1. 31 CFR § 1010.230(d)(1)-(3), (e)(2): https://www.law.cornell.edu/cfr/text/31/1010.230
2. 31 CFR 1010.230 (eCFR): https://www.ecfr.gov/current/title-31/section-1010.230

This answer is general information, not legal advice. Forteris is not a law firm.