CIP requirements for business account signers can be a confusing subject for some. While it would seem natural to require CIP for anyone opening an account, that isn’t technically what the rules require, especially when it comes to business accounts. Therefore, let’s take a deep dive into the CIP requirements and how they apply to business account signers.
Understanding the CIP Requirements
To determine if CIP is required on business account signers, it is important to discuss what CIP is and why we must do it. BSA requirements state that each financial institution must establish a customer identification program (CIP) which will help the financial institution to form a reasonable belief that it knows the true identity of each customers.
In order to form this belief, a CIP program must contain two main elements. First, the CIP program must collect some basic information including the name, address, date of birth (for individuals) and an identification number. Next, a CIP program must verify the identity of the person opening the account. This step includes both verification through documents (such as a driver’s license or articles of incorporation) as well as non documentary verification, which could be completed by reviewing a credit report for loans or a chexsystems report for deposit accounts. Every program will be slightly different as financial institutions are required to design their programs based on the size and complexity of their organization.
The bottom line with a CIP program is that the financial institution must form a reasonable belief that they know the true identity of the person they are opening the account for. Otherwise, the account should not be opened.
Is a Business Account Signer a Customer?
When conducting CIP for a new business account, it is important to understand who the customer actually is, as the customer is the one which must go through the CIP process. Basically, the question becomes this: Is a signer on a business account considered a customer for CIP purposes?
In short, the answer is no. The financial institution's customer is actually the business. Thereore, CIP must be performed on the business (i.e. the customer) and not on each signer. That said, many financial institutions go above and beyond in their policies by requiring CIP to be performed on each signer on a business account, meaning that if a policy requires the CIP of a business account signer, the financial institution should follow that policy.
The FFIEC BSA Exam Manual explains how CIP applies to a customer as follows:
“The CIP rule applies to a "customer." A customer is a "person" (an individual, a corporation, partnership, a trust, an estate, or any other entity recognized as a legal person) who opens a new account, an individual who opens a new account for another individual who lacks legal capacity, and an individual who opens a new account for an entity that is not a legal person (e.g., a civic club). A customer does not include a person who does not receive banking services, such as a person whose loan application is denied.43 The definition of "customer" also does not include an existing customer as long as the bank has a reasonable belief that it knows the customer’s true identity.44 Excluded from the definition of customer are federally regulated banks, banks regulated by a state bank regulator, governmental entities, and publicly traded companies (as described in 31 CFR 1020.315(b)(1) through (4)).”
All of that said, it is important to understand that there are instances where a financial will require a business owner to also be obligated on the legal contract, such as is often the case with loans. In those cases where both the business and the owner (individually) are listed on the contract (signature card or promissory note), there are actually two customers and both must go through the CIP process.
The bottom line is that additional signers on a business account who are not also owners of the account are not considered to be a customer under CIP rules, and are not required by BSA rules to go through the CIP process.
UBO Rules and CIP on Business Signers
One caveat to all of this occurs if a business account signer happens to also be an ultimate beneficial owner of the account. When a signer qualifies as a beneficial owner (ownership prong or control prong), then the signer would be required to go through the CIP process as an ultimate beneficial owner. To clarify, the signer must go through CIP because they are considered a beneficial owner, not because they are an account signer.