Legal Q&A: NPCs Covered by CDD Requirements for Certification of Beneficial Ownership

Q: Are non-profit corporations covered by the customer due diligence requirements for certification of beneficial ownership?

A: Yes. All corporations that file articles of incorporation with the State of Wisconsin are covered by the Customer Due Diligence (CDD) Rule regardless of non-profit status.

The CDD Rule requires covered financial institutions to develop written procedures to identify and verify beneficial owners of legal entity customers upon opening of new account. A legal entity customer is described, in part, as a Corporation, limited liability company, or other entity that is created by the filing of a public document with a Secretary of State. Thus, a non-profit corporation would be a legal entity customer for purposes of the CDD rule.

The key determination is whether the customer is a "legal entity customer." Tax status, such as non-profit status, does not directly affect a customer's legal entity status. Meaning, a non-profit organization such as a church could decide to incorporate, file articles of organization, or otherwise file with the State and be covered by the CDD Rule. Typically, however, a non-profit organization will opt for an unincorporated association status. Unincorporated associations are not legal entity customers and are not covered by the CDD rule. Wisconsin's Uniform Unincorporated Nonprofit Association Act can be found under chapter 184 of the Wisconsin Statutes.

For this reason, non-profits are often exempt from the CDD rule. This is, however, by their decision to organize as an unincorporated association rather than their tax status.

Note: The above information is not intended to provide legal advice; rather, it is intended to provide general information about banking issues. Consult your institution's attorney for special legal advice or assistance.

By, Scott Birrenkott