A new federal rule that takes effect May 11 will require banks and credit unions to collect the names of anyone who owns at least 25% of the business — directly or indirectly — when that firm seeks to open a new account.
This means the next time you apply for a business credit card, you may be asked to fill out additional paperwork if you share ownership, requiring you to disclose the name, date of birth, address and Social Security Number of each business partner with at least a quarter stake in the company.
"The basic message for small business owners is they're going to need to have a little bit more information at their fingertips," says Troy Dye, Capital One's Spark Card Business CMO.
This rule is aimed at thwarting money launderers. Here's the explanation from the Financial Crimes Enforcement Network, or FinCEN:
"Covered financial institutions are not presently required to know the identity of the individuals who own or control their legal entity customers (also known as beneficial owners). This enables criminals, kleptocrats, and others looking to hide ill-gotten proceeds to access the financial system anonymously. The beneficial ownership requirement will address this weakness and provide information that will assist law enforcement in financial investigations, help prevent evasion of targeted financial sanctions, improve the ability of financial institutions to assess risk, facilitate tax compliance, and advance U.S. compliance with international standards and commitments."
Beyond collecting the information, banks also have to attempt to verify that what you disclose is true. You may be asked to supply "documentary verification," like a driver's license (or a photocopy of one) for each so-called beneficial owner.
Dye walked me through a demonstration of Capital One's online application changes. At most, this should add a minute or two to your application process, particularly if you've gathered your partners' personal information prior to filling out the application.
One other important note: At least in the case of Capital One, the issuer will only pull the credit of the person applying for the card. That means you don't have to worry about getting flagged if one of your co-owners has some credit dings.
How to Know If You Have Beneficial Owners
This new rule certainly will apply to your company if you have multiple direct owners with at least a 25% share. But it also applies if your company is owned in part by another firm or entity in which investors in that firm indirectly own 25% of your business.
For purposes of the rule, a beneficial owner also includes "a single individual with significant responsibility to control, manage, or direct a legal entity customer, including an executive officer or senior manager...."
This rule won't apply to you if you're a sole proprietor.
Some Credit Situations Are Exempt
Going forward, whenever your business applies for a bank loan or a business credit card, you'll be asked to disclose any beneficial owners. There are two relevant situations where this won't apply:
- During point-of-sale credit applications, which includes store credit cards. "The point of sale exemption is provided for retail credit accounts opened to facilitate purchases made at the retailer because of the very low risk posed by opening such accounts at the brick and mortar store," FinCEN says.
- When financing the purchase or lease of equipment. "The exemption is intended to cover business equipment such as farm equipment, construction machinery, aircraft, computers, printers, photocopiers, and automobiles that a business purchases or leases."
H/T: Nav
