Chapter 11 – USA IRS AML KYC Regulations

USA IRS AML KYC Regulations

US IRS Regulations on AML (Anti-Money Laundering) and KYC (Know Your Customer)

1. Revenue Procedure 2000-12: The IRS requires qualified intermediaries (QIs) to have approved know-your-customer (KYC) rules and procedures for opening accounts and responses to 18 specific questions listed in the revenue procedure. The IRS maintains a list of approved countries’ KYC rules and procedures.
2. Bank Secrecy Act (BSA): The BSA requires financial institutions to develop and maintain an ongoing AML program, including KYC procedures. This includes:
   1. Customer identification programs (CIPs) to establish and verify customer identities.
   1. Ongoing monitoring of customer activity to detect and report suspicious transactions.
   1. Reporting of suspicious activity to the Financial Crimes Enforcement Network (FinCEN).
3. Patriot Act: The USA PATRIOT Act amended the BSA to require financial institutions to develop measures to counter terrorist financing. This includes:
   1. Customer identification and verification procedures.
   1. Compliance policies and procedures to prevent terrorist financing.
   1. Reporting of transactions linked to suspected terrorist financing.
4. Customer Due Diligence (CDD) Final Rule: The CDD Final Rule requires financial institutions to establish and verify the identity of all beneficial owners of corporate customers.
5. KYC/AML Onboarding and Compliance: Effective KYC/AML oversight involves:
   1. Thorough customer due diligence, including verification of identity and address.
   1. Ongoing monitoring of customer activity to detect and report suspicious transactions.
   1. Reporting of suspicious activity to FinCEN.

Key entities and individuals involved in US IRS regulations on AML and KYC include:

• Financial Crimes Enforcement Network (FinCEN)
• Internal Revenue Service (IRS)
• Qualified Intermediaries (QIs)
• Financial institutions (banks, credit unions, etc.)
• Compliance officers and risk management teams

Note: the importance of compliance with AML and KYC regulations, emphasizing the need for financial institutions to have robust programs in place to prevent money laundering, terrorist financing, and other financial crimes.