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CDD is Another Example of the Need for AML Reform

In Congressional Testimony, TCH Association President Greg Baer raises concerns about CDD expectations and calls for passage of beneficial ownership legislation and AML reform


Sean Oblack


Washington, DC – Greg Baer, President of The Clearing House Association (TCH), today testified before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit.  The hearing focused on the implementation of FinCEN’s customer due diligence (CDD) rule.  In his testimony, Mr. Baer highlighted TCH’s support for the collection of beneficial ownership information but raised concerns with FinCEN’s rule as well as recent guidance regarding the implementation of the rule set to take effect next month.

In his testimony, Mr. Baer stated, “TCH believes that the CDD rule and its beneficial ownership information collection requirement will potentially provide law enforcement with useful information, primarily as they use ownership information to learn more about suspect companies or entities.  We particularly appreciate FinCEN’s efforts to give financial institutions some flexibility in how they collect and certify beneficial ownership information, which was the product of a commendable notice and comment process.”

However, Mr. Baer noted two concerns with the rule “first, the rule requires financial institutions to identify beneficial owners on a per-account basis and not a per-customer basis; and second, its preamble does not explicitly affirm FinCEN’s sole ultimate authority to determine CDD standards, and rather appears to leave the door open for further ad hoc interpretations by examiners.” He indicated that guidance recently released by FinCEN exacerbates these concerns.

More generally, Mr. Baer explained that CDD expectations could have real world consequences particularly for low- and moderate-income families and called for AML reform.

“Domestically, banks of all sizes report that current CDD requirements have increased the cost of opening new accounts, and may represent a majority of those costs.  Of course, disproportionate and heightened account opening requirements make low-dollar accounts for low- to moderate-income people much more difficult to offer and price.  While the connection is not immediately apparent, AML/CFT expense is clearly an obstacle to banking the unbanked, and a reason that check cashers and other forms of high-cost, unregulated finance continue to prosper.  The problem, of course, is that bank examiners do not internalize those costs.  And those in the government who do internalize those costs play no role in examining the performance of financial institutions,” Mr. Baer explained. 

TCH has long held that the government should collect beneficial ownership information and that law enforcement and financial institutions, who are legally obligated to determine ownership in the exercise of their BSA/AML obligations, should have access to it.  TCH is on the record in supporting bipartisan legislation in both the House and Senate to further combat the use of anonymous shell companies to finance criminal activity.  

About The Clearing House.  The Clearing House is a banking association and payments company that is owned by the largest commercial banks and dates back to 1853.  The Clearing House Payments Company L.L.C. owns and operates core payments system infrastructure in the United States and is currently working to modernize that infrastructure by building a new, ubiquitous, real-time payment system.  The Payments Company is the only private-sector ACH and wire operator in the United States, clearing and settling nearly $2 trillion in U.S. dollar payments each day, representing half of all commercial ACH and wire volume.  Its affiliate, The Clearing House Association L.L.C., is a nonpartisan organization that engages in research, analysis, advocacy and litigation focused on financial regulation that supports a safe, sound and competitive banking system. 


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