Section 3. Due Diligence Requirements

for Documentation and Identification of Account Holders and Nonparticipating FFI Payees.

.01 In General. The due diligence procedures described in this section 3 generally apply to a participating FFI. The participating FFI must perform the due diligence procedures described in this section 3 to determine which of the accounts that it maintains are (i) U.S. accounts, (ii) accounts held by recalcitrant account holders, (iii) accounts held by nonparticipating FFIs, or (iv) non-U.S. accounts. A participating FFI that makes a withholdable payment to a payee other than an account holder must also perform due diligence procedures described in this section 3 to determine if withholding is required under section 4 of this agreement.

A reporting Model 2 FFI must perform the due diligence procedures described in Annex I of the applicable Model 2 IGA with respect to all accounts that such reporting Model 2 FFI maintains within the Model 2 IGA jurisdiction unless the reporting Model 2 FFI elects to apply the due diligence procedures of this agreement, as described in this section 3. A reporting Model 2 FFI may apply the due diligence procedures described in section 3.02 of this agreement separately for each section of Annex I (for example, preexisting entity accounts) with respect to all accounts or with respect to any clearly identified group of accounts (such as by line of business or the location where the account is maintained). Except as provided for the two year period following the date that an applicable Model 2 IGA has entered into force, a reporting Model 2 FFI that applies the due diligence procedures of section 3.02 of this agreement with respect to certain accounts must continue to apply these procedures consistently to these accounts in all subsequent years unless there has been a material modification to section 3.02 of this agreement or §1.1471–4(c). With respect to the two-year period beginning on the date that an applicable Model 2 IGA has entered into force, a reporting Model 2 FFI may apply either the due diligence procedures described in section 3.02 of this agreement or those described in Annex 1 of the applicable Model 2 IGA with respect to

any clearly identified group of accounts, without being bound to a particular set of due diligence rules, so long as the application does not frustrate the purpose of the Model 2 IGA, and only to the extent due diligence procedures with respect to such accounts commenced prior to entry into force of the applicable Model 2 IGA. Notwithstanding the foregoing, a reporting Model 2 FFI must apply the due diligence procedures of section 3.02(B) of this agreement with respect to an entity payee other than an account holder that is receiving a withholdable payment.

.02 Due Diligence Procedures.

(A) Identification and Documenta- tion of Account Holders. A participating FFI is required to determine the chapter 4 status of each holder of an account maintained by the participating FFI and to identify each account that is a U.S. account, non-U.S. account, account held by a recalcitrant account holder, or account held by a nonparticipating FFI. For this purpose, the participating FFI is required to apply the due diligence procedures for accounts to the extent, and in the manner, required under §1.1471–4(c) within the applicable time periods described in §1.1471–4(c)(3), (c)(4), and (c)(5). As provided in §1.1471–1(b)(104)(i), an obligation held by an entity that is opened, issued, or executed on or after July 1, 2014, and before January 1, 2015, may be treated as a preexisting obligation for purposes of implementing the applicable due diligence procedures. However, the timeframes provided in §1.1471–4(c)(3) apply to all preexisting obligations held by an entity, including those obligations described in the preceding sentence. A participating FFI that is unable to reliably associate valid documentation with an account holder to determine the chapter 4 status of such account holder under such required procedures must apply the presumption rules of section 3.04 of this agreement. See also §1.1471–4(d)(2) for other account holders to which a participating FFI’s due diligence requirements apply (e.g., account holders of a territory FI, sponsored FFI, or owner-documented FFI).

(B) Identification and Documenta- tion of Certain Payees other than Ac-

count Holders. For determining when withholding is required under section 4 of this agreement, a participating FFI is, prior to payment, required to reliably associate the payment with documentation that meets the requirements of section 3.03(B) of this agreement when making a withholdable payment to an entity payee. If an account holder receives a withholdable payment and is not treated as the payee of the payment, in addition to documenting the chapter 4 status of the account holder, the participating FFI is also required to establish the chapter 4 status of the payee or payees to determine whether withholding is required under section 4 of this agreement. See, however, §1.1471–3(e)(4)(vi) for when a participating FFI may rely on the chapter 4 status of a payee provided by another participating FFI or registered deemed-compliant FFI that is acting as an intermediary or that is a flow-through entity with respect to the payee. Except as otherwise provided in section 4.02(A) of this agreement, a participating FFI must apply the presumption rules of section 3.04 of this agreement to determine the chapter 4 status of a payee if, prior to the time of payment, it cannot reliably associate the payment with documentation meeting the requirements of section 3.03(B) of this agreement. See, however, §1.1471–3(c)(7) for requirements that apply for documentation received after the date of a payment. With respect to a preexisting account, a participating FFI must, to the extent required under §1.1471–4(c), determine the chapter 4 status of the payee within the applicable time period described in §1.1471– 4(c)(3) or, if unable to do so, must apply the presumption rules of section 3.04 of this agreement to determine the chapter 4 status of a payee.

.03 Additional Requirements for Identification and Documentation of Account Holders and Payees.

(A) In General. To the extent that the participating FFI is required to retain a record of the documentation collected (or otherwise maintained) to establish the chapter 4 status of an account holder or payee, the participating FFI must do so in accordance with the requirements of §1.1471–4(c)(2). The participating FFI

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must also institute procedures that meet the requirements of §1.1471–4(c)(2) to ensure that any change in circumstances (defined in section 2.10 of this agreement) is identified with respect to an account.

(B) Requirements for Documentation.

(1) In General. To the extent the participating FFI obtains withholding certificates, substitute certification forms, written statements, or documentary evidence to document an account holder or payee, such documentation must meet the requirements set forth in §1.1471–3(c). Sections 1.1471–3(c)(3) through (5) provide the requirements of valid withholding certificates, written statements, and documentary evidence. Section 1.1471–3(c)(6) provides other applicable rules for withholding certificates, written statements, and documentary evidence, including their periods of validity and electronic transmission requirements. Sections 1.1471–3(c)(8) and (9) provide requirements related to the sharing of documentation and reliance by a participating FFI on documentation collected by another person. A participating FFI must obtain the documentation specified in §1.1471– 3(d) to establish the chapter 4 status of an entity account holder or an entity payee. A participating FFI may rely on documentation that meets the requirements of §1.1471–3(c) until the earlier of the expiration date of such documentation or the date there is a change in circumstances that affects the account holder or payee’s claim of chapter 4 status. If the participating FFI is unable to obtain the required documentation within 90 days of a change in circumstances, the participating FFI must apply the presumption rules of section 3.04 of this agreement with respect to the account or payee until valid documentation is obtained upon which the FFI is permitted to rely.

(2) Requirements for Reporting Model 2 FFIs. To the extent a reporting Model 2 FFI applies the due diligence procedures described in Annex I of the applicable Model 2 IGA with respect to an account, such documentation or publicly available information used to document the account must meet the requirements described in the applicable Model 2 IGA. In the case of documentation, the report

ing Model 2 FFI may rely on such documentation until the earlier of the expiration date of such documentation or the date there is a change in circumstances that affects the account holder or payee’s claim of chapter 4 status. In the case of publicly available information, the reporting Model 2 FFI may rely on such information until the date there is a change in circumstances that affects the account holder or payee’s claim of chapter 4 status. Upon the expiration of the documentation or a change in circumstances, the reporting Model 2 FFI must obtain new or additional documentation or must redetermine the status of the account in accordance with the due diligence procedures described in Annex I of the applicable Model 2 IGA. If an account holder of a new account (as defined in the applicable Model 2 IGA) has a change in circumstances that would cause such account to be treated as a U.S. account and the account holder refuses to provide consent for such account to be reported, the reporting Model 2 FFI must report the account as a non-consenting U.S. account as described in section 6.03(B) of this agreement.

.04 Presumption Rules in Absence of Valid Documentation. If the participating FFI is required to, but is unable to, obtain documentation (or a record of documentation) that meets the requirements of this section 3 within the applicable time period described in section 3.02 of this agreement, or if the participating FFI knows or has reason to know that documentation provided for an account holder or payee is unreliable or incorrect, as determined applying the standards of knowledge described in §1.1471–4(c)(2), or as determined under Annex I of the applicable Model 2 IGA in the case of a reporting Model 2 FFI that applies such procedures with respect to an account, the FFI is required to apply the presumption rules described in this section 3.04 until valid documentation is provided for the account holder or payee upon which the FFI is permitted to rely. However, following a change in circumstances, a participating FFI may continue to treat otherwise valid documentation previously provided by an account holder or payee as valid and rely on such documentation until the earlier of 90 days following the change in circum

stances or the date new documentation is obtained upon which the participating FFI may rely to document the chapter 4 status of the account holder or payee. See, however, §1.1441–1(e)(4)(ii)(D) for requirements when a change in circumstances occurs for purposes of chapter 3 and the related grace period allowed under §1.1441–1(b)(3)(iv), to the extent a withholdable payment that is also a reportable amount (as defined in §1.1441– 1(c)(22)) is made to the account holder or payee.

(A) Entity Payee or Account Held by an Entity. With respect to a withholdable payment made to an entity payee, a participating FFI must apply the presumption rules of §1.1471–3(f). The presumption rules of §1.1471–3(f) also apply to an account held by an entity. However, in the case of an account held by a passive NFFE that provides the documentation described in §1.1471–3(d)(12) to establish its status as a passive NFFE but fails to provide the information regarding its owners required under §1.1471–3(d)(12)(iii), the participating FFI must treat the account as held by a recalcitrant account holder in accordance with §1.1471–5(g)(2)(iv).

(B) Account Held by an Individual. With respect to an account held by an individual, a participating FFI must treat the account as held by a recalcitrant account holder in accordance with §1.1471– 5(g) and classify the type of recalcitrant account holder in accordance with the pools described in §1.1471–4(d)(6).

(C) Presumption Rules for an Entity Account Holder of a Reporting Model 2 FFI. To the extent a reporting Model 2 FFI applies the due diligence procedures described in Annex I of the applicable Model 2 IGA, the FFI must determine the status of the account as a U.S. account, non-consenting account, or a nonparticipating FFI by applying such procedures. With respect to a withholdable payment made to an entity account holder of a reporting Model 2 FFI, if the reporting Model 2 FFI is unable to document the entity account consistent with the procedures described in Annex I, the reporting Model 2 FFI must apply the presumption rules described in §1.1471–3(f). With respect to a withholdable payment made to an entity payee that is not an account holder, a reporting Model 2 FFI must ap

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ply the presumption rules of §1.1471– 3(f). A reporting Model 2 FFI that has undocumented accounts may be determined to be significantly non-compliant with the requirements of an applicable IGA.