[Federal Register Volume 67, Number 104 (Thursday, May 30, 2002)]
[Proposed Rules]
[Pages 37736-37744]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-13411]
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DEPARTMENT OF THE TREASURY
31 CFR Part 103
RIN 1506-AA29
Financial Crimes Enforcement Network; Due Diligence Anti-Money
Laundering Programs for Certain Foreign Accounts
AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: Treasury and FinCEN are issuing a proposed regulation to
implement section 312 of the USA PATRIOT Act of 2001, which requires
U.S. financial institutions to establish due diligence policies,
procedures, and controls reasonably designed to detect and report money
laundering through correspondent accounts and private banking accounts
that U.S. financial institutions establish or maintain for non-U.S.
persons.
DATES: Written comments may be submitted to FinCEN on or before July 1,
2002.
ADDRESSES: Submit comments (preferably an original and four copies) to
FinCEN, P.O. Box 39, Vienna, VA 22183, Attn: Section 312 Regulations.
Comments may also be submitted by electronic mail to
[email protected] with the caption in the body of the text,
``Attention: Section 312 Regulations.'' Comments may be inspected at
FinCEN between 10 a.m. and 4 p.m. in the FinCEN Reading Room in
Washington, DC. Persons wishing to inspect the comments submitted must
request an appointment by telephoning (202) 354-6400 (not a toll-free
number).
FOR FURTHER INFORMATION CONTACT: Office of the Assistant General
Counsel for Enforcement (Treasury), (202) 622-1927; the Office of the
Assistant General Counsel for Banking and Finance (Treasury), (202)
622-0480; or Office of the Chief Counsel (FinCEN), (703) 905-3590 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
I. Background
On October 26, 2001, President Bush signed into law the USA PATRIOT
Act of 2001, Public Law 107-56 (the Act). Title III of the Act,
captioned ``International Money Laundering Abatement and Anti-Terrorist
Financing Act of 2001,'' includes certain amendments to the Bank
Secrecy Act (BSA), 31 U.S.C. 5311 et seq., intended to aid in the
prevention, detection, and prosecution of international money
laundering and terrorist financing.
Section 312 of the Act adds new subsection (i) to 31 U.S.C. 5318.
This provision requires each U.S. financial institution that
establishes, maintains, administers, or manages a private banking
account or a correspondent account in the United States for a non-U.S.
person to take certain anti-money laundering measures with respect to
such accounts. In particular, financial institutions must establish
appropriate, specific, and, where necessary, enhanced, due diligence
policies, procedures and controls that are reasonably designed to
enable the financial institution to detect and report instances of
money laundering through those accounts.
In addition to this general requirement, which applies to all
correspondent and private banking accounts for non-U.S. persons,
section 312 of the Act specifies additional standards for certain
correspondent accounts. For a correspondent account maintained for a
foreign bank operating under an offshore license or a license granted
by a jurisdiction designated as being of concern for money laundering,
a financial institution must take reasonable steps to identify the
owners of the foreign bank, to conduct enhanced scrutiny of the
correspondent account to guard against money laundering, and to
ascertain whether the foreign bank provides correspondent accounts to
other foreign banks and, if so, to conduct appropriate related due
diligence.
Section 312 also sets forth minimum standards for the due diligence
requirements for a private banking account for a non-U.S. person.
Specifically, a financial institution must take reasonable steps to
ascertain the identity of the nominal and beneficial owners of, and the
source of funds deposited into, the private banking account, as
necessary to guard against money laundering. The institution must also
conduct enhanced scrutiny of private banking accounts requested or
maintained by or on behalf of senior foreign political figures (or
their family members or close associates). Enhanced scrutiny must be
reasonably designed to detect and report transactions that may involve
the proceeds of foreign corruption.
Section 312(b)(2) provides that subsection 5318(i) takes effect on
July 23, 2002, and applies with respect to accounts covered by the
requirement, regardless of when they were opened.
II. The Proposed Rule
The proposed rule, which was developed by Treasury in consultation
with the staffs of the Federal functional
[[Page 37737]]
regulators, requires covered financial institutions (which for purposes
of this provision includes all U.S. financial institutions required
under Treasury regulations to establish an anti-money laundering
program) to implement programs to ensure that the due diligence
requirements of the Act are met. The proposed regulation sets forth
certain minimum requirements and otherwise adopts a risk-based
approach, permitting covered financial institutions to tailor their
programs to their own lines of business, financial products and
services offered, size, customer base, and location. The proposed rule
contemplates that covered financial institutions will pay close
attention to the risks presented by different foreign financial
institution and private banking customers, the jurisdictions in which
they operate, and the types of transactions for which the accounts are
used. A covered financial institution's program under the proposed rule
should include evaluation and consideration of any risks associated
with these and other relevant factors. Covered financial institutions
are expected to exercise sound business judgment in complying with the
proposed rule and in addressing risks presented by foreign financial
institution and private banking customers.
Treasury intends covered financial institutions to incorporate the
due diligence programs required under the proposed rule into their
existing programs under the BSA; it is not necessary for these
financial institutions to establish separate programs for correspondent
and private banking account due diligence. All federally insured
depository institutions and credit unions are currently subject to
regulations requiring them to maintain BSA compliance programs,\1\ as
are casinos.\2\ In addition, effective April 24, 2002, securities
broker-dealers, futures commission merchants and introducing brokers
were required by section 352 of the Act and by rules of their
respective self-regulatory organization to develop and implement anti-
money laundering programs.\3\ Also, on April 23, 2002, FinCEN issued
interim final regulations under section 352 requiring mutual funds,
money services businesses, and operators of credit card systems to
establish anti-money laundering programs.\4\ These program requirements
include, at a minimum, (1) internal policies, procedures and controls
to ensure ongoing BSA compliance; (2) the designation of a compliance
officer; (3) an ongoing employee training program; and (4) an
independent audit function to test programs.
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\1\ See 12 CFR 21.21 (Office of the Comptroller of the Currency
(OCC)); 12 CFR 208.63 (Board of Governors of the Federal Reserve
System (Federal Reserve)); 12 CFR 326.8 (Federal Deposit Insurance
Corporation (FDIC)); 12 CFR 563.177 (Office of Thrift Supervision
(OTS)); 12 CFR 748.2 (National Credit Union Administration).
\2\ 31 CFR 103.64
\3\ See NASD Regulation Rule 3011 and NYSE Rule 445, approved by
the Securities and Exchange Commisison (SEC) on April 22, 2002,
Release No. 34-45798, 67 FR 20854 (April 26, 2002); National Futures
Association Compliance Rule 2-9(c), approved by the Commodity
Futures Trading Commission on April 23, 2002.
\4\ 67 FR 21110 (April 29, 2002).
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III. Section-by-Section Analysis
1. Overview.
On December 28, 2001, Treasury published in the Federal Register a
notice of proposed rulemaking to implement sections 313 and 319(b) of
the Act (the Section 313/319 NPRM).\5\ This proposed rule concerned
provisions that: prohibit certain financial institutions from providing
correspondent accounts to foreign shell banks; require such financial
institutions to take reasonable steps to ensure that correspondent
accounts provided to foreign banks are not being used to indirectly
provide banking services to foreign shell banks; require certain
financial institutions that provide correspondent accounts to foreign
banks to maintain records of the ownership of such foreign banks and
their agents in the United States designated for service of legal
process for records regarding the correspondent account; and require
the termination of correspondent accounts of foreign banks that fail to
turn over their account records in response to a lawful request of the
Secretary of the Treasury (Secretary) or the Attorney General. The
Section 313/319 NPRM proposed to codify these requirements in a new
Part 104 of title 31 of the Code of Federal Regulations.
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\5\ 66 FR 67460 (Dec. 28, 2001).
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The interim final rules published by Treasury on April 29, 2002,
concerning anti-money laundering programs under section 352 of the Act,
were codified in a new Subpart I of Part 103 of title 31 of the Code of
Federal Regulations.
For clarity and convenience concerning the obligations of financial
institutions with respect to the related requirements of sections 312,
313, 319(b), and 352 of the Act, Treasury intends to codify all of the
regulations implementing these sections in Subpart I of Part 103.
Accordingly, the ``reserved'' definitions in proposed section 103.175
are for terms used in the Section 313/319 NPRM that are not relevant
for purposes of this proposed rule under Act section 312. In addition,
``reserved'' [sect][sect] 103.177, 103.185, and 103.190 correspond to
the three sections proposed in the Section 313/319 NPRM.
2. Section 103.175 B Definitions.
The proposed rule defines beneficial ownership interest to mean any
noncontingent legal authority to fund, direct, or manage an account, or
noncontingent legal entitlement to all or any part of the corpus or
income of the account (other than an interest of less than the lesser
of $1,000,000 or five percent of either the corpus or income of the
account). Thus, the holder of any current right to any assets in a
private banking account whose interest exceeds the minimum threshold
would need to be identified; however, a financial institution would not
be obliged to identify holders of contingent rights in an account, such
as inheritance or similar interests.
The proposed rule's definition of correspondent account is the
definition in 31 U.S.C. 5318A(e) (as added by section 311 of the Act)
and is statutorily applicable for purposes of 31 U.S.C. 5318(i) with
respect to banks. The proposal defines the term to mean an account
established to receive deposits from, make payments on behalf of a
foreign financial institution, or handle other financial transactions
related to such institution. In the case of a U.S. bank, this broad
definition would include most types of banking relationships between a
U.S. bank and a foreign financial institution. In the case of
securities broker-dealers, futures commission merchants, and
introducing brokers, a correspondent account would include any account
that permits the foreign financial institution to engage in securities
or futures transactions, funds transfers, or other types of financial
transactions. With respect to the other types of covered financial
institutions, a correspondent account would include any account such
financial institution maintains for a foreign financial institution
that falls within the definition: an account for receiving deposits
from, making payments on behalf of, or handling other transactions
related to such foreign financial institution. Treasury received many
comments in connection with the Section 313/319 NPRM regarding the
breadth of the definition of the term correspondent account for
depository institutions and securities broker-dealers, and is
continuing to consider those comments. Treasury is using the same
definition as in the Section 313/319 NPRM for purposes of the proposed
rule, except that the term applies to such accounts maintained by any
covered financial institution, and
[[Page 37738]]
applies to such accounts maintained for any foreign financial
institution.
The proposed definition of covered financial institution is broader
than the definition of ``covered financial institution'' in the Section
313/319 NPRM.\6\ Unlike sections 313 and 319(b) of the Act, which
impose certain restrictions and requirements on correspondent accounts
for foreign banks, section 312 does not limit its application to
``covered financial institutions'' as defined in section 313 (primarily
depository institutions and securities broker-dealers). Based upon the
meaning of the term correspondent account and the requirements of
section 312, Treasury is proposing to define covered financial
institution to include, in addition to most of the financial
institutions subject to the Section 313/319 NPRM, the other financial
institutions that are subject to an anti-money laundering program
requirement. This includes futures commission merchants and introducing
brokers, casinos, mutual funds, money services businesses, and
operators of credit card systems.
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\6\ 31 U.S.C. 5318(j). For the Section 313/319 NPRM, ``covered
financial institutions'' are those described in BSA section
5312(a)(2)(A) through (G) (insured depository institutions, trust
companies, private bankers, U.S. branches of foreign banks, credit
unions, and securities broker-dealers).
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Treasury and FinCEN are engaged currently in the process of
reviewing all categories of U.S. financial institutions to craft
regulations requiring the development of anti-money laundering programs
tailored to the risks presented by the products and services offered by
these industries. Implicit in Congress' direction to Treasury to engage
in this process is the recognition that all financial institutions may
well pose risks that their products and services can be used
unwittingly to launder money or finance terrorism. If the same
functions are performed by foreign based financial institutions,
similar risks are posed. When those foreign based financial
institutions interface with a U.S. financial institution--any financial
institution--through a correspondent account, section 312 requires
appropriate due diligence to minimize the risk of money laundering or
terrorist financing.
It may well be that many types of U.S. financial institutions
simply do not offer and do not establish ``correspondent accounts,''
but section 312 will capture any such account if it is subsequently
established. Moreover, the statutory definition of a correspondent
account is not limited to a traditional banking account. Treasury and
FinCEN are specifically requesting comment concerning how the
definition may or may not apply to the covered financial institutions.
Treasury anticipates that, as additional U.S. financial institutions
are required to establish anti-money laundering programs, they will
also become subject to the requirements of this provision as well, to
the extent they may maintain correspondent accounts for foreign
financial institutions.
As in the case of the Section 313/319 NPRM, the definition includes
foreign branches of insured depository institutions within the term
covered financial institution. This means that any correspondent or
private banking account established, maintained, administered, or
managed at a foreign branch of an insured depository institution would
be subject to the regulation. This issue was also the subject of
substantial comment in the previous rulemaking, and Treasury is
continuing to consider this issue in connection with both rulemakings.
The proposed definition of foreign bank is identical to the
definition proposed in Treasury's Section 313/319 NPRM. For these
purposes, a foreign bank is any organization that (1) is organized
under the laws of a foreign country, (2) engages in the business of
banking, (3) is recognized as a bank by the bank supervisory or
monetary authority of the country of its organization or principal
banking operations, and (4) receives deposits in the course of its
business. A foreign bank also includes a branch of a foreign bank
located in a territory of the United States, Puerto Rico, Guam,
American Samoa, or the U.S. Virgin Islands. A foreign bank does not
include an agency or branch of a foreign bank located in the United
States or an insured bank organized in a territory of the United
States, Puerto Rico, Guam, American Samoa, or the U.S. Virgin Islands.
In addition, a foreign central bank or foreign monetary authority that
functions as a central bank is not a foreign bank, nor are certain
international financial institutions of which the U.S. is a member, or
which Treasury otherwise designates.
The proposed definition of foreign financial institution is based
upon the definition of ``covered financial institution'' in this
proposed rule. It includes any foreign bank (as defined in the proposed
rule). It also includes other entities organized under foreign (non-
U.S.) law (other than branches or offices of such entities in the
United States) that, if they were organized in the U.S., would fall
within the proposed definition of covered financial institution; i.e.,
financial institutions that are required pursuant to Treasury's
regulations implementing section 352 of the Act to have an anti-money
laundering program. At the date of this proposal, this would include
federally insured depository institutions and credit unions, securities
broker-dealers, futures commission merchants and introducing brokers,
casinos, mutual funds, money services businesses and operators of
credit card systems. Over the coming months Treasury will be requiring
additional financial institutions to adopt anti-money laundering
programs, at which time the corresponding foreign entities would be
included within the definition of foreign financial institution.
The proposal defines non-U.S. person as an individual that is
neither a U.S. citizen nor a lawful permanent resident as defined in 26
U.S.C. 7701(b)(6).
The proposed rule adopts, with one change, the language of section
312 of the Act that defines offshore banking license as a license to
conduct banking activities which, as a condition of the license,
prohibits the licensed entity from conducting banking activities with
the citizens of, or with the local currency of, the country which
issued the license. The proposed regulation uses the term
``jurisdiction'' rather than ``country,'' as there may be political
subdivisions of certain countries that issue offshore banking licenses.
The proposed rule defines person by reference to 31 CFR 103.11(z).
The proposed rule adopts the definition of private banking account
in section 312 of the Act, which defines the term to mean an account
that requires a minimum deposit of at least $1,000,000, that is
established for one or more individuals, and that is assigned to or
administered or managed by, in whole or in part, an officer, employee,
or agent of a financial institution acting as a liaison between the
financial institution and the direct or beneficial owner of the
account.
The proposal defines the term senior foreign political figure to
include a current or former senior official in the executive,
legislative, administrative, military, or judicial branches of a
foreign government (whether elected or not), a senior official of a
major foreign political party, or a senior executive of a foreign
government-owned commercial enterprise; a corporation, business, or
other entity formed by or for the benefit of any such individual; an
immediate family member of such an individual; or any individual
publicly known (or actually known by the relevant financial
institution) to be a close personal or professional associate of such
an individual. Unless the financial institution has actual
[[Page 37739]]
knowledge of the association, it must be public in some degree; an
individual will not be brought within the definition if there is no
readily available information about his or her ties to foreign
officials. For this purpose, (1) an immediate family member means an
individual's spouse, parents, siblings, children, and spouse's parents
or siblings, and (2) senior official or senior executive means an
individual with substantial authority over policy, operations, or the
use of government-owned resources. The proposed definition is similar
to the definition of ``Covered Person'' in the Guidance on Enhanced
Scrutiny issued in 2001 by Treasury, the bank regulators, and the
Department of State,\7\ and includes both current and former senior
foreign political figures.
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\7\ Guidance on Enhanced Scrutiny for Transactions that May
Involve the Proceeds of Foreign Official Corruption, issued by
Treasury, the Federal Reserve, OCC, FDIC, OTS, and the Department of
State, January 2001 (``2001 Guidance'').
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3. Section 103.176--Due Diligence Programs for Correspondent
Accounts for Foreign Financial Institutions.
The proposed rule adds to the BSA regulations new [sect] 103.176,
which sets forth the due diligence requirements for correspondent
accounts maintained by covered financial institutions for foreign
financial institutions. It should be noted that the statute takes
effect on July 23, 2002 and applies to all correspondent accounts for
foreign financial institutions subject to the requirement, regardless
of when they were opened.
Section 103.176(a) requires every covered financial institution to
maintain a due diligence program that includes policies, procedures,
and controls that are reasonably designed to enable the financial
institution to detect and report any known or suspected money
laundering conducted through or involving any correspondent account
maintained by such financial institution for a foreign financial
institution. This provision contains five specific elements that must
be included in all due diligence programs.
The first element is a determination whether the correspondent
account is subject to the enhanced due diligence requirements of [sect]
103.176(b). This requires the financial institution to determine, when
the correspondent account is maintained for a foreign bank, whether the
foreign bank operates under any of certain offshore banking licenses or
under a banking license issued by any of certain jurisdictions (as
provided in [sect] 103.176(c)).
The second required element is a risk assessment to determine
whether the correspondent account poses a significant risk of money
laundering activity. The covered financial institution may consider any
relevant factors in making this assessment, including the foreign
financial institution's line or lines of business, size, customer base,
location, products and services offered, the nature of the
correspondent account, and the type of transaction activity for which
it will be used.
The third required element is consideration of any publicly
available information from U.S. governmental agencies and multinational
organizations with respect to regulation and supervision, if any,
applicable to the foreign financial institution. Covered financial
institutions should take steps to avail themselves of public
information about jurisdictions in which their foreign financial
institution customers are organized or licensed, to assist in
determining whether particular correspondent accounts pose significant
risks.
The fourth required element of the due diligence program requires a
covered financial institution to consider any guidance issued by
Treasury or the covered financial institution's functional regulator
regarding money laundering risks associated with particular foreign
financial institutions and types of correspondent accounts. Again,
covered financial institutions should be familiar with any information
disseminated by Treasury and other federal regulators that may assist
financial institutions in making informed risk assessments with respect
to correspondent accounts.
Finally, the due diligence program requires a covered financial
institution to review public information to ascertain whether the
foreign financial institution has been the subject of any criminal
action of any nature, or of any regulatory action relating to money
laundering, to determine whether the circumstances of such action may
reflect an increased risk of money laundering through the correspondent
account.
This list of required elements is intended as a minimum standard
for an effective due diligence program. Programs should be risk-focused
to ensure that all correspondent accounts receive appropriate due
diligence and that correspondent accounts presenting more significant
risks of money laundering activity receive scrutiny reasonably designed
to detect and report such activity. Programs may include policies and
procedures that are more detailed than the basic required elements.
Policies and procedures should be tailored to the covered financial
institution's business and operations and the types of financial
services it offers through correspondent accounts.
Section 103.176(b) imposes three additional due diligence
requirements for correspondent accounts for foreign banks operating
under certain types of licenses (as provided in [sect] 103.176(c)). For
each such correspondent account, a covered financial institution's
program must include the three additional elements of (1) enhanced
scrutiny, (2) a determination whether the foreign bank maintains its
own correspondent accounts for other foreign banks, and (3)
identification of certain owners of the foreign bank.
First, [sect] 103.176(b)(1) requires a covered financial
institution to take reasonable steps to conduct enhanced scrutiny of
such correspondent accounts, to guard against money laundering and to
detect and report known or suspected illegal activity occurring through
the correspondent account. Enhanced scrutiny shall include obtaining
and reviewing documentation from the foreign bank about its own anti-
money laundering program and considering the extent to which such
program is reasonably designed to detect and prevent money laundering.
This is a required element of the program, and the program must include
it for all correspondent accounts subject to enhanced scrutiny.
In addition, enhanced scrutiny shall, when appropriate, also
include (1) monitoring transactions through the correspondent account
reasonably designed to detect money laundering; and (2) obtaining
information about the sources and beneficial ownership of funds in the
correspondent account, as well as information about the identity of any
persons who will have authority to direct transaction activity of the
correspondent account. While these two components of enhanced scrutiny
are not required in every instance, they may be a necessary element of
enhanced scrutiny in some cases based on the financial institution's
risk assessment of the correspondent account. These elements are also
not a comprehensive list of the components of enhanced scrutiny, and
the program may provide for additional steps when appropriate in light
of the risk assessment of an account. A financial institution's due
diligence program should provide for when these and other measures are
necessary to ensure that the financial institution has taken reasonable
steps, on a risk-based analysis, to guard against money laundering
through foreign correspondent accounts.
[[Page 37740]]
The second additional requirement, set forth in [sect]
103.176(b)(2), is that for any correspondent account for a foreign bank
described in [sect] 103.176(c), a covered financial institution must
take reasonable steps to determine whether the foreign bank itself
maintains correspondent accounts for other foreign banks. Each covered
financial institution's program should include policies and procedures
for assessing and minimizing risks associated with doing business with
foreign banks that have further correspondent relationships. The due
diligence program required by the proposed rule must include procedures
for the financial institution to follow in these circumstances,
including determining the identity of the other foreign banks and,
where appropriate in light of the risks involved, identifying the
measures in place at the foreign correspondent bank to prevent money
laundering through the financial institution's correspondent account.
Finally, [sect] 103.176(b)(3) requires a covered financial
institution to take reasonable steps to determine the ownership of any
foreign bank described in [sect] 103.176(c) whose shares are not
publicly traded. For purposes of this requirement, an owner is defined
as any person who directly or indirectly owns, controls, or has power
to vote 5 percent or more of any class of securities of a foreign bank.
A reasonable step would be to obtain from the foreign bank a statement
as to whether its shares are publicly traded, and if not, a list of its
owners (as defined), including the percentage of shares held by each
and nature of interest (e.g., direct or indirect). Also for purposes of
this requirement, publicly traded means shares that are traded on an
exchange or an organized over-the-counter market that is regulated by a
foreign securities authority as defined in section 3(a)(50) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(50)).
Section 103.176(c) lists the categories of foreign banks for which
the additional requirements of [sect] 103.176(b) apply. Under section
312 of the Act, these additional requirements apply to a correspondent
account for any foreign bank operating under (1) an offshore banking
license; (2) a banking license issued by a foreign country that is
designated as noncooperative with international anti-money laundering
principles or procedures by an intergovernmental group or organization
of which the United States is a member,\8\ with which designation the
United States representative to the group or organization concurs; or
(3) a banking license issued by a foreign country that has been
designated by Treasury as warranting special measures due to money
laundering concerns.
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\8\ The only intergovernmental organization that currently
designates countries as noncooperative with international anti-money
laundering standards is the Financial Action Task Force on Money
Laundering (FATF), an intergovernmental body whose purpose is the
development of policies, at both the national and international
levels, to combat money laundering. The U.S. has concurred in all
designations made to date.
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Section 103.176(c) incorporates the requirements of section 312,
with some clarification. Correspondent accounts for a branch of a
foreign bank operating under an offshore branch license would not be
subject to the additional requirements of [sect] 103.176(b) if the
foreign bank has been found, or is chartered in a jurisdiction where
one or more foreign banks have been found, by the Federal Reserve to be
subject to comprehensive supervision or regulation on a consolidated
basis by the relevant supervisors in that jurisdiction,\9\ and such
foreign bank does not fall within either of the other two categories of
foreign banks for which the additional requirements apply. A covered
financial institution's due diligence program should nevertheless
include consideration of the location of the foreign bank's branch in
the due diligence program required by [sect] 103.176(a). In identifying
the jurisdictions referred to in [sect] 103.176(c)(2) and (3), covered
financial institutions should refer to Treasury guidance available on
the FinCEN Web site, or guidance available on the FATF Web site
(www.oecd.org/fatf).
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\9\ As of May 10, 2002, the Federal Reserve has made such a
finding with respect to one or more foreign banks chartered in the
following jurisdictions: Austria, Belgium, France, Germany, Greece,
Italy, Ireland, the Netherlands, Portugal, Spain, Switzerland, the
United Kingdom, Canada, Mexico, Argentina, Brazil, Chile, Australia,
Hong Kong Special Administrative Region, Israel, Japan, Korea,
Taiwan, and Turkey.
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Section 103.176(d) states that a covered financial institution's
due diligence program for foreign correspondent accounts must also
include procedures to be followed when due diligence cannot be
adequately performed. That is, if the financial institution is unable
to take reasonable steps to detect and report possible instances of
money laundering, or to obtain adequate information regarding
correspondent accounts for banks described in [sect] 103.176(c), the
due diligence program should provide for steps to be taken, including,
as appropriate, refusing to open the account, suspending transaction
activity, filing suspicious activity reports, or closing the account.
4. Section 103.178--Due Diligence Programs for Private Banking
Accounts for Non-U.S. Persons.
The proposed rule adds to the BSA regulations new [sect] 103.178,
which sets forth the due diligence requirements applicable to private
banking accounts for non-U.S. persons. It should be noted that, as with
correspondent accounts, the statute takes effect on July 23, 2002 and
applies to all private banking accounts for non-U.S. persons subject to
the requirement, regardless of when they were opened.
Section 103.178(a) requires each financial institution to maintain
a due diligence program that includes policies, procedures, and
controls that are reasonably designed to detect and report any known or
suspected money laundering conducted through or involving any private
banking account that the financial institution maintains for or on
behalf of a non-U.S. person.
Section 103.178(b) sets forth minimum due diligence requirements
for such accounts. Under paragraphs (b)(1)-(3), a covered financial
institution's due diligence program must include reasonable steps to
ascertain the identity of all nominal holders and holders of any
beneficial ownership interest in the private banking account, including
the lines of business and source of wealth of such persons, source of
funds deposited into the account, and whether any such holder may be a
senior foreign political figure. Reasonable steps may include various
means of ascertaining identity and source of funds, including
confirming information provided by accountholders or their agents, and
contacting beneficial owners, as appropriate, to confirm their
ownership interests and source of funds. The level of confirmation
necessary to ascertain all nominal and beneficial owners may vary
depending upon the particular customer, and an effective due diligence
program will provide for consideration of the various risk factors that
may be involved. Reasonable steps to ascertain whether any holder may
be a senior foreign political figure should generally include some
review of public information, including information available on
databases on the Internet. Financial institutions should carefully
consider the best methods of discharging their due diligence
obligations in this regard, giving consideration to the characteristics
of the various foreign jurisdictions and types of senior political
figures that are
[[Page 37741]]
relevant, and the availability of databases that are useful in making
this determination. Should a financial institution learn at any time
that an account holder is a senior foreign political figure, it would
be required to apply enhanced scrutiny as required by [sect]
103.178(c)(2).
Section 103.178(b)(4) requires the due diligence program to include
procedures ensuring that the covered financial institution will take
reasonable steps to detect and report any known or suspected violation
of law conducted through or involving a private banking account for a
non-U.S. person.
Section 103.178(c)(1) specifies that if a financial institution's
due diligence program reveals information indicating that a particular
individual may be a senior foreign political figure, it should exercise
reasonable diligence in seeking to determine whether the individual is,
in fact, a senior foreign political figure.\10\ The paragraph provides
further that if the institution does not learn of any information
indicating that an individual may be a former senior foreign political
figure (which by definition includes an immediate family member or
close associate of such a person), and the individual states that he or
she is not a former senior foreign political figure, the institution
may rely on such statement, in addition to the results of their due
diligence, in determining whether the account is subject to the
enhanced due diligence requirements of [sect] 103.178(c)(2).
---------------------------------------------------------------------------
\10\ See 2001 Guidance, Part II.C.
---------------------------------------------------------------------------
Section 103.178(c)(2) specifies that the covered financial
institution's due diligence program must include enhanced scrutiny of
private banking accounts held by or on behalf of senior foreign
political figures that is reasonably designed to detect and report
transactions that may involve the proceeds of foreign corruption. At
the outset, the decision to open such an account should generally be
approved by senior management. The appropriate level of enhanced
scrutiny will vary according to the circumstances and risk factors
presented. For example, if a private banking customer is from a
jurisdiction where it is well known through publicly available sources
that current or former political figures have been implicated in large-
scale corruption, it may be appropriate to probe regarding employment
history and sources of funds to a greater extent than for a customer
from a jurisdiction with no such history. The length of time since a
former senior political figure has been in office could influence the
degree of scrutiny applied to the source of their funds. The enhanced
scrutiny required by [sect] 103.178(c)(2) should take all risk factors
into consideration, including but not limited to the purpose and use of
the private banking account, location of the account holder(s), source
of funds in the account, the type of transactions engaged in through
the account, and the jurisdictions involved in such transactions.
Although the rule does not specify the extent, if any, that transaction
monitoring must take place, an effective due diligence program should
dictate when risk factors will require transaction monitoring, and to
what extent, as necessary to detect and report proceeds of foreign
corruption.\11\
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\11\ For an enumeration of some risk factors that may warrant
further scrutiny, see 2001 Guidance, Part II.D.
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For purposes of [sect] 103.178(c), proceeds of foreign corruption
means assets or property that are acquired by, through, or on behalf of
a senior foreign political figure through misappropriation, theft, or
embezzlement of public funds, or the unlawful conversion of property of
a foreign government, or through acts of bribery or extortion, and
shall include other property into which such assets have been
transferred.
Section 103.178(d) states that a financial institution's due
diligence program for private banking accounts must also include
procedures to be followed when due diligence cannot be adequately
performed. That is, if the financial institution is unable to take
reasonable steps to detect and report possible instances of money
laundering, the due diligence program should provide for steps to be
taken, including, as appropriate, not opening the account, suspending
transaction activity, filing suspicious activity reports, or closing
the account.
IV. Request for Comments
Treasury invites comment on all aspects of the proposed regulation,
and specifically seeks comment on the following issues:
1. Is the definition of correspondent account appropriate for the
purposes of this proposal? Should Treasury modify the definition of the
term ``correspondent account'' for certain covered financial
institutions?
2. Is the application of the proposed rule to covered financial
institutions (as defined) appropriate? Do all of these U.S. financial
institutions maintain correspondent accounts for foreign financial
institutions?
3. Is the inclusion of foreign branches of U.S. depository
institutions within the covered financial institution definition
appropriate? Do other covered financial institutions have foreign
branches that maintain correspondent accounts for foreign financial
institutions?
4. Is the definition of foreign financial institution appropriate?
Are there foreign financial institutions that should not be included
within the definition? Alternatively, should the regulation apply to
correspondent accounts maintained for other types of foreign financial
institutions as well?
5. Is the definition of beneficial ownership interest sufficiently
clear? Should it be further narrowed or clarified?
6. Does the definition of private banking account require
clarification, for banks, securities or futures firms? Are there other
covered financial institutions that maintain private banking accounts?
Is the limitation in the statutory definition to accounts that require
a minimum deposit of $1,000,000 consistent with the purposes of this
provision?
7. Does the definition of senior foreign political figure require
further clarification? If so, how might this be achieved?
8. Is the exclusion contained in [sect] 103.176(c)(1) from the
enhanced due diligence requirements for certain foreign banks operating
under offshore banking licenses appropriate? For example, should
correspondent accounts for offshore-licensed branches of foreign banks
affiliated with covered financial institutions also be excluded from
the enhanced due diligence requirement?
9. Should the rule generally adopt a more risk-based approach to
the due diligence program and include fewer prescriptive and detailed
provisions? Alternatively, should it include more prescriptive
provisions in order to ensure that financial institutions will take
additional steps to detect and report suspicious activity?
V. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility Act (5 U.S.C. 610 et seq.),
it is hereby certified that this proposed rule will not have a
significant economic impact on a substantial number of small entities.
The proposed rule provides guidance to financial institutions
concerning the mandated due diligence requirements in section 312.
Moreover, the financial institutions covered by the rule tend to be
larger institutions. Accordingly, a regulatory flexibility analysis is
not required.
VI. Executive Order 12866
This interim final rule is not a ``significant regulatory action''
as
[[Page 37742]]
defined in Executive Order 12866. Accordingly, a regulatory assessment
is not required.
List of Subjects in 31 CFR Part 103
Banks, banking, Brokers, Counter money laundering, Counter-
terrorism, Currency, Foreign banking, Reporting and recordkeeping
requirements.
Authority and Issuance
For the reasons set forth above, FinCEN is proposing to amend
subpart I of 31 CFR Part 103 as follows:
PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND
FOREIGN TRANSACTIONS
1. The authority citation for part 103 is revised to read as
follows:
Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5331;
title III, secs. 312, 313, 314, 319(b), 352, Pub. L. 107-56, 115
Stat. 307.
2. Add the undesignated centerheading ``ANTI-MONEY LAUNDERING
PROGRAMS'' immediately before [sect] 103.120.
[sect] 103.120 [Amended]
3. Section 103.120 is amended as follows:
a. Paragraph (b) is amended by adding ``the requirements of
[sect][sect] 103.176 and 103.178 and'' immediately after the words
``complies with''.
b. Paragraph (c)(1) is amended by adding ``the requirements of
[sect][sect] 103.176 and 103.178 and'' immediately after the words
``complies with''.
4. Add new undesignated centerheadings and [sect][sect] 103.175
through 103.178, 103.185, and 103.190 to subpart I to read as follows:
SPECIAL DUE DILIGENCE FOR CORRESPONDENT ACCOUNTS AND PRIVATE BANKING
ACCOUNTS
103.175 Definitions.
103.176 Due diligence programs for correspondent accounts for
foreign financial institutions.
103.177 Records concerning owners of foreign banks and agents
designated to receive service of legal process; prohibition on
correspondent accounts for foreign shell banks. [Reserved]
103.178 Due diligence programs for private banking accounts for non-
U.S. persons.
LAW ENFORCEMENT ACCESS TO FOREIGN BANK RECORDS
103.185 Summons or subpoena of foreign bank records. [Reserved]
103.190 Termination of correspondent relationship. [Reserved]
SPECIAL DUE DILIGENCE FOR CORRESPONDENT ACCOUNTS AND PRIVATE BANKING
ACCOUNTS
[sect] 103.175 Definitions.
Except as otherwise provided, the following definitions apply for
purposes of [sect][sect] 103.176 through 103.190:
(a) [Reserved]
(b) Beneficial ownership interest in an account means:
(1) A noncontingent legal authority to fund, direct, or manage the
account (including, without limitation, the power to direct payments
into or out of the account); provided, that a legal authority to fund
or to direct payments into an account shall mean a specific contractual
or judicial authority to do so; or
(2) A noncontingent legal entitlement to all or any part of the
corpus or income of the account, but shall not include any interest of
less than the lesser of $1,000,000 or five percent of either the corpus
or income of the account.
(c) Correspondent account means:
(1) For purposes of [sect] 103.176, an account established to
receive deposits from, make payments on behalf of a foreign financial
institution, or handle other financial transactions related to such
institution; and
(2) [Reserved]
(d) Covered financial institution means:
(1) For purposes of [sect][sect] 103.176 and 103.178:
(i) An insured bank (as defined in section 3(h) of the Federal
Deposit Insurance Act (12 U.S.C. 1813(h))) and any foreign branch of an
insured bank;
(ii) A commercial bank;
(iii) An agency or branch of a foreign bank in the United States;
(iv) A federally insured credit union;
(v) A thrift institution;
(vi) A corporation acting under section 25A of the Federal Reserve
Act (12 U.S.C. 611 et seq.);
(vii) A broker or dealer registered, or required to register, with
the Securities and Exchange Commission under the Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.);
(viii) A futures commission merchant registered, or required to
register, under, and an introducing broker as defined in [sect] 1a23
of, the Commodity Exchange Act (7 U.S.C. 1 et seq.);
(ix) A casino (as defined in [sect] 103.11(n)(5));
(x) A mutual fund (as defined in [sect] 103.130);
(xi) A money services business (as defined in [sect] 103.11(uu));
and
(xii) An operator of a credit card system (as defined in [sect]
103.135).
(2) [Reserved].
(e) Foreign bank. (1) The term foreign bank means any organization
that:
(i) Is organized under the laws of a foreign country;
(ii) Engages in the business of banking;
(iii) Is recognized as a bank by the bank supervisory or monetary
authority of the country of its organization or principal banking
operations; and
(iv) Receives deposits in the regular course of its business.
(2) For purposes of this definition:
(i) The term foreign bank includes a branch of a foreign bank in a
territory of the United States, Puerto Rico, Guam, American Samoa, or
the U.S. Virgin Islands.
(ii) The term foreign bank does not include:
(A) An agency or branch of a foreign bank in the United States,
other than in a territory of the United States, Puerto Rico, Guam,
American Samoa, or the U.S. Virgin Islands;
(B) An insured bank organized under the laws of a territory of the
United States, Puerto Rico, Guam, American Samoa, or the U.S. Virgin
Islands;
(C) A foreign central bank or foreign monetary authority that
functions as a central bank; and
(D) The African Development Bank, African Development Fund, Asian
Development Bank; Bank for International Settlements, European Bank for
Reconstruction and Development, Inter-American Development Bank,
International Bank for Reconstruction and Development (the World Bank),
International Finance Corporation, International Monetary Fund, North
American Development Bank, International Development Association,
Multilateral Investment Guarantee Agency, and similar international
financial institutions of which the United States is a member or as
otherwise designated by the Secretary.
(f) Foreign financial institution means a foreign bank and any
other person organized under foreign law (other than a branch or office
of such person in the United States) which, if organized in the United
States, would be required to establish an anti-money laundering program
pursuant to [sect][sect] 103.120 through 103.169. For purposes of this
definition:
(1) The dollar limitations in [sect][sect] 103.11(uu)(1) through
(4) shall not be taken into account when determining whether a person
organized under foreign law would, if organized in the United States,
be a money services business required to establish an anti-money
laundering program pursuant to [sect] 103.125; and
[[Page 37743]]
(2) No person organized under foreign law shall be deemed to be a
foreign financial institution by virtue of [sect] 103.11(uu)(6).
(g) [Reserved]
(h) [Reserved]
(i) Non-United States person or non-U.S. person means an individual
who is neither a United States citizen nor a lawful permanent resident
as defined in 26 U.S.C. 7701(b)(6).
(j) Offshore banking license means a license to conduct banking
activities that prohibits the licensed entity from conducting banking
activities with the citizens of, or in the local currency of, the
jurisdiction that issued the license.
(k) [Reserved]
(l) Person has the same meaning as provided in [sect] 103.11(z).
(m) [Reserved]
(n) Private banking account means an account (or any combination of
accounts) that:
(1) Requires a minimum aggregate amount of funds or other assets of
not less than $1,000,000;
(2) Is established on behalf of or for the benefit of 1 or more
individuals who have a direct or beneficial ownership interest in the
account; and
(3) Is assigned to, or is administered or managed by, in whole or
in part, an officer, employee, or agent of a covered financial
institution acting as a liaison between the covered financial
institution and the direct or beneficial owner of the account.
(o) Senior foreign political figure. (1) The term senior foreign
political figure means:
(i) A current or former senior official in the executive,
legislative, administrative, military, or judicial branches of a
foreign government (whether elected or not), a senior official of a
major foreign political party, or a senior executive of a foreign
government-owned commercial enterprise;
(ii) A corporation, business or other entity that has been formed
by, or for the benefit of, any such individual;
(iii) An immediate family member of any such individual; and
(iv) A person who is widely and publicly known (or is actually
known by the relevant covered financial institution) to maintain a
close personal or professional relationship with any such individual.
(2) For purposes of this definition:
(i) Senior official or executive means an individual with
substantial authority over policy, operations, or the use of
government-owned resources; and
(ii) Immediate family member means a spouse, parents, siblings,
children, and a spouse's parents or siblings.
(p) [Reserved]
[sect] 103.176 Due diligence programs for correspondent accounts for
foreign financial institutions.
(a) In general. A covered financial institution shall maintain a
due diligence program that includes policies, procedures, and controls
that are reasonably designed to enable the financial institution to
detect and report any known or suspected money laundering activity
conducted through or involving any correspondent account maintained by
such financial institution for a foreign financial institution. Such
procedures shall include:
(1) Determining whether the correspondent account is subject to
paragraph (b) of this section;
(2) Assessing whether the foreign financial institution presents a
significant risk of money laundering, based on any relevant factors;
(3) Considering information available from U.S. governmental
agencies and multinational organizations with respect to supervision
and regulation, if any, applicable to the foreign financial
institution;
(4) Reviewing guidance issued by Treasury or its Federal functional
regulator regarding money laundering risks associated with particular
foreign financial institutions and correspondent accounts for foreign
financial institutions generally; and
(5) Reviewing public information to ascertain whether the foreign
financial institution has been the subject of criminal action of any
nature, or regulatory action relating to money laundering.
(b) Enhanced due diligence for certain foreign banks. In the case
of a correspondent account maintained for a foreign bank described in
paragraph (c) of this section, the due diligence program required by
paragraph (a) of this section shall also include, at a minimum, the
following elements:
(1) Enhanced scrutiny of such correspondent account to guard
against money laundering and to ensure detection and reporting of known
or suspected illegal activity. Enhanced scrutiny shall also include
obtaining and reviewing documentation relating to the foreign bank's
anti-money laundering program and considering the extent to which such
program is reasonably designed to detect and prevent money laundering,
and when appropriate shall also include:
(i) Monitoring of transactions through the correspondent account
reasonably designed to detect money laundering; and
(ii) Obtaining information from the foreign bank about the identity
of any persons that will have authority to direct transactions through
the correspondent account, and the sources and beneficial ownership of
funds or other assets of such persons in the correspondent account.
(2) A determination whether the foreign bank holding the account
maintains correspondent accounts for other foreign banks. If the
foreign bank does maintain correspondent accounts for other foreign
banks, the due diligence program required by paragraph (a) of this
section shall provide for:
(i) Documentation of the identity of the other foreign banks for
which the foreign bank maintains correspondent accounts; and
(ii) Policies and procedures for assessing and minimizing risks
associated with the foreign bank's correspondent accounts for other
foreign banks.
(3)(i) For any foreign bank whose shares are not publicly traded,
the identification of each owner of the foreign bank and the nature and
extent of each owner's ownership interest.
(ii) For purposes of paragraph (b)(3)(i) of this section:
(A) Owner means any person who directly or indirectly owns,
controls, or has voting power over 5 percent or more of any class of
securities of a foreign bank; and
(B) Publicly traded means shares that are traded on an exchange or
an organized over-the-counter market that is regulated by a foreign
securities authority as defined in section 3(a)(50) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(50)).
(c) Foreign banks to be accorded enhanced due diligence. The due
diligence program elements of paragraph (b) of this section are
required for any correspondent account maintained for a foreign bank
that operates under:
(1) An offshore banking license, other than a branch of a foreign
bank if such foreign bank:
(i) Does not fall within paragraph (c)(2) or (3) of this section;
and
(ii) Has been found, or is chartered in a jurisdiction where one or
more foreign banks have been found, by the Board of Governors of the
Federal Reserve System under the Bank Holding Company Act or the
International Banking Act, to be subject to comprehensive supervision
or regulation on a consolidated basis by the relevant supervisors in
that jurisdiction;
[[Page 37744]]
(2) A license issued by a foreign country that has been designated
by an intergovernmental group or organization to which the United
States belongs as noncooperative with international anti-money
laundering principles or procedures and with which designation the U.S.
representative concurs; or
(3) A license issued by a foreign country that Treasury has
identified (by regulation or other public issuance) as warranting
special measures due to money laundering concerns.
(d) Special procedures when due diligence cannot be performed. The
due diligence program required by paragraph (a) of this section shall
include procedures to be followed in circumstances in which a covered
financial institution cannot perform appropriate due diligence with
respect to a correspondent account, including when the institution
should refuse to open the account, suspend transaction activity, file a
suspicious activity report, or close the account.
[sect] 103.177 Records concerning owners of foreign banks and agents
designated to receive service of legal process; prohibition on
correspondent accounts for foreign shell banks. [Reserved]
[sect] 103.178 Due diligence programs for private banking accounts for
non-U.S. persons.
(a) In general. A covered financial institution shall maintain a
due diligence program that includes policies, procedures, and controls
that are reasonably designed to detect and report any known or
suspected money laundering conducted through or involving any private
banking account maintained by such financial institution in the United
States by or on behalf of a non-U.S. person.
(b) Minimum requirements. The due diligence program required by
paragraph (a) of this section shall, at a minimum, ensure that the
financial institution takes reasonable steps to:
(1) Ascertain the identity of all nominal holders and holders of
any beneficial ownership interest in the private banking account,
including information on those holders' lines of business and source of
wealth;
(2) Ascertain the source of funds deposited into the private
banking account;
(3) Ascertain whether any such holder may be a senior foreign
political figure; and
(4) Report, in accordance with applicable law and regulation, any
known or suspected violation of law conducted through or involving the
private banking account.
(c) Special requirements for senior foreign political figures. (1)
In performing the due diligence program required by paragraph (a) of
this section:
(i) If a covered financial institution learns of information
indicating that a particular individual may be a senior foreign
political figure, it should exercise reasonable diligence in seeking to
determine whether the individual is, in fact, a senior foreign
political figure.
(ii) If a covered financial institution does not learn of any
information indicating that an individual may be a former senior
foreign political figure, and the individual states that he or she is
not a former senior foreign political figure, the financial institution
may rely on such statement in determining whether the account is
subject to the due diligence requirements of paragraph (c)(2) of this
section.
(2) In the case of any private banking account for which a senior
foreign political figure is a nominal holder or holds a beneficial
ownership interest, the due diligence program required by paragraph (a)
of this section shall include policies and procedures reasonably
designed to detect and report transactions that may involve the
proceeds of foreign corruption.
(3) For purposes of this paragraph (c), the term proceeds of
foreign corruption means assets or property that are acquired by,
through, or on behalf of a senior foreign political figure through
misappropriation, theft or embezzlement of public funds, or the
unlawful conversion of property of a foreign government, or through
acts of bribery or extortion, and shall include other property into
which such assets have been transformed or converted.
(d) Special procedures when due diligence cannot be performed. The
due diligence program required by paragraph (a) of this section shall
include procedures to be followed in circumstances in which a covered
financial institution cannot perform appropriate due diligence with
respect to a private banking account, including when the institution
should refuse to open the account, suspend transaction activity, file a
suspicious activity report, or close the account.
LAW ENFORCEMENT ACCESS TO FOREIGN BANK RECORDS
[sect] 103.185 Summons or subpoena of foreign bank records.
[Reserved]
[sect] 103.190 Termination of correspondent relationship.
[Reserved]
Dated: May 22, 2002.
James F. Sloan,
Director, Financial Crimes Enforcement Network.
[FR Doc. 02-13411 Filed 5-29-02; 8:45 am]
BILLING CODE 4810-02-P