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FinCEN: USAPA 312 Proposal on Enhanced Due Diligence

ABA Contact: Richard Riese
Published: 71 Federal Register 516; January 4, 2006
Comments Due: March 6, 2006
Disposition: Filed

Summary

FinCEN released a final regulation implementing the international correspondent banking provisions and the private banking provisions of Section 312 of the USA PATRIOT Act. The final rule requires banks and certain other U.S. financial institutions to apply risk-based due diligence to correspondent accounts maintained for defined foreign financial institutions. Simultaneously, the Financial Crimes Enforcement Network has announced a related notice of proposed rulemaking involving one key provision of Section 312 that requires enhanced due diligence for correspondent accounts maintained for certain statutory designated foreign banks. The final rule takes effect within 90 days for new accounts opened by U.S. financial institutions and 270 days for existing accounts from the date the regulation is published in the Federal Register.

The proposal covering enhanced due diligence for correspondent accounts of the statutorily designated foreign banks operating under an offshore banking license, operating under a license issued by a country designated as being non-cooperative with international AML principles, or operating under a license issued by a country designated by Treasury as warranting special measures differs most significantly from the prior proposal by eliminating the categorical exception for offshore-licensed branches of foreign banks chartered in a jurisdiction subject to comprehensive supervision or regulation on a consolidated basis (so-called "Consolidated Exception"). Under the current proposal, all of the correspondent accounts of the specified foreign banks "would be subject to a certain degree of enhanced due diligence."

The proposal goes on to identify the following EDD criteria to be accomplished:

  • Conduct enhanced scrutiny of such correspondent accounts to guard against money laundering as reflects the risk assessment of the account including obtaining foreign bank AML program documentation, considering whether such program "appears to be reasonably designed" to detect and prevent money laundering, and monitoring transactions through the account in a manner reasonably designed to detect money laundering and suspicious activity;
  • Obtaining information from the foreign bank about the identity of any person with authority to direct transactions through correspondent account that is a payable-through account;
  • Determine whether your customer's correspondent account is used by your foreign bank customer to conduct transactions that occur through correspondent accounts it maintains for other banks, so-called "nesting"--and if so, take steps to obtain information on what your customer does to minimize ML risks through its correspondent accounts "including, as appropriate" the identity of its foreign bank correspondent customers;
  • Identify the owners of any foreign correspondent bank whose shares are not publicly traded.

2006 Regulatory Chart
Federal Register
ABA Comment Letter