Risk Management Manual of Examination Policies - FDIC

BANK SECRECY ACT, ANTI-MONEY LAUNDERING,
AND OFFICE OF FOREIGN ASSETS CONTROL
reasonable steps to document that MSB customers are
aware of and are complying with appropriate regulations.
For additional information, examiners should instruct bank
management to consult the FinCEN website developed
specifically for MSBs. This website contains guidance,
registration forms, and other materials useful for MSBs to
understand and comply with BSA regulations. Bank
customers who are uncertain if they are covered by the
definition of MSBs can also visit this site to determine if
their business activities qualify.
Foreign Correspondent Banking
Relationships
Correspondent accounts are accounts that financial
institutions maintain with each other to handle transactions
for themselves or for their customers. Correspondent
accounts between a foreign bank and U.S. financial
institutions are much needed, as they facilitate international
trade and investment. However, these relationships may
pose a higher risk for money laundering.
Transactions through foreign correspondent accounts are
typically large and would permit movement of a high
volume of funds relatively quickly. These correspondent
accounts also provide foreign entities with ready access to
the U.S. financial system. These banks and other financial
institutions may be located in countries with unknown
AML regulations and controls ranging from strong to
weak, corrupt, or nonexistent.
The USA PATRIOT Act establishes reporting and
documentation requirements for certain high-risk areas,
including:
• Special due diligence requirements for correspondent
accounts and private banking accounts which are
addressed in 31 CFR 103.181.
• Verification procedures for foreign correspondent
account relationships which are included in 31 CFR
103.185.
• Foreign banks with correspondent accounts at U.S.
financial institutions must produce bank records,
including information on ownership, when requested
by regulators and law enforcement, as detailed in
Section 319 of the USA PATRIOT Act and codified at
31 CFR 103.185.
The foreign correspondent records detailed above are to be
provided within seven days of a law enforcement request
and within 120 hours of a Federal regulatory request.
Failure to provide such records in a timely manner may
result in the U.S. financial institution’s required
Section 8.1
termination of the foreign correspondent account. Such
foreign correspondent relationships need only be
terminated upon the U.S. financial institution’s written
receipt of such instruction from either the Secretary of the
Treasury or the U.S. Attorney General. If the U.S.
financial institution fails to terminate relationships after
receiving notification, the U.S. institution may face civil
money penalties.
The Treasury was also granted broad authority by the USA
PATRIOT Act (codified in 31 USC 5318[A]), allowing it
to establish special measures. Such special measures can
be established which require U.S. financial institutions to
perform additional recordkeeping and/or reporting or
require a complete prohibition of accounts and transactions
with certain countries and/or specified foreign financial
institutions. The Treasury may impose such special
measures by regulation or order, in consultation with other
regulatory agencies, as appropriate.
Shell Banks
Sections 313 and 319 of the USA PATRIOT Act
implemented (by 31 CFR 103.177 and 103.185,
respectively) a new provision of the BSA that relates to
foreign correspondent accounts. Covered financial
institutions (CFI) are prohibited from establishing,
maintaining, administering, or managing a correspondent
account in the U.S. for or on behalf of a foreign shell bank.
A correspondent account, under this regulation, is defined
as an account established by a CFI for a foreign bank to
receive deposits from, to make payments or other
disbursements on behalf of a foreign financial institution,
or to handle other financial transactions related to the
foreign bank. An account is further defined as any formal
banking or business relationship established to provide:
• Regular services,
• Dealings, and
• Other financial transactions,
and may include:
• Demand deposits,
• Savings deposits,
• Any other transaction or asset account,
• Credit account, or
• Any other extension of credit.
A foreign shell bank is defined as a foreign bank without a
physical presence in any country. Physical presence means
a place of business that:
Bank Secrecy Act (12-04) 8.1-20 DSC Risk Management Manual of Examination Policies
Federal Deposit Insurance Corporation