Risk Management Manual of Examination Policies - FDIC

BANK SECRECY ACT, ANTI-MONEY LAUNDERING,
AND OFFICE OF FOREIGN ASSETS CONTROL
• Is maintained by a foreign bank;
• Is located at a fixed address (other than solely an
electronic address or a post-office box) in a country in
which the foreign bank is authorized to conduct
banking activities;
• Provides at that fixed address:
o One or more full-time employees,
o Operating records related to its banking
activities; and
• Is subject to inspection by the banking authority that
licensed the foreign bank to conduct banking
activities.
There is one exception to the shell bank prohibition. This
exception allows a CFI to maintain a correspondent
account with a foreign shell bank if it is a regulated
affiliate. As a regulated affiliate, the shell bank must meet
the following requirements:
• The shell bank must be affiliated with a depository
institution (bank or credit union, either U.S. or
foreign) in the U.S. or another foreign jurisdiction.
• The shell bank must be subject to supervision by the
banking authority that regulates the affiliated entity.
Furthermore, in any foreign correspondent relationship, the
CFI must take reasonable steps to ensure that such an
account is not being used indirectly to provide banking
services to other foreign shell banks. If the CFI discovers
that a foreign correspondent account is providing indirect
services in this manner, then it must either prohibit the
indirect services to the foreign shell bank or close down the
foreign correspondent account. This activity is referred to
as “nested” correspondent banking and is discussed in
greater detail below under “Foreign Correspondent
Banking Money Laundering Risks.”
Required Recordkeeping on
Correspondent Banking Accounts
As mentioned previously, a CFI that maintains a foreign
correspondent account must also maintain records
identifying the owners of each foreign bank. To minimize
recordkeeping burdens, ownership information is not
required for:
• Foreign banks that file form FR-7 with the Federal
Reserve, or
• Publicly traded foreign banks.
A CFI must also record the name and street address of a
person who resides in the U.S. and who is willing to accept
service of legal process on behalf of the foreign institution.
In other words, the CFI must collect information so that
Section 8.1
law enforcement can serve a subpoena or other legal
document upon the foreign correspondent bank.
Certification Process
To facilitate information collection, the Treasury, in
coordination with the banking industry, Federal regulators
and law enforcement agencies, developed a certification
process using special forms to standardize information
collection. The use of these forms is not required;
however, the information must be collected regardless.
The CFI must update, or re-certify, the foreign
correspondent information at least once every three years.
For new accounts, this certification information must be
obtained within 30 calendar days after the opening date. If
the CFI is unable to obtain the required information, it
must close all correspondent accounts with that foreign
bank within a commercially reasonable time. The CFI
should review certifications to verify their accuracy. The
review should look for potential problems that may warrant
further research or information. Should a CFI know,
suspect, or have reason to suspect that any certification
information is no longer correct, the CFI must request the
foreign bank to verify or correct such information within
90 days. If the information is not corrected within that
time, the CFI must close all correspondent accounts with
that institution within a commercially reasonable time.
Foreign Correspondent Banking
Money Laundering Risks
Foreign correspondent accounts provide clearing access to
foreign financial institutions and their customers, which
may include other foreign banks. Many U.S. financial
institutions fail to ascertain the extent to which the foreign
banks will allow other foreign banks to use their U.S.
accounts. Many high-risk foreign financial institutions
have gained access to the U.S. financial system by
operating through U.S. correspondent accounts belonging
to other foreign banks. These are commonly referred to as
“nested” correspondent banks.
Such nested correspondent bank relationships result in the
U.S. financial institution’s inability to identify the ultimate
customer who is passing a transaction through the foreign
correspondent’s U.S. account. These nested relationships
may prevent the U.S. financial institution from effectively
complying with BSA regulations, suspicious activity
reporting, and OFAC monitoring and sanctions.
If a U.S. financial institution’s due diligence or monitoring
system identifies the use of such nested accounts, the U.S.
DSC Risk Management Manual of Examination Policies 8.1-21 Bank Secrecy Act (12-04)
Federal Deposit Insurance Corporation