Risk Management Manual of Examination Policies - FDIC

INTERNATIONAL BANKING Section 11.1
If the examiners’ review represents the initial identification
of a PBO, the examiner should contact the International
Section to discuss the facts and circumstances surrounding
the bank. The examiner should contact the DSC Associate
Director of the International and Large Bank Branch if the
analysis determines that a modification to an existing
parallel bank structure has occurred, i.e. the beneficial
owner(s) sold its interest in the U.S. or foreign bank.
In all instances where a PBO relationship is possible, the
examiner should complete the Parallel-owned Banking
Organizations page. Examiners should consider all of the
issues detailed in the Parallel-owned Banking
Organizations page to ascertain whether a PBO exists. If
the examiner determines that a PBO does not exist, the
Parallel-Owned Banking Organizations page should be
maintained in the examination workpapers to document the
basis of the examiners’ conclusion. If the examiner
determines that a PBO does exist, the Parallel-Owned
Banking Organizations page should be maintained in the
examination workpapers unless an adverse trend is noted.
The page should be included in the Report of Examination
if any adverse trends are noted within the PBO
relationship.
Upon the examination’s completion, the region should
forward the Parallel-Owned Banking Organizations page,
whether it is included in the Report of Examination or not,
with a cover letter to the DSC Associate Director of the
International and Large Bank Branch. Refer to the Report
of Examination Instructions and the International Section
in ED Module for additional guidance.
LAWS AND REGULATIONS
Several laws and regulations govern certain international
activities of banks and some are discussed briefly in this
section. Examiners should be familiar with these laws and
will find it useful to refer directly to them. They have been
made available to the field staff either in the Prentice-Hall
volumes or in memorandum form, both of which are
accessible on the Examiner Reference CD.
Part 347 of the FDIC's Rules and Regulations covers
international banking. Briefly, Subpart A of Part 347 (and
corresponding sections of Part 303) implements Sections
18(d) and 18(l) Federal Deposit Insurance Act and outlines
the application process by which State nonmember banks
may be given permission to operate foreign branches or
invest in foreign banks or other financial entities. The
powers or permissible activities of overseas branches are
defined by the regulations and, generally, these branches
are allowed a wider range of financial activity than is
permitted domestically. The regulations also establish
minimum standards for accounting and internal controls in
foreign branches or subsidiaries. In certain circumstances,
state nonmember bank applicants may be granted
expedited processing of their applications. The FDIC’s
external website identifies foreign countries where state
nonmember banks have subsidiaries and branches. This
site will specifically inform the applicant whether
expedited processing is available or not.
Subpart B of Part 347 implements Section 6 of the
International Banking Act of 1978 and governs FDIC
insured branch operations of FBOs. This section
establishes asset pledge and asset maintenance
requirements for insured branches of foreign banks.
Subpart B also provides for examinations of these branches
and establishes minimum recordkeeping requirements.
Subpart C of Part 347 implements the provisions of the
International Lending Supervision Act of 1983 (ILSA).
The section deals with the establishment of an Allocated
Transfer Risk Reserve (ATRR) and accounting for and
reporting of international loans and assets.
The provisions of Part 347 are similar to those contained in
Regulation K of the Board of Governors of the Federal
Reserve System which is applicable to member banks.
State nonmember banks which operate foreign branches or
subsidiaries are regulated by Part 347. Regulation K
applies primarily to member banks but it does govern Edge
or Agreement Corporations operated by nonmember banks.
FinCEN Advisories and OFAC
The Financial Crimes Enforcement Network (FinCEN)
occasionally issues advisories on countries that the
Financial Action Task Force on Money Laundering
(FATF) has determined to be noncooperative in the fight
against money laundering. Upon receiving an advisory,
banks are expected to closely scrutinize any transactions of
their customers with these countries. A listing of FATF’s
Noncooperative Countries and Territories (NCCTs) can be
found FATF’s website. FinCEN advisories can be found
on FinCEN’s website.
The Department of Treasury’s Office of Foreign Asset
Control (OFAC) enforces embargoes and sanctions by the
U.S. against foreign countries. Typically, the President
initiates these actions through an executive order based
upon authority granted to the Executive Branch by acts of
Congress. In addition, a number of individuals and entities
have been specifically designated as narcotics traffickers,
terrorists, or engaged in the proliferation of weapons of
mass destruction. Banks that identify a transaction dealing
International Banking (12-04) 11.1-28 DSC Risk Management Manual of Examination Policies
Federal Deposit Insurance Corporation