[Federal Register Volume 66, Number 228 (Tuesday, November 27, 2001)]
[Notices]
[Pages 59342-59351]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-29468]



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Part IV





Department of the Treasury





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Departmental Offices; Interim Guidance Concerning Compliance by Covered 
U.S. Financial Institutions With New Statutory Anti-Money Laundering 
Requirements Regarding Correspondent Accounts Established or Maintained 
for Foreign Banking Institutions; Notice

  Federal Register / Vol. 66, No. 228 / Tuesday, November 27, 2001 / 
Notices  

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DEPARTMENT OF THE TREASURY


Departmental Offices; Interim Guidance Concerning Compliance by 
Covered U.S. Financial Institutions With New Statutory Anti-Money 
Laundering Requirements Regarding Correspondent Accounts Established or 
Maintained for Foreign Banking Institutions

AGENCY: Department of the Treasury, Departmental Offices.

ACTION: Notice.

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SUMMARY: This notice provides interim guidance to financial 
institutions on how to comply with the requirements of sections 313 and 
319(b) of the Uniting and Strengthening America by Providing 
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA 
PATRIOT) Act of 2001 (Pub. L. 107-56). These anti-money laundering 
provisions concern the relationship between U.S. financial institutions 
and foreign banking institutions.

DATES: This notice is effective beginning November 27, 2001 and will 
remain in effect until superseded by regulations or a subsequent 
notice.

FOR FURTHER INFORMATION CONTACT: Gary W. Sutton, Senior Banking 
Counsel, Office of the Assistant General Counsel (Banking and Finance), 
202-622-1976 or William D. Langford, Attorney-Advisor, Office of the 
Assistant General Counsel (Enforcement), 202-622-1932.

SUPPLEMENTARY INFORMATION: This notice provides interim guidance to 
U.S. financial institutions on the steps necessary for them to comply 
with the requirements of 31 U.S.C. 5318(j) and (k), as enacted by 
sections 313 and 319(b) of the USA PATRIOT Act of 2001, respectively. 
Although this notice may be relied upon by financial institutions until 
superseded by regulations or a subsequent notice, no inference may be 
drawn from this notice concerning the scope and substance of 
regulations that the Department of the Treasury will issue concerning 
sections 5318(j) and (k).

I. Background

A. Statutory Background

    On October 26, 2001, the President signed into law the USA PATRIOT 
Act. Title III of the USA PATRIOT Act makes a number of amendments to 
the anti-money laundering provisions of the Bank Secrecy Act (BSA), 
which is codified in subchapter II of chapter 53 of title 31, United 
States Code. These amendments are intended to make it easier to 
prevent, detect, and prosecute international money laundering and the 
financing of terrorism. Two of these provisions become effective on 
December 5, 2001.
    First, section 313(a) of the USA PATRIOT Act adds a new subsection 
(j) of 31 U.S.C. 5318 that prohibits certain financial institutions 
from providing correspondent accounts to foreign ``shell banks'' and 
requires those 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''. Second, section 319(b) of the USA PATRIOT Act adds a new 
subsection (k) to 31 U.S.C. 5318 that requires certain financial 
institutions that provide correspondent accounts to a foreign bank to 
maintain records of the foreign bank's owners and agent in the United 
States designated to accept service of legal process.
    Under the USA PATRIOT Act, the Secretary of the Treasury 
(Secretary) is authorized to interpret and administer these provisions. 
In light of the December 25, 2001 effective date of sections 5318(j) 
and (k), the Secretary, in consultation with the federal financial 
regulators \1\ and the Attorney General, is publishing this notice to 
provide interim guidance to financial institutions in meeting their 
compliance obligations under these provisions. As discussed below, this 
notice describes a certification that financial institutions may use as 
an interim means to assist them in meeting their obligations related to 
dealing with foreign shell banks under section 5318(j) and 
recordkeeping under section 5318(k). It should be noted that this 
certification will not satisfy a financial institution's obligations 
under any other provisions of the USA PATRIOT Act, including 
obligations to conduct due diligence under 31 U.S.C. 5318(i), as added 
by section 312 of the USA PATRIOT Act, or any other applicable law or 
regulation.
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    \1\ The Office of the Comptroller of the Currency, the Office of 
Thrift Supervision, the Board of Governors of the Federal Reserve 
System, the Federal Deposit Insurance Corporation, the Commodities 
Futures Trading Commission, and the Securities and Exchange 
Commission.
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    Although the prohibition in section 5318(j) becomes effective on 
December 25, 2001, the Department of the Treasury expects that covered 
financial institutions will promptly terminate any correspondent 
account with any foreign bank that it knows to be a shell bank that is 
not a regulated affiliate as described in this notice.
1. What Are the Requirements of Section 5318(j)?
    31 U.S.C. 5318(j), as added by section 313 of the USA PATRIOT Act, 
provides that a ``covered financial institution'' shall not establish, 
maintain, administer, or manage a correspondent account in the United 
States for, or on behalf of, a foreign bank that does not have a 
physical presence in any country (shell bank). In addition, the USA 
PATRIOT Act requires a covered financial institution to take reasonable 
steps to ensure that any correspondent account established, maintained, 
administered, or managed by the covered financial institution in the 
United States for a foreign bank is not being used by that foreign bank 
to indirectly provide banking services to a foreign shell bank that is 
not a regulated affiliate.
What Is a Covered Financial Institution?
    For purposes of section 5318(j), a ``covered financial 
institution'' is: (1) Any insured bank (as defined in section 3(h) of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(h))); (2) a 
commercial bank or trust company; (3) a private banker; (4) an agency 
or branch of a foreign bank in the United States; (4) a credit union; 
(5) a thrift institution; or (6) a broker or dealer registered with the 
Securities and Exchange Commission under the Securities Exchange Act of 
1934 (15 U.S.C. 78a et seq.).
What Is a Foreign Shell Bank?
    For purposes of section 5318(j), a foreign shell bank is a foreign 
bank without a physical presence in any country. Under section 5318(j), 
a ``physical presence'' is a place of business that is maintained by a 
foreign bank and is located at a fixed address, other than solely an 
electronic address, in a country in which the foreign bank is 
authorized to conduct banking activities, at which location the foreign 
bank: (1) Employs one or more individuals on a full-time basis; (2) 
maintains operating records related to its banking activities; and (3) 
is subject to inspection by the banking authority that licensed the 
foreign bank to conduct banking activities.
What Foreign Shell Banks Are Excepted From the Limitations on 
Correspondent Accounts?
    The limitations on the direct and indirect provision of 
correspondent accounts to foreign shell banks do not apply to a foreign 
shell bank that is a regulated affiliate. A regulated affiliate is a 
foreign shell bank that (1) is an affiliate of a depository 
institution,

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credit union, or foreign bank that maintains a physical presence in the 
United States or a foreign country, as applicable; and (2) is subject 
to supervision by a banking authority in the foreign country regulating 
such affiliated depository institution, credit union, or foreign bank. 
An affiliate is a foreign bank that is controlled by or is under common 
control with a depository institution, credit union, or foreign bank.
What Is a Correspondent Account?
    31 U.S.C. 5318A(e)(1)(B), as added by section 311 of the USA 
PATRIOT Act, defines ``correspondent account,'' with respect to banking 
institutions, as ``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.'' This 
definition applies for purposes of this notice and the certification.
    It is the expectation of the Department of the Treasury that a 
covered financial institution will accord priority to requesting 
certifications in connection with foreign banks for which it maintains 
correspondent deposit accounts or their equivalents.
    The Department of the Treasury intends to issue a rule under the 
authority of section 5318A(e)(2) and (4), as added by section 311 of 
the USA PATRIOT Act, to further define the term ``account'' (1) to 
prohibit non-bank covered financial institutions (including a broker or 
dealer registered with the Securities and Exchange Commission under the 
Securities Exchange Act of 1934) from establishing or maintaining an 
account for a foreign shell bank that is not a regulated affiliate and 
(2) to require non-bank covered financial institutions to take 
reasonable steps to ensure that any account established, maintained, 
administered, or managed by such institution in the United States for a 
foreign bank is not being used by that foreign bank to indirectly 
provide banking services to a foreign shell bank that is not a 
regulated affiliate.
2. What Are the Requirements of Section 5318(k)?
    31 U.S.C. 5318(k), as added by section 319(b) of the USA PATRIOT 
Act, requires, among other things, that any covered financial 
institution that maintains a correspondent account in the United States 
for a foreign bank shall maintain records in the United States 
identifying (1) the owner(s) of such foreign bank and (2) the name and 
address of a person who resides in the United States and is authorized 
to accept service of legal process for records regarding the 
correspondent account.
What Is a Covered Financial Institution?
    Section 5318(k) does not define ``covered financial institution'' 
for purposes of this recordkeeping requirement. For purposes of this 
notice and the certification, the term ``covered financial 
institution'' has the same meaning as provided in section 5318(j) (see 
above), except that such term does not include a broker or dealer 
registered with the Securities and Exchange Commission under the 
Securities Exchange Act of 1934. The Department of the Treasury intends 
to propose similar recordkeeping requirements for such brokers and 
dealers.
What Is a Correspondent Account?
    Section 5318(k) defines ``correspondent account'' by reference to 
the definition of that term in 31 U.S.C. 5318A(e)(1)(B), as added by 
section 311 of the USA PATRIOT Act, which, as discussed above, means 
``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.''
    As noted above, it is the expectation of the Department of the 
Treasury that a covered financial institution will accord priority to 
requesting certifications in connection with foreign banks for which it 
maintains correspondent deposit accounts or their equivalents.
Who Is an Owner of a Foreign Bank?
    Section 5318(k) does not define ``owner'' for purposes of the 
requirement that a covered financial institution maintain records of 
the owners of foreign banks to which it provides correspondent 
accounts. For purposes of this notice and the certification, an 
``owner'' means any person who is a ``large direct owner,'' an 
``indirect owner,'' and certain ``small direct owners.'' For purposes 
of these definitions: (1) ``Person'' means any individual, bank, 
corporation, partnership, limited liability company, or any other legal 
entity, except that members of the same family \2\ shall be considered 
one person; and (2) ``voting shares or other voting interests'' means 
shares or other interests that entitle the holder to vote for or select 
directors (or individuals exercising similar functions).
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    \2\ The same family means parents, spouses, children, siblings, 
uncles, aunts, grandparents, grandchildren, first cousins, second 
cousins, stepchildren, stepsiblings, parents-in-law and spouses of 
any of the foregoing.
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    The definition of ``owner'' as used in this notice and in the 
certification applies only with respect to the provisions of section 
5318(k), which are designed to facilitate the service of legal process. 
No inference may be drawn as to the applicability of this definition to 
other provisions of the USA PATRIOT Act, including the enhanced due 
diligence requirements of 31 U.S.C. 5318(i) (as added by section 312 of 
the USA PATRIOT Act), which sets forth different standards for 
reporting ownership information.
Who Is a Small Direct Owner of a Foreign Bank?
    A ``small direct owner'' of a foreign bank is a person who owns, 
controls, or has power to vote less than 25 percent of any class of 
voting securities or other voting interests of the foreign bank. The 
identity of a small direct owner need not be reported for purposes of 
this notice and certification unless two or more small direct owners 
(1) in the aggregate own 25 percent or more of the voting securities or 
interests of the foreign bank and (2) are owned by the same indirect 
owner (see below).
Who Is a Large Direct Owner of a Foreign Bank?
    A ``large direct owner'' of a foreign bank is a person who (1) 
owns, controls, or has power to vote 25 percent or more of any class of 
voting securities or other voting interests of the foreign bank; or (2) 
controls in any manner the election of a majority of the directors (or 
individuals exercising similar functions) of the foreign bank. The 
identity of each large direct owner is subject to reporting.
Who Is an Indirect Owner of a Foreign Bank?
    If any large direct owner of a foreign bank is majority-owned by 
another person, or by a chain of majority-owned persons, an ``indirect 
owner'' is any person in the ownership chain of any large direct owner 
who is not majority-owned by another person.
    If any two or more small direct owners of a foreign bank (1) in the 
aggregate own, coantrol, or have power to vote 25 percent or more of 
any class of voting securities or other voting interests of the foreign 
bank and (2) are majority-owned by the same person, or by the same 
chain of majority-owned persons, the ``indirect owner'' is any person 
in the ownership chain of the small direct owners who is not majority-
owned by another person.

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    Each indirect owner is subject to reporting.
Example of Reportable Owners
    The following example illustrates the owners of a foreign bank who 
are covered by this notice and the certification:
    FB is a foreign bank. Voting securities of FB are owned by Person C 
(15 percent), Person D (35 percent), Person E (10 percent), Person F 
(20 percent), and Person G (20 percent).
    Persons C and G are both majority-owned by Person X, which is 
majority-owned by Person Y, which is majority-owned by Person Z, which 
is not majority-owned by another person.
    Person D is majority-owned by Person V, which is majority-owned by 
Person W, which is not majority-owned by another person.
    Persons E and F are not owned by another person.
    Persons C, E, F, and G are small direct owners because each owns 
less than 25 percent of the voting securities of FB. The identities of 
Persons C and G are subject to reporting under this notice because (1) 
in the aggregate they own more than 25 percent of the voting securities 
of FB and (2) they are majority-owned by the same indirect owner Z. The 
identities of Persons E and F are not subject to reporting.
    Person D is a large direct owner because it owns 25 percent or more 
of the voting securities of FB. The identity of Person D is subject to 
reporting under this notice.
    Person W is an indirect owner because it is a majority-owner of 
Person V, which is a majority-owner of Person D. The identity of Person 
W is subject to reporting under this notice. The identity of Person V 
is not subject to reporting.
    Person Z is an indirect owner because it is a majority-owner of 
Person Y, which is a majority-owner of Person X, which is a majority-
owner of Persons C and G, which are small direct owners that in the 
aggregate own 25 percent or more of the voting securities of FB. The 
identity of Person Z is subject to reporting under this notice. The 
identity of Persons Y and X are not subject to reporting.

B. Description of Certification

What Is Being Certified?
    Under paragraph 1 of the certification, a foreign bank that 
maintains a correspondent account with a covered financial institution 
certifies either that: (1) it is not a shell bank; (2) it is a shell 
bank that is a regulated affiliate; or (3) is a shell bank that is not 
a regulated affiliate, in which case a covered financial instiution is 
prohibited from establishing or maintaining a correspondent account 
with the foreign bank.
    If a foreign bank certifies that it is not a shell bank, it 
specifies in Annex I its physical address and its regulator. If the 
foreign bank certifies that it is a regulated affiliate, it specifies 
in Annex I the name and address of the non-shell bank with which it is 
affiliated and the regulator of the non-shell bank and the regulated 
affiliate.
    Under paragraph 2 of the certification, a foreign bank certifies 
either that: (1) It does not provide banking services to any foreign 
shell bank, other than a regulated affiliate; or (2) it provides 
banking services to a foreign shell bank but will not use any of the 
correspondent accounts with a U.S. financial institution to provide 
banking services to any foreign shell bank, other than a regulated 
affiliate.
    Under paragraph 3 of the certification, a foreign bank certifies 
the identity its owner(s) in annex II. Street addresses must be 
provided; post office boxes are not acceptable.
    Under paragraph 4 of the certification, a foreign bank certifies 
the identity of its agent for service of legal process in the United 
States, and identifies the agent in Annex III. Street addresses must be 
provided; post office boxes are not acceptable.
    Under paragraph 5 of the certification, a foreign bank certifies 
that it will notify each financial institution in the United States at 
which it maintains a correspondent account in writing within 30 
calendar days of any change in facts or circumstances previously 
certified or contained in the annexes to the certification.
    Under paragraph 6 of the certification, a foreign bank certifies 
that it understands that each financial institution in the United 
States at which it maintains a correspondent account may provide a copy 
of the certification to the Secretary of the Treasury and the Attorney 
General of the United States, or their delegees.
Paperwork Reduction Act
    The collection of information contained in the certification have 
been reviewed under the requirements of the Paperwork Reduction Act (44 
U.S.C. 3507(j)) and, pending receipt and evaluation of public comments, 
approved by the Office of Management and Budget (OMB) under control 
1505-0184. An agency may not conduct or sponsor, and a person is not 
required to respond to, a collection of information unless it displays 
a currently valid OMB control number.
    Comments concerning the collection of information should be 
directed to OMB, Attention: Desk Officer for the Department of the 
Treasury, Office of Information and Regulatory Affairs, Washington, DC 
20503. Any such comments should be submitted not later than January 28, 
2002.
    Comments are specifically requested concerning:
    Whether the collection of information is necessary for the proper 
performance of the functions of the Department of the Treasury, 
including whether the information will have practical utility;
    The accuracy of the estimated burden associated with the collection 
of information (see below);
    How to enhance the quality, utility, and clarity of the information 
to be collected;
    How to minimize the burden of complying with the collection of 
information, including the application of automated collection 
techniques or other forms of information technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    The collection of information in the certification will enable 
financial institutions, on an interim basis, to comply with the 
requirements of sections 313 and 319(b) of the USA PATRIOT Act of 2001. 
This information will be used to verify compliance by financial 
institutions with these provisions. The respondents are foreign banks 
that establish or maintain correspondent accounts with U.S. financial 
institutions. The reporting of this information by foreign banking 
institutions is voluntary; however failure to provide the information 
may preclude the establishment or the continuation of correspondent 
accounts with U.S. financial institutions.
    Estimated total annual reporting burden: 180,00 hours.
    Estimated number of respondents: 9,000.
    Estimated average annual reporting burden per respondent: 20 hours.
    Estimated annual frequency of responses: Once.

II. Certification

    The following form of certification may be used by a covered 
financial institution for purposes of this notice. A covered financial 
institution may use other means to obtain the information necessary to 
satisfy its obligations under section 5318(j) or 5318(k).


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    Dated: November 20, 2001.
David D. Aufhauser,
General Counsel.
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[FR Doc. 01-29468 Filed 11-21-01; 3:04 pm]
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