[Federal Register Volume 69, Number 163 (Tuesday, August 24, 2004)]
[Proposed Rules]
[Pages 51973-51979]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-19266]


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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA67


Financial Crimes Enforcement Network; Amendment to the Bank 
Secrecy Act Regulations--Imposition of Special Measure Against Infobank 
as a Financial Institution of Primary Money Laundering Concern

AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: FinCEN is issuing this notice of proposed rulemaking to impose 
a special measure against Infobank as a financial institution of 
primary money laundering concern, pursuant to the authority contained 
in 31 U.S.C. 5318A of the Bank Secrecy Act.

DATES: Written comments on the notice of proposed rulemaking must be 
submitted on or before September 23, 2004.

ADDRESSES: You may submit comments, identified by RIN 1506-AA67, by any 
of the following methods:
     Federal e-rulemaking portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: [email protected]. Include RIN 1506-
AA67 in the subject line of the message.
     Mail: FinCEN, P.O. Box 39, Vienna, VA 22183. Include RIN 
1506-AA67 in the body of the text.
    Instructions: It is preferable for comments to be submitted by 
electronic mail because paper mail in the Washington, DC, area may be 
delayed. Please submit comments by one method only. All submissions 
received must include the agency name and the Regulatory Information 
Number (RIN) for this rulemaking. All comments received will be posted 
without change to http://www.fincen.gov, including any personal 
information provided. Comments may be inspected at FinCEN between 10 
a.m. and 4 p.m., in the FinCEN reading room in Washington, DC. Persons 
wishing to inspect the comments submitted must request an appointment 
by telephoning (202) 354-6400 (not a toll-free number).

FOR FURTHER INFORMATION CONTACT: Office of Regulatory Programs, FinCEN, 
(202) 354-6400; and Office of Chief Counsel, FinCEN, at (703) 905-3590 
(not toll-free numbers).

SUPPLEMENTARY INFORMATION:

I. Background

A. Statutory Provisions

    On October 26, 2001, the President signed into law the Uniting and 
Strengthening America by Providing Appropriate Tools Required to 
Intercept and Obstruct Terrorism (USA PATRIOT Act) Act of 2001 (the USA 
Patriot Act), Pub. L. 107-56. Title III of the USA Patriot Act amends 
the anti-money laundering provisions of the Bank Secrecy Act (BSA), 
codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-
5314, 5316-5332, to promote the prevention, detection, and prosecution 
of international money laundering and the financing of terrorism. 
Regulations implementing the BSA appear at 31 CFR part 103. The 
authority of the Secretary of the Treasury (Secretary) to administer 
the BSA and its implementing regulations has been delegated to the 
Director of FinCEN.
    Section 311 of the USA Patriot Act (section 311) added section 
5318A to the BSA, granting the Secretary the authority, upon finding 
that reasonable grounds exist for concluding that a foreign 
jurisdiction, institution, class of transactions, or type of account is 
of ``primary money laundering concern,'' to require domestic financial 
institutions and financial agencies to take certain ``special 
measures'' against the primary money laundering concern. Section 311 
identifies factors for the Secretary to consider and agencies to 
consult before the Secretary may conclude that a jurisdiction, 
institution, or transaction is of primary money laundering concern. The 
statute also provides similar procedures, i.e., factors and 
consultation requirements, for selecting the imposition of specific 
special measures against the primary money laundering concern.
    Taken as a whole, section 311 provides the Secretary with a range 
of options that can be adapted to target specific money laundering and 
terrorist financing concerns most effectively. These options give the 
Secretary the authority to bring additional and useful pressure on 
those jurisdictions and institutions that pose money laundering 
threats. Through the imposition of various special measures, the 
Secretary can gain more information about the concerned jurisdictions, 
institutions, transactions, and accounts; can more effectively monitor 
the respective jurisdictions, institutions, transactions, and accounts; 
and/or can protect U.S. financial institutions from involvement with 
jurisdictions, institutions, transactions, or accounts that pose a 
money laundering concern. Before making a finding that reasonable 
grounds exist for concluding that a foreign financial institution is of 
primary money laundering concern, the Secretary is required to consult 
with both the Secretary of State and the Attorney General.
    In addition to these consultations, the Secretary, when finding 
that a foreign financial institution is of primary money laundering 
concern, is required by statute to consider ``such information as the 
Secretary determines to be relevant, including the following 
potentially relevant factors'':
     The extent to which such financial institution is used to 
facilitate or promote money laundering in or through the jurisdiction;
     The extent to which such financial institution is used for 
legitimate business purposes in the jurisdiction; and
     The extent to which the finding that the institution is of 
primary money laundering concern is sufficient to ensure, with respect 
to transactions involving the institution operating in the 
jurisdiction, that the purposes of the BSA continue to be fulfilled, 
and to guard against international money laundering and other financial 
crimes.
    If the Secretary determines that a foreign financial institution is 
of primary money laundering concern, the Secretary must determine the 
appropriate special measure(s) to address the specific money laundering 
risks. Section 311 provides a range of special measures that can be 
imposed, individually, jointly, in any combination, and in any 
sequence.\1\ The Secretary's imposition of special measures follows 
procedures similar to those for designations, but carries with it 
additional consultations to be made and factors to consider. The 
statute requires the Secretary to consult with appropriate Federal 
agencies and other

[[Page 51974]]

interested parties \2\ and to consider the following specific factors:
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    \1\ Available special measures include requiring: (1) 
Recordkeeping and reporting of certain financial transactions; (2) 
collection of information relating to beneficial ownership; (3) 
collection of information relating to certain payable-through 
accounts; (4) collection of information relating to certain 
correspondent accounts; and (5) prohibition or conditions on the 
opening or maintaining of correspondent or payable-through accounts. 
31 U.S.C. 5318A(b)(1)-(5). For a complete discussion of the range of 
possible countermeasures, see 68 FR 18917 (April 17, 2003) 
(proposing to impose special measures against Nauru).
    \2\ Section 5318A(a)(4)(A) requires the Secretary to consult 
with the Chairman of the Board of Governors of the Federal Reserve 
System, any other appropriate Federal banking agency, the Secretary 
of State, the Securities and Exchange Commission (SEC), the 
Commodity Futures Trading Commission (CFTC), the National Credit 
Union Administration (NCUA), and, in the sole discretion of the 
Secretary, ``such other agencies and interested parties as the 
Secretary may find to be appropriate.'' The consultation process 
must also include the Attorney General, if the Secretary is 
considering prohibiting or imposing conditions on domestic financial 
institutions maintaining correspondent account relationships with 
the designated entity.
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     Whether similar action has been or is being taken by other 
nations or multilateral groups;
     Whether the imposition of any particular special measure 
would create a significant competitive disadvantage, including any 
undue cost or burden associated with compliance, for financial 
institutions organized or licensed in the United States;
     The extent to which the action or the timing of the action 
would have a significant adverse systemic impact on the international 
payment, clearance, and settlement system, or on legitimate business 
activities involving the particular institution; and
     The effect of the action on United States national 
security and foreign policy.\3\
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    \3\ Classified information used in support of a section 311 
finding and measure(s) may be submitted by Treasury to a reviewing 
court ex parte and in camera. See section 376 of the Intelligence 
Authorization Act for Fiscal Year 2004, Pub. L. 108-177 (amending 31 
U.S.C. 5318A by adding new paragraph (f)).
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B. Infobank

    In this rulemaking, FinCEN proposes to impose the fifth special 
measure (31 U.S.C. 5318A(b)(5)) against Infobank. The fifth special 
measure prohibits or conditions the opening or maintaining of 
correspondent or payable-through accounts. This special measure may be 
imposed only through the issuance of a regulation.
    Infobank was established in 1994, in Minsk, Belarus, and is one of 
the country's ten largest banks. Infobank maintains four domestic 
branches. It had operated two additional branches in Russia until 2001 
when they were closed by the Central Bank of Russia.\4\ Infobank is a 
national commercial bank licensed by the National Bank of the Republic 
of Belarus (NBRB) to engage in foreign trade including foreign exchange 
transactions. As of 2003, the NBRB expanded Infobank's license to 
enable it to carry out banking operations in gems and precious metals. 
It maintains correspondent accounts with several European banks and at 
least one bank in New York City. Infobank is a joint-stock bank. 
Shareholders of Infobank include many private Belarusian companies. The 
government of Belarus is a principal shareholder of the bank's capital. 
In 2001, Infobank sold a 35 percent share of its shares to the Libyan 
Arab Foreign Bank (LAFB), which is fully owned by the Central Bank of 
Libya.
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    \4\ In addition, activity indicative of money laundering has 
been reported transiting the Moscow branch's correspondent accounts 
in the U.S., which were subsequently closed by the U.S. 
correspondent.
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    In addition to banking operations, Infobank is actively involved in 
a number of business ventures through a network of affiliated entities, 
joint ventures, and its subsidiary. These concerns include Bel-Cel, a 
cellular telecommunications corporation, Systems Business Management, a 
joint venture that specializes in project finance in the Middle East 
and Eastern Europe, and MAZ-MAN, a tractor manufacturing company. 
Infobank, however, is widely reported to be a bank specializing in 
financial transactions related to arms exports because of the 
activities of its subsidiary corporation, Belmetalnergo. Infobank and 
Belmetalnergo have procured and financed weapons and military equipment 
for several nations deemed by the United States to be State Sponsors of 
Terrorism. Until the collapse of the former Iraqi regime, Belmetalnergo 
brokered various contracts with the former Iraqi government for the 
provision of, among other things, military equipment and training for 
Iraqi armed forces in violation of relevant United Nations (U.N.) 
resolutions. In addition, Infobank's Chairman, Victor Shevstov, 
reportedly had close ties with the former Iraqi regime. Shevstov served 
as Chairman of the Iraqi-Belarus Friendship Society. Despite the 
collapse of the former Iraqi regime, Infobank continues to maintain 
funds in accounts established for the Central Bank of Iraq.\5\ At this 
time, the government of Belarus has not taken steps to transfer the 
funds at Infobank in compliance with UNSCR 1483.
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    \5\ UNSCR 1483 requires Member States in which there are funds 
or other financial assets of the previous Government of Iraq or its 
state bodies, corporations, or agencies, located outside Iraq, to 
freeze those assets and, unless they are the subject of prior 
judicial, administrative, or arbitral lien or judgment, to transfer 
them to the Development Fund of Iraq.
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    The Republic of Belarus has a weak anti-money laundering regime. 
Drug or nondrug related money laundering is criminalized, but not 
explicitly, in the anti-money laundering legislation. Additionally, the 
money laundering legislation is not consistent with international 
standards as set forth in the Financial Action Task Force's 40 
Recommendations on Money Laundering. There is no time frame for the 
reporting of suspicious transactions to government authorities and 
there are no penalties for non-compliance. Further, Belarus has failed 
to implement effectively the anti-money laundering legislation that has 
been adopted. Belarus' banking system is particularly vulnerable to 
money laundering because it suffers from a general lack of transparency 
and the role of the primary regulatory authority, the NBRB, is 
overshadowed by the Presidential Administration, which, in practice, 
maintains significant influence over the central and commercial banking 
operations of the country. Belarus also is a major exporter of arms. It 
is widely reported to be involved in supplying arms, equipment 
services, and training to Libya, Syria, and Iraq.

II. Imposition of Special Measure Against Infobank as a Financial 
Institution of Primary Money Laundering Concern

A. Finding

    Based upon a review and analysis of relevant information, 
consultations with relevant agencies and departments, and after 
consideration of the factors enumerated in section 311, the Secretary, 
through his delegate, the Director of FinCEN, has determined that 
Infobank is a financial institution of primary money laundering 
concern. Infobank is well positioned to coordinate illicit activity 
using its subsidiary and network of affiliated entities and to launder 
the proceeds of those activities directly through its banking 
operations. FinCEN has reason to believe that Infobank actively 
laundered funds for the former Iraqi regime of Saddam Hussein. In 
addition to this money laundering activity described in detail below, 
Infobank's high risk activities noted above, including the sale of 
military equipment and weapons to a jurisdiction that was embargoed by 
the United Nations and to jurisdictions deemed to be sponsors of 
terrorism by the United States, exacerbate the risk it presents to the 
U.S. financial system. A discussion of the section 311 factors relevant 
to this finding follows.

[[Page 51975]]

1. The Extent to Which Infobank Has Been Used To Facilitate or Promote 
Money Laundering in or Through the Jurisdiction
    FinCEN has reason to believe, based upon a variety of sources, that 
Infobank is used to facilitate or promote money laundering. The U.S. 
Government has information through classified and other sources that 
Infobank has laundered funds for the former Iraqi regime of Saddam 
Hussein. Specifically, Infobank laundered funds illegally paid to the 
former regime in order to obtain contracts to purchase Iraqi oil in 
violation of comprehensive United Nations sanctions and programs. Under 
the United Nations' Oil-for-Food program (UN OFF),\6\ substantial 
controls were placed on Iraq's ability to export oil and import 
humanitarian goods. The Iraqi State Oil Marketing Organization (SOMO) 
negotiated contracts with international oil companies to sell Iraqi 
oil. U.N. overseers approved the contracts and the funds paid under the 
contract were deposited by the purchasers directly into an escrow 
account controlled by the U.N. Contracts to supply the Iraqi people 
with humanitarian goods also were approved by the U.N. and paid from 
the escrow account. However, around 2001, to defraud the governments 
enforcing the sanctions regime,\7\ Iraq's SOMO began demanding the 
payment of a surcharge from potential buyers of oil to be paid directly 
into Iraqi bank accounts. Public information shows that in 2001, 
Infobank's subsidiary, Belmetalnergo, entered into contracts to 
purchase Iraqi oil. Information from a variety of sources further 
indicates that Belmetalnergo agreed to pay the illegal surcharges and 
deposited those funds into Infobank accounts for the benefit of the 
Iraqi government. Additional information suggests that Belmetalnergo 
entered into contracts for the provision of humanitarian goods to Iraq; 
these contracts inflated the value of the goods that Belmetalnergo 
actually provided. The excess funds paid under the contract were placed 
in Infobank accounts held for the benefit of the former Iraqi 
government. These fraudulently obtained funds derived from the illegal 
surcharges and the inflated UN OFF contracts were laundered through 
several other foreign banks and shell corporations. Finally, proceeds 
from the illegal surcharges and inflated contracts either were returned 
to the Iraqi government, in violation of the UN OFF program conditions, 
or were used to purchase weapons or finance military training through 
Infobank and Belmetalnergo.\8\
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    \6\ In 1995, the U.N. Security Council adopted Resolution 986, 
establishing the Oil-for-Food Program. The Program provided Iraq 
with an opportunity to sell oil to finance the purchase of 
medicines, health supplies, food, and other humanitarian goods, 
notwithstanding the U.N.-imposed sanctions then in effect with 
respect to Iraq. The first Iraqi oil under the Program was exported 
in December 1996 and the first shipments of food arrived in March 
1997.
    \7\ The Department of the Treasury's Office of Foreign Assets 
Control (OFAC) implemented the U.N. sanctions program governing 
transactions with Iraq under regulations contained in 31 CFR 575 et 
seq. Among other things, the OFAC regulations required U.S. persons 
interested in engaging in contracts under the UN OFF program to 
obtain a license from OFAC once the contract had been approved by 
the U.N. overseers and prior to performance, and required that all 
payments be made only to the escrow account controlled by the U.N. 
See 31 CFR 575.523.
    \8\ United Nations Security Council Resolution (UNSCR) 661, 
dating back to 1990, imposed a full trade embargo barring all 
imports or exports to Iraq with limited exceptions for humanitarian 
goods. Although the United Nations has lifted most sanctions against 
Iraq with the passage of UNSCR 1483 following the collapse of the 
Hussein regime, certain prohibitions on arms and weapons transfers 
to Iraq are still in place.
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2. The Extent to Which Infobank Is Used for Legitimate Business 
Purposes in the Jurisdiction
    It is difficult to determine the extent to which Infobank is used 
for legitimate purposes. Most banking transactions within Belarus are 
conducted by the country's six largest banks, while Infobank ranks as 
the tenth largest. Infobank likely engages in some legitimate activity 
given its participation through its partnerships and affiliated 
entities in such business ventures as cellular telecommunications and 
project finance. Given the weak anti-money laundering regime in 
Belarus, however, the activities of Infobank are not subject to 
meaningful scrutiny or oversight, and there is little information about 
its legitimate activities available to the public.
    In any event, Infobank's involvement in laundering funds for the 
former Iraqi regime and in illicit and black market arms trade 
significantly outweighs any legitimate use of its banking operations. 
As stated earlier, Infobank is well positioned both to direct and 
coordinate illegal activity and to launder funds through its banking 
operations, making it a significant money laundering risk.
3. The Extent to Which Such Action Is Sufficient To Ensure, With 
Respect to Transactions Involving Infobank, That the Purposes of the 
BSA Continue To Be Fulfilled, and To Guard Against International Money 
Laundering and Other Financial Crimes
    As detailed above, FinCEN has reasonable grounds to believe that 
Infobank is being used to promote or facilitate money laundering. At 
the moment, there are no protective measures that specifically target 
Infobank. Thus, finding Infobank to be a financial institution of 
primary money laundering concern and prohibiting the maintenance of 
correspondent accounts for that institution are necessary steps to 
ensure that Infobank is not able to access the U.S. financial system to 
facilitate money laundering or to engage in any other criminal purpose.

B. Imposition of Special Measure

    As a result of the finding that Infobank is a financial institution 
of primary money laundering concern, and based upon the additional 
consultations and the consideration of all relevant factors, the 
Secretary, through his delegate, the Director of FinCEN, has determined 
that reasonable grounds exist for the imposition of the special measure 
authorized by section 5318A(b)(5).\9\ That special measure authorizes 
the prohibition of the opening or maintaining of correspondent accounts 
\10\ by any domestic financial institution or agency for or on behalf 
of a targeted financial institution. A discussion of the additional 
section 311 factors relevant to imposing this particular special 
measure follows.
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    \9\ In connection with this action, FinCEN consulted with staff 
of the Federal functional regulators, the Department of Justice, and 
the State Department.
    \10\ For purposes of the proposed rule, a correspondent account 
is defined as an account established to receive deposits from, or 
make payments or other disbursements on behalf of, a foreign bank, 
or handle other financial transactions related to the foreign bank.
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1. Whether Similar Actions Have Been or Will Be Taken by Other Nations 
or Multilateral Groups Against Infobank
    Infobank's Russian branches have been closed by Russia's Central 
Bank. Other countries have not, as yet, taken an action similar to the 
one proposed in this rulemaking that would prohibit domestic financial 
institutions and agencies from opening or maintaining a correspondent 
account for or on behalf of Infobank. The U.S. Government hopes that 
other countries will take similar action based on the findings 
contained in this rulemaking. In the meantime, lack of similar action 
by other countries makes it even more imperative that the fifth special 
measure be imposed in order to prevent access by Infobank to the U.S. 
financial system.

[[Page 51976]]

2. Whether the Imposition of the Fifth Special Measure Would Create a 
Significant Competitive Disadvantage, Including Any Undue Cost or 
Burden Associated With Compliance, for Financial Institutions Organized 
or Licensed in the United States
    The fifth special measure sought to be imposed by this rulemaking 
would prohibit covered financial institutions from opening and 
maintaining correspondent accounts for, or on behalf of, Infobank. As a 
corollary to this measure, covered financial institutions also would be 
required to apply special due diligence to all of their correspondent 
accounts to ensure that no such account is being used indirectly to 
provide services to Infobank. The burden associated with these 
requirements is not expected to be significant, given that few U.S. 
banks currently maintain correspondent accounts for Infobank. In 
addition, all U.S. financial institutions currently apply some degree 
of due diligence to the transactions or accounts subject to sanctions 
administered by the Office of Foreign Assets Control (OFAC) of the 
Department of the Treasury. As explained in more detail in the section-
by-section analysis below, financial institutions should be able to 
adapt their current screening procedures for OFAC sanctions to comply 
with this special measure. Thus, the special due diligence that would 
be required by this rulemaking is not expected to impose a significant 
additional burden upon U.S. financial institutions.
3. The Extent to Which the Proposed Action or Timing of the Action Will 
Have a Significant Adverse Systemic Impact on the International 
Payment, Clearance, and Settlement System, or on Legitimate Business 
Activities of Infobank
    This rulemaking targets Infobank specifically; it does not target a 
class of financial transactions (such as wire transfers) or a 
particular jurisdiction or jurisdictions. Infobank is not a major 
participant in the international payment system and is not relied upon 
by the international banking community for clearance or settlement 
services. Thus, the imposition of the fifth special measure against 
Infobank will not have a significant adverse systemic impact on the 
international payment, clearance, and settlement system. As noted 
above, there is little information available about Infobank's 
legitimate business activities, but in light of the reasons for 
imposing this special measure, FinCEN does not believe it will impose 
undue burden on legitimate business activities, and notes that the 
presence of nine larger banks in Belarus will alleviate the burden on 
legitimate business activities within that jurisdiction.
4. The Effect of the Proposed Action on United States National Security 
and Foreign Policy
    The exclusion from the U.S. financial system of banks that serve as 
conduits for significant money laundering activity and other financial 
crimes enhances national security, making it more difficult for 
criminals to access the substantial resources of the U.S. financial 
system. More generally, the imposition of the fifth special measure 
would complement diplomatic actions undertaken by the U.S. Government 
to curb Belarus' involvement in international arms trafficking.
    Therefore, after conducting the required consultations and weighing 
the relevant factors, FinCEN has determined that reasonable grounds 
exist for concluding that Infobank is a financial institution of 
primary money laundering concern and for imposing the special measure 
authorized by 31 U.S.C. 5318A(b)(5).

III. Section-by-Section Analysis

    The proposed rule would prohibit covered financial institutions 
from establishing, maintaining, administering, or managing in the 
United States any correspondent account for, or on behalf of, Infobank. 
Infobank is defined specifically in the proposed notice to include 
Belmetalnergo. Although Belmetalnergo is not a banking institution, its 
activities are controlled and directed by Infobank, and it has been a 
substantial participant in the money laundering activity transiting 
Infobank. Therefore, FinCEN is defining Infobank to include 
Belmetalnergo under the proposed notice to ensure that Infobank cannot 
indirectly access the U.S. financial system through Belmetalnergo. As a 
corollary to this prohibition, covered financial institutions would be 
required to apply special due diligence to their correspondent accounts 
to guard against their indirect use by Infobank. At a minimum, that 
special due diligence must include two elements. First, a covered 
financial institution must notify its correspondent account holders 
that they may not provide Infobank with access to the correspondent 
account maintained at the covered financial institution. Second, a 
covered financial institution must take reasonable steps to identify 
any indirect use of its correspondent accounts by Infobank, to the 
extent that such indirect use can be determined from transactional 
records maintained by the covered financial institution in the normal 
course of business. A covered financial institution should take a risk-
based approach when deciding what, if any, additional due diligence 
measures it should adopt to guard against the indirect use of its 
correspondent accounts by Infobank, based on risk factors such as the 
type of services it offers and geographic locations of its 
correspondents.

A. 103.190(a)--Definitions

1. Correspondent Account
    Section 103.190(a)(1) defines the term ``correspondent account'' by 
reference to the definition contained in 31 CFR 103.175(d)(1)(ii). 
Section 103.175(d)(1)(ii) defines a correspondent account to mean an 
account established to receive deposits from, or make payments or other 
disbursements on behalf of, a foreign bank, or handle other financial 
transactions related to the foreign bank.
    In the case of a U.S. depository institution, this broad definition 
would include most types of banking relationships between a U.S. 
depository institution and a foreign bank, including payable-through 
accounts.
    In the case of securities broker-dealers, futures commission 
merchants, introducing brokers, and investment companies that are open-
end companies (mutual funds), a correspondent account would include any 
account that permits the foreign bank to engage in (1) trading in 
securities and commodity futures or options, (2) funds transfers, or 
(3) other types of financial transactions.
    FinCEN is using the same definition for purposes of the proposed 
rule as that established in the final rule implementing sections 313 
and 319(b) of the USA Patriot Act \11\ except that the term is being 
expanded to cover such accounts maintained by futures commission 
merchants, introducing brokers, and mutual funds.
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    \11\ See 67 FR 60562 (September 26, 2002), codified at 31 CFR 
103.175(d)(1).
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2. Covered Financial Institution
    Section 103.190(a)(2) of the proposed rule defines covered 
financial institution to mean all of the following: any insured bank 
(as defined in section 3(h) of the Federal Deposit Insurance Act (12 
U.S.C. 1813(h)); a commercial bank or trust company; a private banker; 
an agency or branch of a foreign bank in the United States; a credit 
union; a thrift institution; a corporation acting under section 25A of 
the Federal Reserve Act (12 U.S.C. 611 et seq.); a broker or dealer 
registered or required to register with the SEC under the

[[Page 51977]]

Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.); a futures 
commission merchant or an introducing broker registered, or required to 
register, with the CFTC under the Commodity Exchange Act (7 U.S.C. 1 et 
seq.); and an investment company (as defined in section 3 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-3)) that is an open-end 
company (as defined in section 5 of the Investment Company Act of 1940 
(15 U.S.C. 80a-5)) that is registered, or required to register, with 
the SEC under Section 8 of the Investment Company Act of 1940 (15 
U.S.C. 80a-8).
3. Infobank
    Section 103.190(a)(3) of the proposed rule defines Infobank to 
include all headquarters, branches, and offices of Infobank operating 
in Belarus or in any jurisdiction. All subsidiaries of Infobank, 
including Belmetalnergo, are included in the definition, although 
FinCEN understands that Infobank currently only has one subsidiary, 
Belmetalnergo. FinCEN will provide updated information as it is 
available; however, covered financial institutions should take 
commercially reasonable measures to determine whether a customer is a 
subsidiary of Infobank.

B. 103.190(b)--Requirements for Covered Financial Institutions

1. Prohibition on Direct Use of Correspondent Accounts
    Section 103.190(b)(1) of the proposed rule prohibits all covered 
financial institutions from establishing, maintaining, administering, 
or managing a correspondent or payable-through account in the United 
States for, or on behalf of, Infobank. The prohibition would require 
all covered financial institutions to review their account records to 
ensure that they maintain no accounts directly for, or on behalf of, 
Infobank.
2. Special Due Diligence of Correspondent Accounts To Prohibit Indirect 
Use
    As a corollary to the prohibition on maintaining correspondent 
accounts directly for Infobank, section 103.190(b)(2) requires a 
covered financial institution to apply special due diligence to its 
correspondent accounts \12\ that is reasonably designed to guard 
against their indirect use by Infobank. At a minimum, that special due 
diligence must include notifying correspondent account holders that 
they may not provide Infobank with access to the correspondent account 
maintained at the covered financial institution. For example, a covered 
financial institution may satisfy this requirement by transmitting the 
following notice to all of its correspondent account holders:
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    \12\ Again, for purposes of the proposed rule, a correspondent 
account is defined as an account established to receive deposits 
from, or make payments or other disbursements on behalf of, a 
foreign bank, or handle other financial transactions related to the 
foreign bank.

Notice: Pursuant to U.S. regulations issued under section 311 of the 
USA PATRIOT Act, 31 CFR 103.190, we are prohibited from 
establishing, maintaining, administering or managing a correspondent 
account for, or on behalf of, Infobank or any of its subsidiaries 
(including Belmetalnergo). The regulations also require us to notify 
you that you may not provide Infobank or any of its subsidiaries 
with access to the correspondent account you hold at our financial 
institution. If we become aware that Infobank or any of its 
subsidiaries is indirectly using the correspondent account you hold 
at our financial institution, we will be required to take 
appropriate steps to block such access, including by terminating 
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your account.

    The purpose of the notice requirement is to help ensure cooperation 
from correspondent account holders in denying Infobank access to the 
U.S. financial system, as well as to increase awareness within the 
international financial community of the risks and deficiencies of 
Infobank. However, FinCEN does not require or expect a covered 
financial institution to obtain a certification from its correspondent 
account holders that indirect access will not be provided in order to 
comply with this notice requirement. Instead, methods of compliance 
with the notice requirement could include, for example, transmitting a 
one-time notice by mail, fax, or e-mail to a covered financial 
institution's correspondent account customers, informing them that they 
may not provide Infobank with access to the covered financial 
institution's correspondent account, or including such information in 
the next regularly occurring transmittal from the covered financial 
institution to its correspondent account holders. FinCEN specifically 
solicits comments on the appropriate form and scope of the notice that 
would be required under the rule.
    A covered financial institution also would be required under this 
rulemaking to take reasonable steps to identify any indirect use of its 
correspondent accounts by Infobank, to the extent that such indirect 
use can be determined from transactional records maintained by the 
covered financial institution in the normal course of business. For 
example, a covered financial institution would be expected to apply an 
appropriate screening mechanism to be able to identify a funds transfer 
order that on its face listed Infobank as the originator's or 
beneficiary's financial institution, or otherwise referenced Infobank. 
An appropriate screening mechanism could be the mechanism used by a 
covered financial institution to comply with sanctions programs 
administered by OFAC. FinCEN specifically solicits comments on the 
requirement under the proposed rule that a covered financial 
institution take reasonable steps to screen its correspondent accounts 
in order to identify any indirect use of such accounts by Infobank.
    Notifying its correspondent account holders and taking reasonable 
steps to identify any indirect use of its correspondent accounts by 
Infobank in the manner discussed above are the minimum due diligence 
requirements under the proposed rule. Beyond these minimum steps, a 
covered financial institution should adopt a risk-based approach for 
determining what, if any, additional due diligence measures it should 
implement to guard against the indirect use of its correspondents 
accounts by Infobank, based on risk factors such as the type of 
services it offers and the geographic locations of its correspondent 
account holders.
    A covered financial institution that obtains knowledge that a 
correspondent account is being used by a foreign bank to provide 
indirect access to Infobank must take all appropriate steps to block 
such indirect access, including, where necessary, terminating the 
correspondent account. A covered financial institution may afford the 
foreign bank a reasonable opportunity to take corrective action prior 
to terminating the correspondent account. Should the foreign bank 
refuse to comply, or if the covered financial institution cannot obtain 
adequate assurances that the account will no longer be used for 
impermissible purposes, the covered financial institution must 
terminate the account within a commercially reasonable time. This means 
that the covered financial institution should not permit the foreign 
bank to establish any new positions or execute any transactions through 
the account, other than those necessary to close the account. A covered 
financial institution may reestablish an account closed under the 
proposed rule if it determines that the account will not be used to 
provide banking services indirectly to Infobank. FinCEN specifically 
solicits comment on the requirement under the proposed rule that a 
covered financial institution block indirect access to Infobank, once 
such indirect access is identified.

[[Page 51978]]

3. Reporting Not Required
    Section 103.190(b)(3) of the proposed rule clarifies that the rule 
does not impose any reporting requirement upon any covered financial 
institution that is not otherwise required by applicable law or 
regulation. A covered financial institution must, however, document its 
compliance with the requirement that it notify its correspondent 
account holders that they may not provide Infobank with access to the 
correspondent account maintained at the covered financial institution.

IV. Request for Comments

    FinCEN invites comments on all aspects of the proposal to prohibit 
the opening or maintaining of correspondent accounts for or on behalf 
of Infobank, and specifically invites comments on the following 
matters:
    1. The appropriate form and scope of the notice to correspondent 
account holders that would be required under the rule;
    2. The appropriate scope of the proposed requirement for a covered 
financial institution to take reasonable steps to identify any indirect 
use of its correspondent accounts by Infobank;
    3. The appropriate steps a covered financial institution should 
take once it identifies an indirect use of one of its correspondent 
accounts by Infobank; and
    4. The impact of the proposed special measure upon legitimate 
transactions with Infobank.

V. Regulatory Flexibility Act

    It is hereby certified that this proposed rule will not have a 
significant economic impact on a substantial number of small entities. 
FinCEN understands that Infobank currently maintains only a handful of 
correspondent accounts in the United States, and that those accounts 
are maintained at very large banks. Thus, the prohibition on 
maintaining such accounts will not have a significant impact on a 
substantial number of small entities. In addition, all U.S. persons, 
including U.S. financial institutions, currently exercise some degree 
of due diligence in order to comply with U.S. sanctions programs 
administered by OFAC, which can easily be modified to monitor for the 
use of correspondent accounts by Infobank. Thus, the special due 
diligence that would be required by this rulemaking--i.e., the one-time 
transmittal of notice to correspondent account holders--is not expected 
to impose a significant additional economic burden upon small U.S. 
financial institutions. FinCEN invites comments from members of the 
public who believe there will be a significant economic impact on small 
entities.

VI. Paperwork Reduction Act

    The collection of information contained in this proposed rule is 
being submitted to the Office of Management and Budget for review in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)). Comments on the collection of information should be sent 
(preferably by fax (202) 395-6974) to Desk Officer for the Department 
of the Treasury, Office of Information and Regulatory Affairs, Office 
of Management and Budget, Paperwork Reduction Project (1506), 
Washington, DC 20503 (or by e-mail to [email protected]), with a 
copy to FinCEN by mail or e-mail at the addresses previously specified. 
Comments on the collection of information should be received by 
September 23, 2004. In accordance with the requirements of the 
Paperwork Reduction Act of 1995, 44 U.S.C. 3506(c)(2)(A), and its 
implementing regulations, 5 CFR 1320, the following information 
concerning the collection of information as required by 31 CFR 103.190 
is presented to assist those persons wishing to comment on the 
information collection.
    The collection of information in this proposed rule is in 31 CFR 
103.190(b)(2)(i) and 31 CFR 103.190(b)(3)(i). The disclosure 
requirement in 31 CFR 103.190(b)(2)(i) is intended to ensure 
cooperation from correspondent account holders in denying access to the 
U.S. financial system, as well as to increase awareness within the 
international financial community of the risks and deficiencies of 
Infobank. The information required to be maintained by 31 CFR 
103.190(b)(3)(i) will be used by Federal agencies and certain self-
regulatory organizations to verify compliance by covered financial 
institutions with the provisions of 31 CFR 103.190. The class of 
financial institutions affected by the disclosure requirement is 
identical to the class of financial institutions affected by the 
recordkeeping requirement. The collection of information is mandatory.
    Description of Affected Financial Institutions: Banks, broker-
dealers in securities, futures commission merchants and introducing 
brokers, and mutual funds maintaining correspondent accounts.
    Estimated Number of Affected Financial Institutions: 5,000.
    Estimated Average Annual Burden Hours per Affected Financial 
Institution: The estimated average burden associated with the 
collection of information in this proposed rule is 1 hour per affected 
financial institution.
    Estimated Total Annual Burden: 5,000 hours.
    FinCEN specifically invites comments on: (a) Whether the proposed 
collection of information is necessary for the proper performance of 
the mission of FinCEN, including whether the information shall have 
practical utility; (b) the accuracy of FinCEN's estimate of the burden 
of the proposed collection of information; (c) ways to enhance the 
quality, utility, and clarity of the information required to be 
maintained; (d) ways to minimize the burden of the required collection 
of information, including through the use of automated collection 
techniques or other forms of information technology; and (e) estimates 
of capital or start-up costs and costs of operation, maintenance, and 
purchase of services to maintain the information.

VII. Executive Order 12866

    This proposed rule is not a significant regulatory action for 
purposes of Executive Order 12866, ``Regulatory Planning and Review.''

List of Subjects in 31 CFR Part 103

    Administrative practice and procedure, Banks and banking, Brokers, 
Counter-money laundering, Counter-terrorism, and Foreign banking.

Authority and Issuance

    For the reasons set forth in the preamble, part 103 of title 31 of 
the Code of Federal Regulations is proposed to be amended as follows:

PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND 
FINANCIAL TRANSACTIONS

    1. The authority citation for part 103 is revised to read as 
follows:

    Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314, 
5316-5332; title III, secs. 311, 312, 313, 314, 319, 326, 352, Pub. 
L. 107-56, 115 Stat. 307.

    2. Subpart I of part 103 is proposed to be amended by adding new 
Sec.  103.190 to read as follows:


Sec.  103.190  Special measures against Infobank.

    (a) Definitions. For purposes of this section:
    (1) Infobank means all headquarters, branches, offices, and 
subsidiaries of Infobank operating in Belarus or in any jurisdiction, 
including Belmetalnergo.
    (2) Correspondent account has the same meaning as provided in Sec.  
103.175(d)(1)(ii).

[[Page 51979]]

    (3) Covered financial institution has the same meaning as provided 
in Sec.  103.175(f)(2) and also includes:
    (i) A futures commission merchant or an introducing broker 
registered, or required to register, with the Commodity Futures Trading 
Commission under the Commodity Exchange Act (7 U.S.C. 1 et seq.); and
    (ii) An investment company (as defined in section 3 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-5)) that is an open-end 
company (as defined in section 5 of the Investment Company Act (15 
U.S.C. 80a-5)) and that is registered, or required to register, with 
the Securities and Exchange Commission under section 8 of the 
Investment Company Act (15 U.S.C. 80a-8).
    (4) Subsidiary means a company of which more than 50 percent of the 
voting stock or analogous equity interest is owned by another company.
    (b) Requirements for covered financial institutions--(1) 
Prohibition on direct use of correspondent accounts. A covered 
financial institution shall terminate any correspondent account that is 
established, maintained, administered, or managed in the United States 
for, or on behalf of, Infobank.
    (2) Special due diligence of correspondent accounts to prohibit 
indirect use. (i) A covered financial institution shall apply special 
due diligence to its correspondent accounts that is reasonably designed 
to guard against their indirect use by Infobank. At a minimum, that 
special due diligence must include:
    (A) Notifying correspondent account holders that they may not 
provide Infobank with access to the correspondent account maintained at 
the covered financial institution; and
    (B) Taking reasonable steps to identify any indirect use of its 
correspondent accounts by Infobank, to the extent that such indirect 
use can be determined from transactional records maintained in the 
covered financial institution's normal course of business.
    (ii) A covered financial institution shall take a risk-based 
approach when deciding what, if any, additional due diligence measures 
it should adopt to guard against the indirect use of its correspondent 
accounts by Infobank.
    (iii) A covered financial institution that obtains knowledge that a 
correspondent account is being used by the foreign bank to provide 
indirect access to Infobank, shall take all appropriate steps to block 
such indirect access, including, where necessary, terminating the 
correspondent account.
    (3) Recordkeeping and reporting. (i) A covered financial 
institution is required to document its compliance with the notice 
requirement set forth in paragraph (b)(2)(i)(A) of this section.
    (ii) Nothing in this section shall require a covered financial 
institution to report any information not otherwise required to be 
reported by law or regulation.

    Dated: August 18, 2004.
William J. Fox,
Director, Financial Crimes Enforcement Network.
[FR Doc. 04-19266 Filed 8-23-04; 8:45 am]
BILLING CODE 4810-02-P