[Federal Register Volume 71, Number 2 (Wednesday, January 4, 2006)]
[Rules and Regulations]
[Pages 496-515]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-5]



[[Page 495]]

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Part III





Department of the Treasury





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31 CFR Part 103



Financial Crimes Enforcement Network; Anti-Money Laundering Programs; 
Special Due Diligence Programs for Certain Foreign Accounts; Final Rule 
and Proposed Rule

  Federal Register / Vol. 71, No. 2 / Wednesday, January 4, 2006 / 
Rules and Regulations  

[[Page 496]]


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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA29


Financial Crimes Enforcement Network; Anti-Money Laundering 
Programs; Special Due Diligence Programs for Certain Foreign Accounts

AGENCY: Financial Crimes Enforcement Network, Treasury.

ACTION: Final rule.

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SUMMARY: The Financial Crimes Enforcement Network is issuing this final 
rule to implement the requirements contained in section 312 of the 
Uniting and Strengthening America by Providing Appropriate Tools 
Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001 
(the Act). Section 312 requires U.S. financial institutions to 
establish due diligence policies, procedures, and controls reasonably 
designed to detect and report money laundering through correspondent 
accounts and private banking accounts that U.S. financial institutions 
establish or maintain for non-U.S. persons. This final rule supercedes 
an interim final rule we issued on July 23, 2002. The interim final 
rule temporarily deferred application of the requirements contained in 
section 312 for certain financial institutions and provided guidance, 
pending issuance of a final rule, to those financial institutions for 
which compliance with section 312 was not deferred. We are publishing 
elsewhere in this separate part of the Federal Register a Notice of 
Proposed Rulemaking implementing section 312, and focusing exclusively 
on enhanced due diligence requirements.

DATES: This final rule is effective February 3, 2006.

FOR FURTHER INFORMATION CONTACT: Regulatory Policy and Programs 
Division, Financial Crimes Enforcement Network, (800) 949-2732.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 312 of the Act amended the Bank Secrecy Act \1\ to add new 
subsection (i) to 31 U.S.C. 5318. This provision requires each U.S. 
financial institution that establishes, maintains, administers, or 
manages a correspondent account or a private banking account in the 
United States for a non-U.S. person to subject such accounts to certain 
anti-money laundering measures. In particular, financial institutions 
must establish appropriate, specific, and, where necessary, enhanced 
due diligence policies, procedures, and controls that are reasonably 
designed to enable the financial institution to detect and report 
instances of money laundering through these accounts.
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    \1\ Bank Secrecy Act, Pub. L. 91-508 (codified as amended at 12 
U.S.C. 1829b, 12 U.S.C. 1957-1959, and 31 U.S.C. 5311-5314 and 5316-
5332).
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    In addition to the general due diligence requirements, which apply 
to all correspondent accounts for non-U.S. persons, section 5318(i)(2) 
specifies additional standards for correspondent accounts maintained 
for certain foreign banks. These additional standards apply to 
correspondent accounts maintained for a foreign bank operating under an 
offshore banking license, under a license issued by a country 
designated as being non-cooperative with international anti-money 
laundering principles or procedures by an intergovernmental group or 
organization of which the United States is a member and with which 
designation the United States concurs, or under a license issued by a 
country designated by the Secretary of the Treasury as warranting 
special measures due to money laundering concerns. A financial 
institution must take reasonable steps to: (1) Conduct enhanced 
scrutiny of a correspondent account maintained for or on behalf of such 
a foreign bank to guard against money laundering and to report 
suspicious activity; (2) ascertain whether such a foreign bank provides 
correspondent accounts to other foreign banks and, if so, to conduct 
appropriate due diligence; and (3) identify the owners of such a 
foreign bank if its shares are not publicly traded.
    Section 5318(i) also sets forth minimum due diligence requirements 
for private banking accounts for non-U.S. persons. Specifically, a 
covered financial institution must take reasonable steps to ascertain 
the identity of the nominal and beneficial owners of, and the source of 
funds deposited into, private banking accounts, as necessary to guard 
against money laundering and to report suspicious transactions. The 
institution must also conduct enhanced scrutiny of private banking 
accounts requested or maintained for or on behalf of senior foreign 
political figures (which includes family members or close associates). 
Enhanced scrutiny must be reasonably designed to detect and report 
transactions that may involve the proceeds of foreign corruption.

A. The 2002 Proposal

    On May 30, 2002, we published in the Federal Register a notice of 
proposed rulemaking (2002 Proposal) to implement section 5318(i).\2\ In 
the proposed rule, we sought to take the statutory mandate of section 
5318(i) and to translate it into specific regulatory directives for 
financial institutions to apply. Following the statute, the rule we 
proposed required certain U.S. financial institutions to apply due 
diligence and enhanced due diligence procedures to foreign financial 
institutions \3\ that maintain correspondent accounts as well as to 
non-U.S. persons who establish private banking accounts in the United 
States. The 2002 Proposal set forth a series of due diligence 
procedures that financial institutions covered by the rule may, and in 
some instances must, apply to correspondent accounts and private 
banking accounts for non-U.S. persons.
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    \2\ Due Diligence Anti-Money Laundering Programs for Certain 
Foreign Accounts, 67 FR 37736.
    \3\ Foreign financial institutions were defined to include 
foreign banks and any other foreign person that, if organized in the 
United States, would be required to establish an anti-money 
laundering program pursuant to 31 CFR 103.120 to 103.169.
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B. The Interim Final Rule

    We received comments in response to the 2002 Proposal that raised 
many concerns regarding the numerous definitions in the 2002 Proposal, 
the scope of the requirements of this provision, and the institutions 
that would be subject to them. Section 312(b)(2) of the Act provides 
that section 5318(i) of the Bank Secrecy Act took effect on July 23, 
2002, regardless of whether final rules had been issued by that date. 
In order to have adequate time to review the comments, to determine the 
appropriate resolution of the many issues raised, and to give clear 
directions to the affected financial institutions, we issued an interim 
final rule (the Interim Rule) \4\ on July 23, 2002, and exercised our 
authority under 31 U.S.C. 5318(a)(6) to defer temporarily the 
application of 31 U.S.C. 5318(i) to certain financial institutions. For 
those financial institutions that were not subject to the deferral, we 
set forth interim guidance for compliance with the statute by 
delineating the scope of coverage, duties, and obligations under that 
provision, pending issuance of a final rule.
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    \4\ Due Diligence Anti-Money Laundering Programs for Certain 
Foreign Accounts, 67 FR 48348.
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C. Consultation With Federal Functional Regulators

    Section 312(b) of the Act provides that the Secretary of the 
Treasury (Secretary) shall issue implementing regulations under this 
section ``in consultation with the appropriate federal functional 
regulators (as defined

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in section 509 of the Gramm-Leach-Bliley Act) of the affected financial 
institutions.'' \5\ The 2002 Proposal was issued in consultation with 
staff at all of these federal functional regulators. The provisions of 
this final rule also reflect consultation with each of the federal 
functional regulators or their staff.
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    \5\ Section 509 of the Gramm-Leach-Bliley Act (15 U.S.C. 6809) 
defines the federal functional regulators to include the Federal 
Deposit Insurance Corporation, the Board of Governors of the Federal 
Reserve System, the Office of the Comptroller of the Currency, the 
Office of Thrift Supervision, the National Credit Union 
Administration Board, and the Securities and Exchange Commission. We 
also consulted with the Commodity Futures Trading Commission.
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D. Further Notice of Proposed Rulemaking

    Section 5318(i)(2) directs covered financial institutions to 
establish procedures for conducting enhanced due diligence with regard 
to correspondent accounts established or maintained for certain 
categories of foreign banks. In light of the extensive comments 
received, we are proposing a different approach toward the 
implementation of this provision than that set forth in the 2002 
Proposal. To ensure adequate notice and opportunity for comment, we 
have re-noticed the regulation implementing the enhanced due diligence 
portion of section 312 with regard to correspondent accounts in its 
entirety. The proposed rulemaking is published elsewhere in this 
separate part of the Federal Register. Until a final rule is published 
and becomes effective, banks, savings associations, and federally 
insured credit unions must continue to apply the enhanced due diligence 
requirements of 31 U.S.C. 5318(i)(2), while securities broker-dealers, 
futures commission merchants, introducing brokers, mutual funds, and 
trust banks and trust companies that have a federal regulator, remain 
exempt from such requirements.

II. Summary of Comments

    We received 33 comments regarding the 2002 Proposal. Commenters 
included U.S. banks, securities broker-dealers, other financial 
institutions, foreign banks, trade associations representing all the 
foregoing, a self-regulatory organization, an association of state 
banking supervisors, and a state gaming commission. Eleven financial 
institution trade associations jointly signed one of the comments. We 
also received a joint comment from three members of Congress.\6\
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    \6\ Comments may be inspected at the Financial Crimes 
Enforcement Network reading room in Washington, DC between 10 a.m. 
and 4 p.m. Persons wishing to inspect comments submitted must 
request an appointment by telephone at (202) 354-6400 (not a toll-
free number). The comment letters are also available on our Web site 
at http://www.fincen.gov/reg_312commentsA.html.
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    With respect to the correspondent account provisions, the greatest 
number of comments concerned the definition of correspondent account 
and the prescribed due diligence requirements for such accounts. 
Commenters also raised questions about the definitions of covered 
financial institution and foreign financial institution, as well as the 
enhanced due diligence requirements for correspondent accounts for 
certain foreign banks. With respect to the proposed provisions 
concerning private banking accounts, commenters raised concerns about 
the definitions of beneficial owner, private banking account, and 
senior foreign political figure, and sought clarification regarding the 
nature and extent of the due diligence required for these accounts. 
Many commenters also addressed the required timing for compliance with 
the various provisions. These issues and their resolution are discussed 
below in the section-by-section analysis.

III. Section-by-Section Analysis

A. Section 103.175--Definitions Relating to Correspondent Accounts

    1. Correspondent account. The term correspondent account, as used 
in section 5318(i), is defined by reference to the definition in 31 
U.S.C. 5318A, as added by section 311 of the Act. The definition in the 
2002 Proposal was taken verbatim from section 5318A(e)(1)(B), which 
defines a correspondent account 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.''
    Many commenters found the definition to be overly broad, extending 
beyond the commonly understood meaning of correspondent account (and 
even beyond the meaning of the term account). They objected to the 
phrase ``or handle other financial transactions related to such 
institution'' as potentially bringing under the rule not only every 
kind of account maintained for foreign financial institutions, but also 
any transaction performed by a covered institution on behalf of a 
foreign institution.\7\ According to these commenters, adopting such an 
overly broad definition would be counterproductive, requiring U.S. 
financial institutions to devote limited resources to a broad range of 
accounts and transactions regardless of the level of risk associated 
with them. Some commenters urged us to narrow the definition of 
correspondent account to those accounts used to deposit or transfer 
customer funds. Other commenters argued that the definition should 
specifically exclude certain types of accounts that do not pose a 
meaningful risk of money laundering, including limited purpose accounts 
through which funds are received and disbursed under defined conditions 
to identified parties such as: escrow, clearing, and custody accounts; 
proprietary accounts where the foreign financial institution is acting 
as principal, such as foreign exchange accounts; and accounts held for 
foreign financial institutions subject to a robust anti-money 
laundering regime.
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    \7\ Commenters representing depository institutions and 
securities broker-dealers in many cases reiterated the comments 
submitted in response to the proposed rule implementing sections 313 
and 319(b) of the Act. See Anti-Money Laundering Requirements--
Correspondent Accounts for Foreign Shell Banks; Recordkeeping and 
Termination of Correspondent Accounts for Foreign Banks; 67 FR 
60562, 60563-60564 (Sept. 26, 2002) (hereinafter ``section 313/319 
Rule'').
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    The congressional commenters urged us to retain the broad 
definition of correspondent account, stating that all categories of 
accounts falling within the definition should receive an appropriate 
level of due diligence.
    After considering these comments, we have decided that the 
statutory definition of correspondent account contained in the 2002 
Proposal is, in substance, appropriate for the final rule as well. The 
definition of a correspondent account under this final rule mirrors the 
definition used in the section 313/319 Rule, although additional U.S. 
financial institutions are subject to this final rule.\8\ We are aware 
of the burden resulting from the application of this broad definition, 
and we acknowledge that accounts used to hold, transfer, or invest 
customer funds represent a greater money laundering risk than 
proprietary accounts or accounts used for certain specific purposes, 
such as custody accounts or escrow accounts. Nevertheless, we have 
concluded that a broad definition is

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appropriate. Limiting the definition would undermine the purpose of the 
statute by eliminating from the scope of this rule a wide range of 
account relationships that may pose money laundering risks. Moreover, 
it may be difficult in some situations to know with certainty whether 
an account the covered financial institution believes to be proprietary 
is being used for customer transactions.\9\
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    \8\ In this final rule we have made technical changes to conform 
the definition of correspondent account for purposes of this rule 
with the definition for purposes of the section 313/319 Rule. The 
definition for purposes of this final rule includes the phrase ``or 
other disbursements'' after ``payments,'' and the definition for 
purposes of the section 313/319 Rule is amended by deleting the 
redundant words ``a correspondent account is'' and the unnecessary 
words ``by a covered financial institution.'' Also, the definition 
from the section 313/319 Rule, which is limited to accounts for 
foreign banks, applies to paragraphs 103.176(b) and (c) of the final 
rule, which relate solely to accounts for foreign banks.
    \9\ For example, although commenters argued that proprietary 
correspondent accounts where the foreign bank or institution is 
acting as principal should be excluded as being low risk for money 
laundering, these proprietary accounts can and have been abused to 
facilitate money laundering by commingling bank funds with 
individual customer funds in order to portray an individual's funds 
and account activity as being that of the foreign institution. See 
Minority Report on Correspondent Banking, infra note 24, Part IV, 
discussing the case of Guardian Bank and Trust.
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    We believe that the better approach is to retain the broad 
statutory definition of correspondent account while modifying the due 
diligence requirements under the final rule to be more risk-based in 
nature. This is in accord with the fact that many of the commenters, 
including the congressional commenters, supported the need for a risk-
based due diligence program. This approach should provide covered 
financial institutions sufficient flexibility to allocate resources and 
their due diligence efforts in an appropriate manner consistent with 
the statutory goal.
    We also understand that the statutory definition of a correspondent 
account could create uncertainty as to the types of relationships that 
are covered, particularly for non-bank covered financial institutions. 
The term correspondent account does not have an established meaning 
outside of the banking industry, nor does the statute define the term 
account for those institutions. Instead, it requires the term to be 
defined by regulation.\10\
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    \10\ Section 311(e)(2) of the Act requires the Secretary to 
define by regulation the term ``account'' for non-bank financial 
institutions subject to sections 311, 312, and 313 of the Act. See 
31 U.S.C. 5318A(e)(2).
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    Accordingly, in compliance with the statutory mandate, and to 
provide additional clarity as to the scope of the term correspondent 
account, we have added to the final rule specific definitions for the 
term account as they apply to the various non-bank covered financial 
institutions that are based on the definitions contained in the final 
rules issued under 31 U.S.C. 5318(l). When read in conjunction with the 
correspondent account definition, the industry-specific account 
definitions should give greater direction to covered financial 
institutions as to the types and scope of the relationships subject to 
this rule by addressing the functional differences among them. In 
addition, these account definitions, discussed in detail below under 
``Account,'' make it clear that this rule does not apply to one-time, 
isolated, or infrequent transactions.
    2. Covered financial institution. The 2002 Proposal defined covered 
financial institution to mean insured depository institutions (and 
their foreign branches), U.S. branches and agencies of foreign banks, 
Edge Act corporations, securities broker-dealers, and all other 
financial institutions subject to an anti-money laundering program 
requirement under the Bank Secrecy Act, which at that time included 
futures commission merchants and introducing brokers, mutual funds, 
certain money services businesses, casinos, and operators of credit 
card systems.\11\ The 2002 Proposal also stated that, as additional 
financial institutions become subject to an anti-money laundering 
program requirement under 31 U.S.C. 5318(h), they would be included in 
the definition of covered financial institution.
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    \11\ 2002 Proposal, supra note 2.
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    As discussed in greater detail below, we have decided to limit the 
scope of covered financial institutions to those institutions that we 
believe offer correspondent services to foreign financial institutions. 
Those covered by this rule include federally regulated banks, savings 
associations, credit unions, and trust companies subject to an anti-
money laundering program requirement; branches and agencies of foreign 
banks; Edge Act corporations; securities broker-dealers; futures 
commission merchants; introducing brokers; and mutual funds. Those not 
covered by the rule include foreign branches of insured depository 
institutions (which are defined as foreign banks under the final rule), 
money services businesses, casinos, and operators of credit card 
systems.
     Banking institutions.
    The banking institutions that addressed this definition urged us to 
remove their foreign branches from the definition. We agree that this 
change is appropriate for the reasons discussed in the section 313/319 
Rule. These include the plain language of the statute, the historical 
approach taken in other Bank Secrecy Act rules, and the anti-
competitive impact on foreign branches that could result from their 
inclusion.\12\ Thus, consistent with the definition of foreign bank 
used in the section 313/319 Rule, for purposes of this rule, foreign 
branches of U.S. banks will be treated as foreign banks rather than as 
covered financial institutions.
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    \12\ Section 313/319 Rule, supra note 7, at 60565.
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    We noted in the Interim Rule that we were evaluating whether to 
include uninsured national trust banks, non-federally regulated, state-
chartered uninsured trust companies and trust banks, and non-federally 
insured credit unions under the rule, to the extent that these entities 
maintain correspondent accounts for foreign financial institutions or 
private banking accounts for non-U.S. persons.\13\ We have decided to 
include, as covered financial institutions, uninsured trust banks and 
trust companies that are federally regulated and that are subject to an 
anti-money laundering program requirement. As for the remaining types 
of banking institutions, we do not believe that it is appropriate to 
subject them to the provisions of this rule until they are required to 
have anti-money laundering programs. We expect to issue in the future a 
proposed rule requiring credit unions, and trust companies that do not 
have a federal functional regulator, to establish anti-money laundering 
programs.\14\ While we do not anticipate that a large number of these 
financial institutions conduct the types of international business or 
offer the types of accounts that would be affected by this rule, we 
will nonetheless amend this rule to include those institutions upon 
adoption of any final rule requiring those institutions to establish 
anti-money laundering programs.
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    \13\ Interim Rule, supra note 4, at 48349.
    \14\ These types of institutions are included in the definition 
of bank in the section 326 customer identification rule and are 
therefore required to establish customer identification programs. 
See 31 CFR 103.121(a)(2)(ii), and the related analysis at 68 FR 
25090, 25109 (May 9, 2003).
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    For banks, correspondent accounts established on behalf of foreign 
financial institutions include any transaction account, savings 
account, asset account or account involving an extension of credit, as 
well as any other relationship with a foreign financial institution to 
provide ongoing services. These correspondent accounts include, but are 
not limited to, accounts to purchase, sell, lend, or otherwise hold 
securities, including securities repurchase arrangements; accounts that 
clear and settle securities transactions for clients; ``due to'' 
accounts; accounts for trading foreign currency; foreign exchange 
contracts; custody accounts for holding securities or other assets in 
connection with securities transactions as collateral; and over-the-
counter derivatives contracts. These accounts are included even if the 
U.S. bank does not maintain a deposit account for the

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foreign bank or other foreign financial institution.\15\
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    \15\ We note that accounts maintained by foreign banks for 
covered financial institutions are not correspondent accounts 
subject to this rule, regardless of whether there are credit 
balances in such accounts.
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     Non-bank financial institutions.
    Several commenters urged us to exclude from the proposed definition 
certain types of financial institutions, including mutual funds, non-
bank funds transmitters, loan or finance companies, casinos, and credit 
card operators. In addition, several commenters objected that the 2002 
Proposal was open-ended, extending this rule to additional financial 
institutions when they become subject to an anti-money laundering 
program requirement. The congressional comment, on the other hand, 
stated that the correspondent account definition in the Act was 
intentionally broad to ensure that the relationships maintained by a 
wide spectrum of U.S. financial institutions are subject to the 
statute's requirements.
    The application of the correspondent account definition to non-bank 
financial institutions is one of the most difficult interpretative 
issues in this rulemaking. Because the Act has taken a term--
correspondent account--that has been associated with the banking 
industry, and has extended it to other account and account-like 
relationships maintained by various financial institutions, the term's 
application to non-bank financial institutions is not readily apparent.
    The goal of section 312 is to help prevent money laundering through 
accounts that give foreign financial institutions a base for moving 
funds through the U.S. financial system.\16\ Thus, the non-bank 
financial institutions subject to the final rule should be those that 
offer accounts that provide foreign financial institutions a conduit 
for engaging in ongoing transactions in the U.S. financial system 
either on their own behalf or for their customers. Based on a review of 
the financial institutions identified in the Bank Secrecy Act, we have 
concluded that, for purposes of this rule, the financial institutions 
that offer customers correspondent accounts (as that term is defined in 
the Act) include, in addition to depository institutions: securities 
broker-dealers, Edge Act corporations, mutual funds, and futures 
commission merchants and introducing brokers.\17\
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    \16\ See 147 Cong. Rec. S10990, 11035 (Oct. 25, 2001) (statement 
of Sen. Levin).
    \17\ As set forth in the final rule, the foreign branches of 
these entities are treated as foreign financial institutions.
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    Securities broker-dealers are defined as covered financial 
institutions under section 313 of the Act and are subject to this final 
rule. Securities broker-dealers maintain accounts for foreign financial 
institutions to engage in securities transactions, funds transfers, or 
other financial transactions, whether for the financial institution as 
principal or for its customers. Such accounts, which would constitute 
correspondent accounts under the final rule, include: (1) Accounts to 
purchase, sell, lend, or otherwise hold securities, including 
securities repurchase arrangements; (2) prime brokerage accounts that 
clear and settle securities transactions for clients; (3) accounts for 
trading foreign currency; (4) custody accounts for holding securities 
or other assets in connection with securities transactions as 
collateral; and (5) over-the-counter derivatives contracts.
    Mutual funds are also included as covered financial institutions 
under this rule. We understand that mutual funds maintain accounts for 
foreign financial institutions (including foreign banks and foreign 
securities firms) in which these foreign financial institutions may 
hold investments in such mutual funds as principals or for their 
customers, and which the foreign financial institution may use to make 
payments or to handle other financial transactions on the foreign 
institution's behalf. Therefore, we have determined that such accounts 
have sufficient similarities to correspondent accounts of banks that 
these entities also should be subject to the final rule.\18\
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    \18\ Closed-end investment companies, as defined in section 
5(a)(2) of the Investment Company Act of 1940 (15 U.S.C. 80a-
5(a)(2)), are not included as covered financial institutions under 
this rule.
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    For futures commission merchants and introducing brokers, a 
correspondent account would include accounts for foreign financial 
institutions to engage in futures or commodity options transactions, 
funds transfers, or other financial transactions, including accounts 
for trading foreign currency and over-the-counter derivatives 
transactions, whether for the financial institution as principal or for 
its customers.\19\ Such relationships can operate similarly to 
correspondent accounts of banks and securities broker-dealers in that 
they can be used to receive deposits from or make payments on behalf of 
foreign financial institutions. It is, therefore, appropriate to 
include these institutions as covered financial institutions in the 
final rule.
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    \19\ Although orders for futures and options transactions may be 
transmitted through an introducing broker, the funds relating to 
introduced accounts are held with a futures commission merchant. 
Monthly confirmation statements reflecting such transactions must be 
issued by the futures commission merchant. Nevertheless, introducing 
brokers can play an important role in preventing money laundering in 
the futures industry because they are in a position to know the 
identity of customers they introduce to futures commission merchants 
and to perform due diligence on such customers, including monitoring 
trading activity (and are subject to suspicious activity reporting 
requirements) (see 31 CFR 103.17).
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    In both the securities and commodities context, introducing brokers 
have been included as covered financial institutions. We anticipate 
that introducing brokers may share accounts with clearing brokers and 
may realize efficiencies by apportioning functions associated with a 
due diligence program under the final section 312 rule pursuant to an 
agreement. To this end, these firms may consult and share information 
with each other to fulfill their due diligence obligations under this 
section.\20\ Nonetheless, each financial institution is responsible for 
ensuring that the requirements of this rule are met.
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    \20\ For example, 31 CFR 103.110 sets forth voluntary procedures 
for information sharing among Bank Secrecy Act -defined financial 
institutions, which, if followed, entitle them to a safe harbor from 
liability arising under Federal, State, or local law or contract for 
such information sharing.
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    We do not believe that the other financial institutions identified 
in the 2002 Proposal offer accounts that fall within the correspondent 
account definition. A commenter representing loan or finance companies 
stated that the definition of correspondent account should not include 
accounts payable or accounts receivable maintained for the purpose of 
recording loan and lease payments. We agree. Loan or finance companies 
that extend credit to foreign financial institutions would obviously 
maintain accounts receivable for such customers, but these are 
accounting entries that do not enable a loan or finance company to 
receive deposits, make payments, or handle other financial transactions 
on behalf of a foreign financial institution.
    A commenter representing an operator of a credit card system noted 
that the industry does not maintain correspondent accounts and 
recommended that we exclude operators of credit card systems from the 
scope of the rule. We have decided that this is an appropriate change 
to make. Credit card operators, as described in the interim final rule 
establishing anti-money laundering programs for credit card operators, 
serve primarily as a clearinghouse through which debts are settled and 
payments are made or received. Credit card system operators

[[Page 500]]

generally do not receive deposits or make payments; instead, the 
issuing and acquiring banks process, handle, and transfer funds in 
connection with the use of the credit card. Thus, we have determined 
that credit card operators do not have correspondent accounts and are 
not covered financial institutions for purposes of this rule.\21\
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    \21\ Operators of credit card systems are subject to an anti-
money laundering program requirement under section 352 of the Act 
that is specifically tailored to require increased due diligence 
regarding any foreign financial institution presenting a heightened 
risk of money laundering or terrorist financing. 67 FR 21121 (April 
29, 2002).
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    A state gaming commission commented that casinos offer various 
accounts to individual customers, but do not offer correspondent 
accounts. The commission recommended that casinos be excluded from the 
rule. We agree with this analysis, and have excluded casinos from the 
rule.
    Finally, upon further consideration, we have decided to exclude 
money services businesses from the definition of a covered financial 
institution. Under existing Bank Secrecy Act regulations, money 
services businesses comprise five distinct types of financial services 
providers: (1) Currency dealers or exchangers; (2) check cashers; (3) 
issuers of traveler's checks, money orders, or stored value; (4) 
sellers or redeemers of traveler's checks, money orders, or stored 
value; and (5) money transmitters.\22\ Money services businesses in the 
first four categories do not maintain account relationships with 
foreign financial institutions. They do not hold, transfer or transmit 
the funds of foreign financial institutions and/or their customers and, 
thus, are outside the scope of the definition of correspondent account 
adopted herein. With respect to money transmitters, we have determined 
that money transmitters' methods of operation and the attendant risks 
with respect to foreign financial institutions and their customers 
differ sufficiently from the concept and definition of a correspondent 
account envisioned by the statute and this rule that their inclusion 
would not achieve the desired result. Rather than attempting to equate 
the relationship between two money transmitters to the concept of a 
correspondent account, we instead have previously issued guidance which 
addressed the specific risks posed by the international flow of funds 
through money services businesses. Using this more precisely targeted 
tool, discussed below, we expect to achieve the same desired results.
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    \22\ See 31 CFR 103.11 (uu).
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    Money transmitters, like the financial institutions that are 
subject to this rule, plainly facilitate the cross-border flow of funds 
into and out of the United States, but they do so in a manner that does 
not resemble the correspondent accounts that are the focus of section 
312. There is a relationship that exists between the money transmitter 
and its foreign institutional counterparties (that is, the institutions 
on the other end of either a ``send'' or ``receive'' transaction). 
While such relationships facilitate the flow of funds on behalf of 
customers, as do correspondent relationships, there are significant 
differences that directly implicate the focus of this rule.
    The vast majority of money transmitters in the United States 
operate through a system of agents throughout the world. In fact, we 
estimate that over 95 percent of all cross-border remittances that are 
done through money transmitters use this model. Other money 
transmitters operate through more informal relationships, such as the 
trust-based hawala system.\23\ Regardless of the form the relationship 
takes, these money transmissions are all initiated by a third party 
seeking to send or receive funds and are not directed or controlled by 
the sending or receiving institutions. Unlike the case of a covered 
financial institution, the establishment of an agency or other 
counterparty relationship in the money transmitter industry neither 
gives the agent/counterparty a ``home'' in the U.S. financial 
institution through which it can carry out its own transactions on an 
ongoing basis, nor carries with it the potential for a hub of other 
parties to be ``nested'' within the agent/counterparty. Section 312 
aims at two main congressional concerns with correspondent banking: the 
ability of corrupt foreign financial institutions to transact business 
in the United States,\24\ and the ability of customers of a lax foreign 
correspondent to access the U.S. financial system through the 
correspondent account while shielding their identities.\25\ Indeed, one 
of the statutory requirements for enhanced due diligence is the 
identification of nested correspondent accounts and the performance of 
due diligence on them.\26\
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    \23\ See Report to the Congress in accordance with section 359 
of the Patriot Act, available at http://www.fincen.gov.
    \24\ See Minority Staff Report on Correspondent Banking: A 
Gateway to Money Laundering: Hearing Before the Subcomm. on 
Investigations of the Senate Comm. on Governmental Affairs, 107th 
Cong., 277-884 (2001).
    \25\ See section 302(a)(6) of the Act (finding that 
``correspondent banking facilities are one of the banking mechanisms 
susceptible in some circumstances to manipulation by foreign banks 
to permit the laundering of funds by hiding the identify or real 
parties in interest to financial transactions.'').
    \26\ See section 312(a)(i)(2)(B)(iii) of the Act.
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    We recognize that criminals and terrorists might be able to use 
money transmitters to move money through the United States, and that it 
is imperative that money transmitters conduct due diligence on their 
foreign counterparties to enable them to perform the appropriate level 
of suspicious activity and risk monitoring. However, we have addressed 
this risk separately through the issuance of specific guidance, as set 
forth below.
    We believe that the obligation for a money transmitter to know its 
foreign counterparties (as well as its domestic agents and 
counterparties) is a part of each money transmitter's obligation to 
have appropriate policies, procedures and internal controls to guard 
against money laundering and the financing of terrorist activities and 
to report suspicious activities.\27\ To further delineate these 
obligations, on December 4, 2004, we issued Interpretive Release No. 
2004-1, which addressed the due diligence obligations of a money 
transmitter with regard to its foreign counterparties/agents. This 
interpretative rule was issued to ensure that money transmitters place 
appropriate controls on cross-border relationships without attempting 
to force the relationship to fit within this rule relating to 
correspondent accounts.
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    \27\ See 31 CFR 103.125 and 103.20. We previously imposed a due 
diligence obligation on a money transmitter with respect to its 
domestic agents. See Matter of Western Union Financial Services, 
Inc., No. 2003-2 (March 6, 2003), available at http://www.fincen.gov/western_union_assessment.pdf.
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    3. Account. As noted earlier, we have added to the final rule 
individualized definitions of the term account for each type of non-
bank covered financial institution listed above to tailor the term 
correspondent account to the functions of the various affected 
industries. These industry specific definitions are similar to those 
contained in the final rules issued under section 326 of the Act,\28\ 
but with one primary modification.\29\ Specifically, we have not 
adopted the transfer exception contained in the section 326 definition 
of account, which excludes accounts acquired by, but not opened at, a 
covered financial institution.
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    \28\ 31 CFR 103.121.
    \29\ See 31 CFR 103.122 for the definition of account in the 
broker-dealer context.
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    Further, the definition of account for each covered financial 
institution specifically includes the word regular to stress the fact 
that the scope of section 312 is intended to be limited to those

[[Page 501]]

correspondent relationships where there is an arrangement to provide 
ongoing services, excluding isolated or infrequent transactions 
(although other obligations, such as suspicious activity reporting and 
funds transfer recordkeeping, apply to such transactions). Thus, for 
example, one time or infrequent securities transactions outside of the 
context of an established account relationship would not, by itself, 
constitute an account under the final rule.
    With respect to banking institutions, we are adopting the same 
definition of account as contained in the section 313/319 Rule. 
Accordingly, for covered banking institutions, account shall mean ``any 
formal banking or business relationship established by a bank to 
provide regular services, dealings, and other financial transactions; 
and (B) includes a demand deposit, savings deposit, or other 
transaction or asset account and a credit account or other extension of 
credit.'' \30\
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    \30\ The phrase ``by a bank'' has been added to the definition 
of account to conform to the definitions of account applicable to 
the non-bank covered financial institutions. The phrase ``other 
financial transactions'' includes, but is not limited to, the 
purchase or sale of securities, securities lending and borrowing, 
and the holding of securities or other assets in connection with 
securities transactions for safekeeping or as collateral.
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    This definition is in substance very similar to the definition of 
account contained in the final rule issued under section 326 for banks. 
In this regard, we also note that the issuance by a bank of a funds 
transfer to, or receipt by a bank of a funds transfer from, a foreign 
bank does not, by itself, create an account relationship on behalf of 
the foreign bank under the final rule. This is consistent with the 
final rule issued under section 326 of the Act, which excludes wire 
transfers from the definition of an account.
    As applied to securities broker-dealers, the term account shall 
mean ``any formal relationship established with a broker or dealer in 
securities to provide regular services to effect transactions in 
securities, including, but not limited to, the purchase or sale of 
securities and securities loaned and borrowed activity, and to hold 
securities or other assets for safekeeping or as collateral.''
    For purposes of clarity and consistency, we are amending the 
definition of account in the section 313/319 Rule to incorporate this 
definition of account as applied to broker-dealers. Because this 
definition of account, which is specifically tailored to the securities 
industry, is no broader, and may well be somewhat narrower, than the 
definition currently applicable under that rule, there is no reason to 
delay the effectiveness of this amendment.
    For purposes of futures commission merchants and introducing 
brokers, the term account shall mean ``any formal relationship 
established by a futures commission merchant to provide regular 
services, including, but not limited to, those established to effect 
transactions in contracts of sale of a commodity for future delivery, 
options on any contract of sale of a commodity for future delivery, or 
options on a commodity.''
    With respect to mutual funds, the term account shall mean ``any 
contractual or other business relationship established between a person 
and a mutual fund to provide regular services to effect transactions in 
securities issued by the mutual fund, including the purchase or sale of 
securities.'' \31\
    4. Foreign bank. The 2002 Proposal defined foreign bank to mean an 
organization that: (1) Is organized under the laws of a foreign 
country; (2) engages in the business of banking; (3) is recognized as a 
bank by the bank supervisory or monetary authority of the country of 
its organization or principal operations; and (4) receives deposits in 
the regular course of its business. The definition contained certain 
exceptions, including foreign central banks or monetary authorities 
functioning as central banks and certain international financial 
institutions or regional development banks. In this final rule, we have 
adopted the existing Bank Secrecy Act definition of foreign bank \32\ 
(which includes foreign branches of U.S. banks) as we did in the 
section 313/319 Rule.\33\ We believe that the existing Bank Secrecy Act 
definition will include the appropriate foreign entities, will be more 
precise, will result in fewer interpretive issues, and will not require 
the exceptions contained in the 2002 Proposal for foreign central 
banks, foreign monetary authorities that function as central banks, and 
international financial institutions and regional development banks, 
since they would not fall within this definition. We, thus, confirm 
that the definition of foreign bank does not include any foreign 
central bank or monetary authority that functions as a central bank, or 
any international financial institution or regional development bank 
formed by treaty or international agreement.\34\
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    \31\ We are aware that mutual funds do not offer the types of 
one-time services, or isolated or infrequent transactions, that 
other types of financial institutions may offer. The reference to 
providing regular services is included in the definition of account 
for mutual funds for the purpose of maintaining consistency between 
definitions.
    \32\ Current Bank Secrecy Act regulations define foreign bank as 
``a bank organized under foreign law, or an agency, branch or office 
located outside the United States of a bank.'' The term does not 
include an agent, agency, branch, or office within the United States 
of a bank organized under foreign law. 31 CFR 103.11(o).
    \33\ Section 313/319 Rule, supra note 7, at 60566.
    \34\ Such institutions include, for example, the Bank for 
International Settlements, International Bank for Reconstruction and 
Development (World Bank), International Monetary Fund, African 
Development Bank, Asian Development Bank, European Bank for 
Reconstruction and Development, Inter-American Development Bank, 
International Finance Corporation, North American Development Bank, 
International Development Association, Multilateral Investment 
Guarantee Agency, European Investment Bank, Nordic Investment Bank, 
and Council of Europe Development Bank.
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    5. Foreign financial institution. The 2002 Proposal defined foreign 
financial institution to mean a foreign bank and any other person 
organized under foreign law which, if organized in the United States, 
would be required to establish an anti-money laundering program. Thus, 
the proposed definition of this term mirrored the definition of covered 
financial institution, but described entities organized outside the 
United States.
    Commenters raised several objections to this proposed definition. 
Many noted that a definition tied to U.S. entities would be difficult 
to apply due to different terminology and licensing methods used in 
foreign countries. Others noted the difficulties raised by the open-
ended nature of the definition, which would be extended to additional 
categories of financial institutions should they be required to 
establish anti-money laundering programs in the future. Several 
commenters expressed the view that the proposed definition is overly 
broad and should be limited to the entities typically licensed and 
regulated as financial institutions, such as depository institutions, 
securities and futures firms, mutual funds, and money transmitters. The 
congressional comment supported the broad proposed definition, stating 
that it captured the broad scope intended by Congress.
    After careful consideration of the issues raised, we have decided 
to limit the definition of foreign financial institutions to those 
institutions that may pose a more significant risk for money laundering 
and, thus, will be subject to this requirement, in order to 
appropriately focus covered financial institutions' due diligence 
efforts on the risk posed by the foreign institution rather than on the 
mere form of the entity. Accordingly, in this final rule, foreign 
financial institutions are defined

[[Page 502]]

as foreign banks; the foreign offices of covered financial 
institutions; non-U.S. entities that, if they were located in the 
United States, would be a securities broker-dealer, futures commission 
merchant, or mutual fund; \35\ and non-U.S. entities that are engaged 
in the business of, and are readily identifiable as, a currency dealer 
or exchanger or a money transmitter. This reflects our belief that such 
entities operate in a manner that both makes them readily identifiable 
\36\ (despite differences in terminology or licensing \37\) and that 
poses a heightened risk of money laundering because they offer to money 
launderers outside the United States easy access to the U.S. financial 
system, as a result of their manner of operation and their offering of 
products with a high degree of liquidity. We, however, have included an 
exception to the definition of a foreign financial institution to 
exclude those entities that engage in currency exchange or money 
transmission only as an incidental aspect of their business. An example 
of this might be a hotel that exchanges small amounts of foreign 
currency for its guests or a tax service that cashes tax return checks 
as an accommodation. Although we specifically have excluded money 
services businesses from this rule as covered financial institutions, 
we have included foreign money transmitters and foreign currency 
dealers and exchangers as foreign financial institutions because of 
their role as consumers of correspondent services offered by covered 
financial institutions such as banks.
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    \35\ For example, the European Union adopted a license regime 
throughout the European Union for ``undertakings for collective 
investment in transferable securities,'' similar to mutual funds in 
the United States, under the Directive on Undertakings for 
Collective Investment in Transferable Securities. See Council 
Directive 85/611/EE of December 20, 1985 on the coordination of 
laws, regulations and administrative provisions relating to 
undertakings for collective investment in transferable securities, 
1985 O.J. (L 375) 3.
    \36\ We note that the definitions of a currency dealer or 
exchanger and a money transmitter for purposes of inclusion as a 
foreign financial institution under the final rule do not correspond 
to the definitions of 31 CFR 103.11(uu). For purposes of this rule, 
we include only those businesses that are readily identifiable as 
such.
    \37\ We note that, except for mutual funds, the definition of 
foreign financial institution is not necessarily limited to the 
corresponding foreign institutions that are required by their 
chartering jurisdictions to register as such, but rather is a 
functional definition based on the entity's primary activity or 
activities.
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    6. Offshore banking license. The 2002 Proposal proposed the same 
definition of offshore banking license as that contained in 31 U.S.C. 
5318(i): A license to conduct banking activities that prohibits the 
licensed entity from conducting banking activities with the citizens 
of, or in the local currency of, the jurisdiction that issued the 
license. This final rule adopts the proposed definition without change.

B. Section 103.176--Due Diligence Programs for Correspondent Accounts 
for Foreign Financial Institutions

    1. General due diligence procedures. Section 103.176(a) of the 2002 
Proposal required that every covered financial institution maintain a 
due diligence program that includes policies, procedures, and controls 
reasonably designed to enable the financial institution to detect and 
report any known or suspected money laundering conducted through or 
involving any correspondent account that it maintains for a foreign 
financial institution. We have revised the language of the final rule 
to reflect the fact that the due diligence policies, procedures, and 
internal controls must be appropriate, specific, and risk-based, and 
that the rule applies to any correspondent account that is established, 
maintained, administered, or managed in the United States for a foreign 
financial institution. This change is consistent with the risk-based 
approach adopted herein, as well as with the congressional comment. The 
final rule also includes the requirement that the due diligence program 
be part of the covered financial institution's anti-money laundering 
program otherwise required by this subpart.
    The 2002 Proposal further required that all due diligence programs 
maintained by covered financial institutions contain five specific 
procedures.\38\ Many commenters urged us to adopt a risk-based rule 
that would enable covered financial institutions to better focus their 
attention and resources on the types of accounts that have a greater 
susceptibility to money laundering. In particular, some commenters 
suggested that only the first two elements contained in the 2002 
Proposal should be included in the final rule, and that the remaining 
elements should be part of the institution's risk assessment program. 
Commenters noted in particular that the fifth proposed element--
reviewing public information to ascertain whether the foreign 
institution has been the subject of criminal or regulatory action--is 
particularly problematic given the virtually limitless sources of 
public information. The comments suggested that, if a requirement to 
review public information is retained in the final rule, the financial 
institution's obligation be limited in some way (e.g., information 
disseminated through print media that is readily available and is 
generally regarded as a leading publication and reliable). Commenters 
stressed that, if the definition of correspondent account is broad, 
financial institutions should be given flexibility in conducting due 
diligence, rather than being required to perform a specified list of 
inquiries for each account. The congressional comment also supported 
the adoption of a final rule incorporating the principle that the due 
diligence requirement should be risk-based.
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    \38\ The five required procedures were: (1) Determining whether 
the correspondent account is subject to the enhanced due diligence 
requirements; (2) assessing whether the foreign financial 
institution presents a significant risk for money laundering; (3) 
considering information available from U.S. government agencies and 
multinational organizations with respect to supervision and 
regulation, if any, applicable to the foreign financial institution; 
(4) reviewing guidance we or the applicable federal functional 
regulator issued regarding money laundering risks associated with 
particular foreign financial institutions and correspondent accounts 
for foreign financial institutions generally; and (5) reviewing 
public information to ascertain whether the foreign financial 
institution has been the subject of criminal action of any nature or 
regulatory action relating to money laundering. The 2002 Proposal, 
supra note 2, at 37743.
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    We agree that this provision should be modified to incorporate a 
risk-based approach to the entire rule. Thus, each covered financial 
institution will be required to include in its due diligence program 
procedures for assessing the anti-money laundering risks posed by 
correspondent accounts it maintains for foreign financial institutions 
based upon a consideration of relevant factors, as appropriate to the 
particular jurisdiction, customer, and account. Given the breadth of 
the correspondent account definition, we believe that this requirement 
will permit covered financial institutions to assess the risks posed by 
their various non-U.S. customers and accounts and to direct their 
resources most appropriately at those accounts that pose a more 
significant money laundering risk. Relevant risk factors, which were 
not spelled out in detail in the 2002 Proposal, shall include, as 
appropriate:
     The nature of the foreign financial institution's business 
and the markets it serves, and the extent to which its business and the 
markets it serves present an increased risk for money laundering.
     The nature of the correspondent account, including the 
types of services to be provided (e.g., proprietary or customer), and 
the purpose and anticipated activity of the account.
     The nature and duration of the covered financial 
institution's relationship with the foreign financial institution (and, 
if relevant, with any

[[Page 503]]

affiliate of the foreign financial institution).
     The anti-money laundering and supervisory regime of the 
jurisdiction that issued the charter or license to the foreign 
financial institution, and, to the extent that information regarding 
such jurisdiction is reasonably available, of the jurisdiction in which 
any company that is an owner of the foreign financial institution is 
incorporated or chartered. This factor has been clarified to ensure 
that a covered financial institution considers, when appropriate, the 
anti-money laundering and supervisory regime of the foreign financial 
institution. In addition, the factor is designed to ensure that the 
covered financial institution considers, when appropriate and to the 
extent that information is reasonably available, the anti-money 
laundering and supervisory regime of the jurisdiction in which a 
corporate owner of the foreign financial institution is incorporated or 
chartered. Thus, for example, if a foreign financial institution is 
owned by an institution that is incorporated or chartered in a 
jurisdiction that has a robust anti-money laundering and supervisory 
regime, and the covered financial institution believes that this is 
relevant in assessing the risk posed by the foreign financial 
institution, then the covered financial institution should take this 
information into account in its risk assessment.
     Any information known or reasonably available to the 
covered financial institution about the foreign financial institution's 
anti-money laundering record, including public information in standard 
industry guides, periodicals, and major publications. The scope and 
depth of such a review will depend on the nature of the information 
uncovered. It should generally include a consideration of information 
that might be available from the Department of the Treasury or other 
federal governmental sources regarding the money laundering risks 
associated with particular foreign financial institutions and 
correspondent accounts for foreign financial institutions generally. 
This information could be contained in issuances stemming from action 
taken under section 311 of the Act, as well as determinations 
concerning comprehensive consolidated supervision made by the Federal 
Reserve in connection with applications from foreign banks or 
determinations concerning consolidated supervised entities or 
supervised investment bank holding companies by the Securities and 
Exchange Commission.
    The final rule includes a new subparagraph (3) under the general 
due diligence paragraph (a) of section 103.176. This new provision 
states explicitly the requirement that was implicit in the 2002 
Proposal: that covered financial institutions must apply ongoing risk-
based procedures and controls to each correspondent account reasonably 
designed to detect and report money laundering.\39\ We believe that, as 
part of ongoing due diligence, covered financial institutions should 
periodically review their correspondent accounts. We do not intend this 
review, in the ordinary situation, to mean a scrutiny of every 
transaction taking place within the account, but, instead, a review of 
the account sufficient to ensure that the covered financial institution 
can determine whether the nature and volume of account activity is 
generally consistent with information regarding the purpose and 
expected account activity and to ensure that the covered financial 
institutions can adequately identify suspicious transactions. For 
example, we understand that a number of covered financial institutions 
maintain account profiles for their correspondents in order to 
anticipate how the account might be used and the expected volume of 
activity. These profiles can serve as important baselines for detecting 
unusual activity.
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    \39\ Covered financial institutions that are not currently 
subject to suspicious activity reporting obligations under the Bank 
Secrecy Act rules (e.g., mutual funds) are encouraged to file 
voluntary reports of known or suspected violations of law conducted 
through or involving a correspondent account.
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    We believe that an effective general due diligence program under 
section 103.176(a) will provide for a range of due diligence measures, 
based on a covered financial institution's risk assessment of a 
correspondent account. The starting point for financial institutions, 
therefore, should be a stratification of their money laundering risk 
based on a review of the relevant risk factors to determine which 
accounts may require increased measures. Section 103.176(a) does not 
prescribe the elements of increased due diligence that should be 
associated with specific risk factors, but a covered financial 
institution's general due diligence program should identify risk 
factors that would warrant the institution conducting additional 
scrutiny of a particular account. The covered financial institution's 
program under this rule should address these issues at a level of 
specificity and detail appropriate to that institution's foreign 
correspondent account operations and the types of accounts offered. In 
addition, the program should take into consideration the fact that some 
foreign correspondent bank accounts that a covered financial 
institution determines have a high risk of money laundering may 
necessitate increased due diligence even though they may not 
specifically fall within the statutory categories that would trigger 
enhanced due diligence. This due diligence may include, when 
appropriate, transaction testing or one or more of the elements of 
enhanced due diligence described in section 5318(i)(2).
    Numerous commenters sought clarification from us on the extent to 
which covered financial institutions can rely on reputable foreign 
intermediaries to conduct due diligence of the intermediaries' 
customers because of concerns that the due diligence requirements under 
this section would be particularly burdensome. For example, one 
commenter noted that this requirement would be particularly onerous for 
mutual funds, which can have thousands of shareholders, some of which 
purchase their shares directly and some of which invest through 
intermediaries, including certain foreign financial institutions. These 
commenters misunderstand the requirements of 31 U.S.C. 5318(i) and this 
rule.
    The due diligence requirement under this section of the Bank 
Secrecy Act generally requires an assessment of the money laundering 
risks presented by the foreign financial institution for which the 
correspondent account is maintained, and not for the customers of that 
institution. If, however, a covered financial institution's review of 
the account identifies activity inconsistent with what is expected, 
then, consistent with a risk-based due diligence program, the covered 
financial institution may need to review the account more carefully.
    2. Enhanced due diligence procedures. Section 5318(i)(2) requires 
that a covered financial institution perform enhanced due diligence 
with regard to a correspondent account established or maintained for 
certain foreign banks. The 2002 Proposal proposed to implement these 
requirements in section 103.176(b), which specified minimum due 
diligence program requirements applicable to all foreign banks subject 
to enhanced due diligence.
    In light of extensive comments received, we are proposing to take a 
different approach toward implementing this provision than that set 
forth in the 2002 Proposal. To ensure adequate notice and opportunity 
for comment, we have decided to re-notice the enhanced due diligence 
portion of section 312 with regard to

[[Page 504]]

correspondent accounts in its entirety. The proposed rulemaking is 
published elsewhere in this separate part of the Federal Register.
    3. Special procedures. Section 103.176(d) of the 2002 Proposal 
contained special procedures to be included in the covered financial 
institution's due diligence program. Those procedures addressed what 
the financial institution should do in situations where appropriate due 
diligence cannot be performed, including when the institution should 
refuse to open the account, suspend transaction activity, file a 
suspicious activity report, or close the account. There were no 
comments submitted regarding this provision, which is unchanged in this 
final rule.
    4. Effective dates. Although the 2002 Proposal did not address the 
issue of an effective date, many commenters noted the difficulty of 
complying with the requirements of 31 U.S.C. 5318(i), especially with 
regard to its application to previously existing accounts, and also 
urged us to allow a sufficient transition period. We are mindful of the 
significant burden that will result from the statutory requirement that 
the provision applies to all correspondent accounts, regardless of when 
they were opened.
    The final rule contains a new section 103.176(e)(1) that provides 
for the following effective dates for the obligations under this 
section: Effective 90 days after the date of publication of the final 
rule, the requirements of the final rule will apply to correspondent 
accounts opened on or after that date, and, effective 270 days after 
the date of publication of the final rule, the rule's requirements will 
apply to all correspondent accounts opened prior to the date that is 90 
days after the date of publication of the final rule.\40\
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    \40\ The due diligence program adopted pursuant to section 
103.176 of the final rule, like all programs required by Bank 
Secrecy Act regulations, must be part of the covered financial 
institution's anti-money laundering program, and must be approved by 
its board of directors or an appropriate committee thereof, or 
senior management.
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    Due to the fact that we are issuing a new Notice of Proposed 
Rulemaking (Notice) with regard to enhanced due diligence under section 
5318(i)(2), it is necessary to ensure that there are no gaps in the 
relevant implementation periods. Consequently, we are deleting 31 CFR 
103.181 through 103.183 set forth in the Interim Rule dealing with 
effective dates and are adding the following two paragraphs to take 
their place.
    Paragraph 103.176(e)(2) contains a special implementation rule for 
banks. This paragraph requires that banks continue to comply with the 
due diligence requirements for correspondent accounts in 31 U.S.C. 
5318(i) until the 90 and 270-day effective dates described in paragraph 
103.176(e)(1) are triggered. This is consistent with the provisions of 
the Interim Rule found at 31 CFR 103.181. Moreover, consistent with the 
Interim Rule, paragraph (e)(2) provides that banks must continue to 
comply with the enhanced due diligence requirements of 31 U.S.C. 
5318(i)(2) until a final rule based on the Notice is published.
    Paragraph 103.176(e)(3) contains a special implementation rule for 
all other covered financial institutions to ensure consistency with the 
Interim Rule found at 31 CFR 103.182 and 103.183. Thus, this paragraph 
provides that securities broker-dealers, futures commission merchants, 
introducing brokers, mutual funds, and trust banks or trust companies 
that have a federal regulator (1) are not required to comply with the 
due diligence requirements of 31 U.S.C. 5318(i)(1) until the 90 and 
270-day effective dates described in paragraph 103.176(e)(1) are 
triggered, and (2) are not required to comply with the enhanced due 
diligence requirements of 31 U.S.C. 5318(i)(2) until otherwise provided 
by us in a final rule issued regarding those requirements.
    Finally, paragraph (e)(4) contains a general exemption from the due 
diligence requirements for correspondent accounts contained in 31 
U.S.C. 5318(i) for all financial institutions that are not defined in 
the final rule as covered financial institutions. This exemption 
replaces without substantive change the provisions of the Interim Rule 
found at 31 CFR 103.183.

C. Section 103.178--Due Diligence Programs for Private Banking Accounts 
for Non-U.S. Persons--Definitions

    Section 103.178 of the 2002 Proposal implemented the requirements 
in 31 U.S.C. 5318(i) regarding due diligence standards applicable to 
private banking accounts established, administered, managed, or 
maintained in the United States for or on behalf of non-U.S. persons.
a. Definitions--In General
    The definitions relating to this section generated considerable 
comment and are discussed below.
    1. Beneficial ownership. Proposed section 103.175(b) defined a 
beneficial ownership interest in an account generally as the legal 
authority to fund, direct, or manage the account or a legal entitlement 
to the assets of an account (excluding financial interests that do not 
amount to either $1,000,000 or five percent of either the corpus or 
income of the account).
    Many commenters stated that the proposed definition was overly 
broad and unworkable in practice. They noted that the definition would 
expand the breadth of beneficial ownership to include all individuals 
with only a financial interest in an account (subject to the de minimis 
limitation). Such a definition, they argued, would be unworkable, 
primarily because it would mean that covered financial institutions 
would be required to identify, and perform due diligence on, any 
individual with anything other than an insubstantial interest in an 
account, even when such individuals do not assert control, direction, 
or management over the account.
    Commenters offered various suggestions for narrowing the scope of 
the definition. Several commenters suggested that we incorporate the 
international best practices principles on beneficial ownership 
established by the Wolfsberg Group (Wolfsberg),\41\ which stress the 
importance of control over the account in determining beneficial 
ownership.\42\ The congressional comment suggested that we retain the 
definition as proposed, but clarify that beneficial ownership interest 
would apply only to individuals and not to legal entities.
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    \41\ The Wolfsberg Group is a consortium of 12 international 
banks that establishes global anti-money laundering guidelines for 
the financial services industry.
    \42\ Wolfsberg Group, ``Wolfsberg Anti-Money Laundering 
Principles: FAQs on Beneficial Ownership,'' (2005), Q. 1, 
(hereinafter ``FAQs on Beneficial Ownership''), available at http://www.wolfsberg-principles.com/faq-ownership.html#2.
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    We agree with commenters that the proposed definition is 
insufficiently tailored to the serious risks of money laundering, and 
that the term beneficial owner, for purposes of this rule, should apply 
only to individuals, not legal entities.\43\ Individuals having a 
beneficial interest in the assets of an account without a corresponding 
ability to control the account should not be deemed beneficial 
owners.\44\ Accordingly, this final rule defines the term beneficial 
owner (rather than ``beneficial ownership interest,'' the term defined 
in the 2002 Proposal) to mean ``an individual who has a level of 
control over, or entitlement to, the funds

[[Page 505]]

or assets in the account that, as a practical matter, enables the 
individual, directly or indirectly, to control, direct or manage the 
account. The ability to fund the account or the entitlement to the 
funds of the account alone, however, without any corresponding 
authority to control, manage or direct the account (such as in the case 
of a minor child beneficiary) does not cause the individual to be a 
beneficial owner.'' Individuals who have an entitlement to funds in an 
account or an ability to fund the account and who also have the ability 
to ``manage or direct'' the account have the requisite level of control 
and must be identified by the financial institution.\45\
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    \43\ For a further discussion of this issue, see infra notes 54-
55 and accompanying text.
    \44\ For example, under the proposed definition, minor children 
who are beneficiaries of a trust would have been considered to have 
a beneficial ownership interest despite the fact that they lack 
control over the account.
    \45\ Both state and federal law generally impute the ownership 
of ``self-settled'' trusts--trusts where the settlor (the one who 
sets up and funds the trust) is also the beneficiary--to the 
settlor-beneficiary. This situation stands in sharp contrast to that 
in which minor children are simply the trust beneficiaries; their 
interests are, thus, properly excluded from the definition of 
beneficial ownership for purposes of the final rule. Individuals 
with the ability to fund an account by virtue of being the source of 
the assets, however, should be distinguished from individuals such 
as lawyers and liaisons who merely perform the ministerial functions 
of placing funds in various investment vehicles.
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    We believe that the definition we are adopting in this final rule 
is consistent with the concept of beneficial ownership set forth in 
section 5318A(e)(3), as added by section 311 of the Act.\46\ The rule 
also should provide covered financial institutions with a workable 
standard for assessing beneficial ownership for private banking 
accounts, thereby allowing covered financial institutions to focus 
their due diligence efforts in a risk-based fashion on those accounts 
and individuals posing a heightened risk of money laundering. Private 
banking accounts may be particularly vulnerable to money laundering 
because they may afford wealthy clients a large measure of anonymity, 
as well as access to the U.S. financial system.\47\
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    \46\ Section 311(e)(3) of the Act provides, in relevant part, 
that the Secretary shall promulgate regulations defining beneficial 
ownership that shall address issues relating to an individual's 
ability to ``fund, direct or manage the account'' and shall ensure 
that the definition does not extend to any individual with an 
``immaterial'' interest in the assets of the account. 31 U.S.C. 
5318A(e)(3).
    \47\ See Hearings on Private Banking and Money Laundering: A 
Case Study of Opportunities and Vulnerabilities, Before the 
Permanent Subcomm. on Investigations of the Senate Comm. on 
Governmental Affairs, 106th Cong., 872 (1999) (Minority Staff 
Report) (hereinafter ``Private Banking Report'').
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    2. Covered financial institution. We are using the same definition 
of covered financial institution for both the private banking 
provisions of section 103.178 and the correspondent account provisions 
of section 103.176. We, however, understand that, at this time, private 
banking accounts are likely to be offered primarily by depository 
institutions, uninsured trust banks and trust companies that are 
federally regulated and are subject to an anti-money laundering program 
requirement, securities broker-dealers, and futures commission 
merchants and introducing brokers. Should any other covered financial 
institutions offer accounts that meet the definition of a private 
banking account in the future, they would be required to comply with 
this section of the rule.
    3. Non-U.S. person. The 2002 Proposal defined non-U.S. person as an 
``individual who is neither a United States citizen nor a lawful 
permanent resident as defined in 26 U.S.C. 7701(b)(6).'' The final rule 
defines the term more appropriately by reference to the Immigration and 
Nationality Act, but without any change in substance. We are clarifying 
that this definition shall apply only to section 103.178 and does not 
incorporate or change the definition of person as used in the other 
sections of this part.
    4. Private banking account. Section 103.175(n) of the 2002 Proposal 
generally adopted the definition of private banking account that 
appears in 31 U.S.C. 5318(i). Section 5318(i) defines a private banking 
account as an account (or any combination of accounts) that: (1) 
Requires a minimum aggregate deposit of funds or other assets of not 
less than $1,000,000; (2) is established on behalf of one or more 
individuals who have a direct or beneficial ownership interest in the 
account; and (3) is assigned to, or is administered or managed by, in 
whole or in part, an officer, employee, or agent of a financial 
institution acting as a liaison between the financial institution and 
the direct or beneficial owner of the account. Commenters generally 
sought further clarification as to the precise scope of this term, 
raising issues regarding all three elements of the definition.\48\
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    \48\ We note that, although this final rule applies to those 
private banking accounts meeting the definition in the rule, many 
covered financial institutions offer forms of private banking 
relationships that should be given a greater level of due diligence 
under the institution's risk-based anti-money laundering program 
than that generally afforded the institution's retail customers. 
This is primarily because of the large amounts of money that can be 
managed through such relationships and the personal contact that is 
created in connection with these relationships. See, e.g., Federal 
Financial Institutions Examination Council, Bank Secrecy Act Anti-
Money Laundering Examination Manual, June 2005, available at http://www.ffiec.gov/pdf/bsamanual.pdf (hereinafter Bank Secrecy Act Exam 
Manual).
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b. Required Minimum Deposit of $1,000,000
    Many commenters sought clarification of the meaning of the clause 
``requires a minimum aggregate deposit of funds or other assets of not 
less than $1,000,000.'' Some commenters raised concerns that adopting a 
final rule containing the statutory threshold of $1,000,000 would mean 
that many high value accounts at covered financial institutions, that 
would otherwise meet the definition of a private banking account, would 
not be subject to this rule simply because the covered financial 
institution does not require a minimum deposit of at least $1,000,000.
    Although some accounts may not be covered by this rule, we cannot 
broaden the statutory definition, which was the basis for the 
definition contained in the 2002 Proposal, in order to reach a 
different result.\49\ The plain language of the statute, as well as the 
legislative history of section 5318(i),\50\ upon which the 2002 
Proposal was based, are unequivocal: a private banking account is an 
account (or combination of accounts) that requires a minimum deposit of 
not less than $1,000,000. Section 312 of the Act was intended to cover 
those accounts opened by wealthy foreign individuals making large 
deposits who can avail themselves of the services of a liaison,\51\ and 
we may not depart in the final rule from the plain language of the 
statute. The final rule is thus unchanged from the 2002 Proposal, 
except that the rule uses the statutory term ``deposit'' in place of 
the term ``amount'' used in the 2002 Proposal.
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    \49\ We intend to review the extent to which the application of 
the statutory definition could result in money laundering risks, 
and, if warranted, initiate a rulemaking to require special due 
diligence for a broader range of private banking accounts than are 
subject to section 5318(i) and this final rule. Such a rulemaking 
would be based on our authority under sections 5318(a)(2) and (h)(2) 
of the Bank Secrecy Act.
    \50\ The legislative history of section 5318(i) supports the 
plain language reading of the definition. In explaining the 
definitional requirements for a private banking account, Senator 
Levin stated: ``First, the account in question must require a $1 
million minimum aggregate of deposits.'' 147 Cong. Rec., supra note 
16, at 11037.
    \51\ See id. at 11036.
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    Certain covered financial institutions may offer a wide range of 
services that are generically termed private banking, and an 
institution may require different minimum deposits that are 
commensurate with its various types of private banking services. If an 
institution offers more than one level of private banking service to 
its clients, then any account or combination of accounts that require a 
$1,000,000

[[Page 506]]

aggregate minimum deposit, and also satisfy the other elements of the 
definition, including the services of a liaison, would be subject to 
the rule.
c. Liaison
    Commenters also asked us to clarify the term liaison as it applies 
to private banking accounts because the term potentially could bring 
within its scope individuals who perform only administrative functions, 
such as account administrators or customer service representatives. In 
order to articulate the meaning of this term, it is helpful to describe 
briefly what is meant by private banking. Although there is no 
generally accepted definition of private banking, the term refers 
broadly to the provision of highly personalized financial and related 
services to wealthy clients, principally individuals and families. 
Moreover, it is not a single activity, but instead comprises a range of 
different products and services, including cash management, funds 
transfer, asset management, creation of offshore entities, financial 
planning, lending and custody services.\52\ Private banking typically 
includes the following key components: Tailoring services to individual 
client requirements; anticipation of client needs; long-term 
relationship orientation; and personal contact.\53\ These services may 
vary according to the size of a client's deposit or account and the 
institution's private banking program. Section 5318(i) was intended to 
cover those accounts opened by wealthy foreign individuals making large 
deposits, who avail themselves of the services of an employee of the 
financial institution who can transfer funds, create offshore 
corporations or accounts, or engage in other transactions carrying 
increased risks of money laundering.\54\
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    \52\ Bank Secrecy Act Exam Manual, supra note 48.
    \53\ D. Maude and P. Molyneau, Private Banking: Maximizing 
Performance in a Competitive Market at 18 (Euromoney Publications 
PLC 1996).
    \54\ 147 Cong. Rec. supra note 16, at 11036.
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    The liaison is the covered financial institution's employee who 
develops (or continues) a long-term relationship with the client and is 
actively involved in providing these services.\55\ To that end, a 
liaison may, for example, coordinate the efforts of a team of 
specialists including investment managers, trust officers, and estate 
planners; open accounts on behalf of the client and manage and arrange 
transactions among those accounts; and conduct a variety of financial 
transactions to benefit the covered financial institution's client.\56\ 
To provide this type of personalized service for the client and to 
understand the long-term goals and needs of the client, a liaison will 
routinely gather extensive information about the client, including the 
client's personal, professional, and financial history. Thus, the 
meaning of the term liaison in this rule should not be confused with, 
for example, a customer service representative or account manager who 
may be assigned to a large number of customers (sometimes for a 
geographical region) to respond to questions customers may have 
regarding the institution's products and services or to take orders for 
securities or futures transactions. Those persons do not provide the 
level of service or obtain the extent of client information 
characteristic of private banking.
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    \55\ See Private Banking Report, supra note 47, at 875. The 
Private Banking Report, which served as the basis for the private 
banking provisions of section 312 of the Act, illustrates the 
services that distinguish liaisons from traditional customer service 
employees of a financial institution.
    \56\ See Private Banking Report, supra note 47, at 875.
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d. Account Established on Behalf of One or More Direct or Beneficial 
Owners
    Commenters also sought clarification regarding the requirement in 
section 5318(i) and the 2002 Proposal that the account be ``established 
on behalf of or for the benefit of one or more individuals who have a 
direct or beneficial ownership interest in the account.'' Reading this 
phrase in conjunction with the 2002 Proposal's definition of beneficial 
ownership interest, some commenters were concerned that section 5318(i) 
could apply to accounts maintained by public corporations, or by mutual 
funds or other collective investment vehicles, on behalf of numerous 
investors who could be viewed as having beneficial ownership interests 
in the account. These commenters claimed that the due diligence burdens 
resulting from such a reading of this provision would be excessive and 
impractical.\57\
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    \57\ As a means of creating a ``bright line'' test to avoid this 
result, one commenter recommended that the final rule exclude from 
the definition of private banking account hedge funds and other 
investment vehicles unless they have five or fewer investors, based 
on the standard suggested in section 356(c) of the Act, which 
requires the submission of an interagency report to Congress 
relating to investment companies. That section specifically requires 
the report to address the question of whether certain personal 
holding companies with five or fewer shareholders or beneficial 
owners should be treated as financial institutions under 31 U.S.C. 
5312(a)(2)(I) and should be required to disclose their beneficial 
owners when opening accounts at U.S. financial institutions. The 
report was issued December 31, 2002. See http://www.treas.gov/press/releases/po3721.htm. As a result of the revised definition of 
beneficial ownership in the final rule, no such limit is necessary.
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    We have addressed the concerns of these commenters by clarifying 
that the definition of beneficial owner is limited to individual(s) 
with control over the account (as opposed to passive investors with 
only financial interests).\58\ Furthermore, as a general matter, we do 
not believe that accounts held by public corporations, mutual funds, or 
other collective investment vehicles would qualify as private banking 
accounts. Such accounts likely would not involve a liaison, would not 
be established on behalf of one or more individuals with beneficial 
ownership of (i.e., control over) such an account, and would be viewed 
as institutional accounts managed by a different unit of the covered 
financial institution. On the other hand, a private banking account 
established in the name of a legal entity (such as a personal 
investment company or trust) \59\ for the benefit of an individual 
owner would be subject to the final rule if it also met the other 
definitional requirements.
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    \58\ We have modified this element of the private banking 
account definition in the final rule accordingly to require an 
account for those ``who are direct or beneficial owners of the 
account.'' We have also replaced ``individuals'' with ``non-U.S. 
persons'' to simplify the final rule.
    \59\ See Bank Secrecy Act Exam Manual, supra note 48.
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    Some commenters asked us to clarify the language of section 
5318(i)(1) that applies the statutory due diligence requirements to 
private banking accounts that a U.S. financial institution 
``establishes, maintains, administers or manages'' in the United States 
for a non-U.S. person.\60\ The phrase is intended to cover not only 
those accounts that are established or maintained in the United States, 
but also those accounts that are established and maintained outside of 
the United States but are administered or managed by employees within 
the United States.\61\ Private banking accounts can be established 
(i.e., opened) and maintained (i.e., the records are kept) in branch 
offices outside of the United States, while the accounts are 
administered or managed by employees of the institution within the 
United States. For example, the records of a private banking client may 
be physically located at a foreign branch

[[Page 507]]

of the covered financial institution, while an employee of the 
institution in the United States exercises control over, and manages 
the day-to-day activities of, the account.\62\
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    \60\ The same geographical scope applies in section 312 of the 
Act with respect to correspondent accounts, as well as in section 
313 of the Act and the Section 313/319 Rule.
    \61\ For example, a covered financial institution may establish 
a personal investment company for a private banking client in an 
offshore jurisdiction, but may manage the account in a U.S. office. 
See Board of Governors of the Federal Reserve System, ``Private 
Banking Activities'' (SR Letter 97-19 (SUP), June 30, 1997), 
available at http://www.federalreserve.gov (hereinafter ``Federal 
Reserve Guidance''). Such a relationship would fall within the 
geographic requirement of the final rule.
    \62\ However, the fact that securities issued and traded in the 
United States are held in a private banking account would not by 
itself suggest that that the account is controlled, managed, or 
administered in the United States. On the other hand, if investment 
management decisions are made in the United States, this would 
constitute management of the account in the United States.
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    Senior foreign political figure. Commenters generally found the 
definition of senior foreign political figure,\63\ set forth in Sec.  
103.175(o) of the 2002 Proposal, both far-reaching and difficult to 
implement. Commenters specifically criticized the inclusion of persons 
``widely and publicly known'' to maintain a close personal or 
professional relationship with individuals holding senior official 
positions. They argued that such a definitional standard would require 
financial institutions to look beyond the professional and financial 
histories of their clients and into their personal relationships. For 
many commenters, the phrase ``widely and publicly known'' raised 
questions about the resource burdens entailed in reviewing the vast 
amounts of public information currently available to ascertain such 
association. Yet another commenter requested that we develop a list of 
senior foreign political figures similar to the list issued by the 
Department of the Treasury's Office of Foreign Assets Control in order 
to ensure that covered financial institutions apply the definition in a 
uniform fashion.
---------------------------------------------------------------------------

    \63\ The proposed rule defined senior foreign political figure 
as: ``(i) A current or former senior official in the executive, 
legislative, administrative or judicial branches of a foreign 
government (whether elected or not), a senior official of a major 
foreign political party, or a senior executive of a foreign 
government-owned commercial enterprise; (ii) a corporation, business 
or other entity that has been formed by, or for the benefit of, any 
such individual; (iii) an immediate family member of any such 
individual; and (iv) a person who is widely and publicly known (or 
is actually known by the relevant covered financial institution) to 
maintain a close personal or professional relationship with any such 
individual.'' 2002 Proposal, supra note 2, at 37743.
---------------------------------------------------------------------------

    We continue to believe that the proposed definition of senior 
foreign political figure is generally appropriate. However, we are 
modifying the definition to specify that the definition includes a 
``person who is widely and publicly known * * * to be a close associate 
of'' rather than a ``person who is widely and publicly known * * * to 
maintain a close personal or professional relationship with'' any such 
individual. This definition is consistent with similar standards 
adopted by the international community regarding politically exposed 
persons,\64\ including the close associates aspect of the definition 
that was the primary focus of most commenters' objections.\65\
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    \64\ See, e.g., Basel Committee on Banking Supervision, 
``Customer Due Diligence for Banks,'' (Oct. 2001) at 10, which 
defines politically exposed persons as ``individuals who are or have 
been entrusted with prominent public functions, including heads of 
state or of government, senior politicians, senior government, 
judicial, or military officials, senior executives of publicly owned 
corporations and important political party officials.''
    \65\ See Wolfsberg Group, ``Wolfsberg AML Principles on Private 
Banking,'' (1st revision, May 2002) at 2, available at http://www.wolfsberg-principles.com, which likewise defines politically 
exposed persons as ``individuals holding or having held positions of 
public trust, such as government officials, senior executives of 
government corporations, politicians, important political party 
officials, etc., as well as their families and close associates.''
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    It should also be noted here that, prior to accepting any private 
banking client, especially one who will have a high dollar account, a 
covered financial institution should ordinarily perform sufficient due 
diligence to ensure that it is comfortable with the prospective 
customer and his or her source of funds. This type of due diligence 
should enable the covered financial institution to determine who the 
customer is, what his or her background is, and, specifically, whether 
he or she is a senior foreign political figure.
    Senior official or executive. The 2002 Proposal defined senior 
official or executive to mean an individual with substantial authority 
over policy, operations, or the use of government-owned resources. The 
final rule adopts the proposed definition without change. We believe 
that the definition of a senior official or executive must remain 
sufficiently flexible to capture the range of individuals who, by 
virtue of their office or position, potentially pose a risk that their 
funds may be the proceeds of foreign corruption. But this flexibility, 
according to commenters, has come at the expense of specificity, and 
commenters have requested further guidance in identifying such 
individuals. Titles, while helpful, may not themselves provide 
sufficient information about the office because governments are 
organized differently from jurisdiction to jurisdiction and official 
titles and responsibilities may vary accordingly.
    We believe covered financial institutions should consider a range 
of factors when determining whether a particular foreign official is a 
senior official. Relevant factors include examining the official 
responsibilities of the individual's office, the nature of the title 
(honorary or salaried political position), the level of authority the 
individual has over governmental activities and over other officials, 
and whether the position affords the individual access to significant 
government assets and funds. For example, as a general matter, we 
expect that individuals holding the equivalent of cabinet level 
positions with their government would fall within the definition of a 
senior official because of their ability to establish government policy 
and their access to government resources. However, a senior official 
could also include a governor or the mayor of a major city. If, for 
example, the city has importance nationally or internationally, the 
governor or mayor could have the same type of political influence and 
access to government resources as would an official holding the 
equivalent of a cabinet level position. Thus, where a covered financial 
institution's due diligence reveals that the nominal or beneficial 
owner of a private banking account holds some type of government 
position, the institution may need to make additional inquiries to 
determine whether that position or title qualifies as a senior official 
or executive.
    In defining the terms senior foreign political figure and senior 
official or executive, we have sought to provide some guidance and 
flexibility because an overly precise and rigid definition is not 
feasible and would not adequately implement the statutory intent of 
this section. In addition, as noted previously, through the course of 
exercising the due diligence that is necessary and appropriate for 
reviewing the acceptability of a high dollar account for a potential 
senior foreign political figure or a senior official or executive, a 
covered financial institution should be able to gather the information 
necessary to comply with this rule.
    Immediate family member. The 2002 Proposal defined immediate family 
member as ``a spouse, parents, siblings, children, and a spouse's 
parents or siblings.'' We did not receive comments on this proposed 
definition and are adopting it in the final rule without change.

D. Section 103.178--Due Diligence Programs for Private Banking Accounts

    1. Due diligence generally. Section 103.178(a) of the 2002 Proposal 
required each covered financial institution to maintain a due diligence 
program that includes policies, procedures, and controls that are 
reasonably designed to detect and report any known or suspected money 
laundering or

[[Page 508]]

suspicious activity conducted through or involving any private banking 
account that the financial institution establishes, maintains, 
administers, or manages in the United States for or on behalf of a non-
U.S. person. This section of the final rule contains technical 
modifications,\66\ and also includes the requirement that the due 
diligence program shall be part of the covered financial institution's 
anti-money laundering program otherwise required by the subpart.
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    \66\ For example, the clause ``by or on behalf of a non-U.S. 
person'' has been deleted because that limitation has been included 
in the final rule's definition of a private banking account. Because 
the final rule applies to private banking accounts for non-U.S. 
persons, covered financial institutions will need to determine 
whether a client is a non-U.S. person. We do not believe that such a 
determination should be difficult given the amount of information 
that private bankers typically obtain about their clients.
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    2. Minimum due diligence requirements. Section 103.178(b) of the 
2002 Proposal set forth minimum due diligence requirements for private 
banking accounts. This section required that the covered financial 
institution's due diligence program include reasonable steps to ensure 
that the institution: (1) Ascertain the identity of all nominal and 
beneficial owners,\67\ as well as information on their lines of 
business and sources of wealth; (2) ascertain the source of funds 
deposited into the private banking account; (3) ascertain whether any 
account holder is a senior foreign political figure; and (4) report, in 
accordance with applicable law and regulation, any suspected money 
laundering or suspicious activity. Commenters generally raised concerns 
about the burdens involved in complying with section 103.178(b) in 
several respects. These included the difficulty of identifying the 
beneficial owners given the 2002 Proposal's definition; the difficulty 
of obtaining all the required information about such persons, and the 
level of intrusiveness required; the problems associated with 
identifying senior foreign political figures given the breadth of the 
definition; and the extent, if any, to which financial institutions 
could rely on due diligence conducted by well-regulated intermediaries 
to satisfy their obligations under this provision.
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    \67\ Covered financial institutions also are required to 
implement a customer identification program pursuant to section 326 
of the Act and its implementing regulations; private banking 
accounts opened after October 1, 2003, are generally subject to that 
requirement as well. See 68 FR 25089-25162 (May 9, 2003).
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    The final rule requires that covered financial institutions 
implement a risk-based due diligence program that incorporates the 
minimum standards set forth in section 103.178(b).\68\ As discussed in 
the preamble to the 2002 Proposal, the nature and extent of the due 
diligence conducted will likely vary with each client depending on the 
presence of potential risk factors. More extensive due diligence, for 
example, may be appropriate for new clients; clients who operate in, or 
whose funds are transmitted from or through, jurisdictions with weak 
anti-money laundering controls; and clients whose lines of business may 
be cash-based (such as casinos or currency exchanges). Due diligence 
should also be commensurate with the size of the account. Accounts with 
relatively more deposits and assets should be subject to greater due 
diligence, requiring covered financial institutions to conduct more 
extensive investigation into the relevant factors. In addition, if the 
institution at any time learns of information that casts doubt on 
previous information, further due diligence would be appropriate.
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    \68\ As with correspondent accounts, where multiple financial 
institutions maintain a private banking account for a customer--
e.g., securities clearing and introducing brokers and futures 
commission merchants and introducing brokers--each is independently 
responsible for ensuring the requirements of this rule are met. Any 
apportionment of functions between such entities should include 
adequate sharing of information to ensure that each institution can 
satisfy its obligations under this rule. For example, an introducing 
firm would be responsible for informing the clearing firm of the 
customers holding private banking accounts and for obtaining the 
necessary information from and about these customers, while both 
firms would be responsible for establishing adequate controls to 
detect suspicious activity.
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    We have largely retained the language of section 103.178(b) as 
contained in the 2002 Proposal, but have clarified the requirements of 
paragraph (b)(2). This paragraph will now require covered financial 
institutions to ascertain for private banking accounts information 
regarding the purpose of the account as well as the anticipated account 
activity. To assist covered financial institutions in meeting their 
compliance obligations, we are providing additional guidance regarding 
the specific requirements set forth below.
a. Nominal and Beneficial Owners
    Section 103.178(b)(1) of the 2002 Proposal required covered 
financial institutions to take reasonable steps to ascertain the 
identity of all nominal (i.e., named) holders and any beneficial owners 
of the private banking account, as well as information on those 
holders' lines of business and sources of wealth. The final rule 
modifies this provision to more accurately reflect the wording of the 
statute, which does not refer to lines of business or sources of 
wealth. However, to comply with the requirement that a covered 
financial institution perform sufficient due diligence with regard to 
its private banking accounts to guard against money laundering and to 
report any suspicious activity, part of an institution's due diligence 
may often include a review of the individual's lines of business and 
sources of wealth. The final rule is also modified by employing the 
term beneficial owner instead of beneficial ownership interest so that 
it is consistent with the definition as it appears in section 
103.175(b) of the final rule. Accordingly, this final rule requires 
covered financial institutions to take reasonable steps to ascertain 
the identity of all nominal and beneficial owners of private banking 
accounts and to apply due diligence measures to those individuals.
    Commenters maintained that the compliance burdens under this 
provision would be excessive, particularly as it is applied to all 
beneficial owners of private banking accounts. As this final rule 
adopts a narrower definition of beneficial owner than that contained in 
the 2002 Proposal, we anticipate that the compliance burdens associated 
with this section will be reduced. The definition of beneficial owner 
centers on actual rather than nominal control. Therefore, covered 
financial institutions will need to make a specific factual 
determination as to the beneficial owners (i.e., individuals with 
actual control) of an account on a case-by-case basis. We expect that 
covered financial institutions will look through the nominal owner of 
the account to determine who has effective control over the account. 
For example, when an account is opened by a natural person, the 
financial institution should establish whether the client is acting on 
his or her own behalf and should perform additional diligence if doubt 
exists as to the identity of the beneficial owner(s).\69\ For an 
account holder that is a legal entity that is not publicly traded (such 
as a private investment company), a financial institution should ensure 
that it has sufficient information about the structure of the entity, 
including its directors, shareholders, and those with control over the 
account, and should determine which individual (or individuals) 
constitutes the beneficial owner(s) for purposes of due diligence.\70\ 
Likewise, in the case of a

[[Page 509]]

trust, the financial institution should ascertain which individual (or 
individuals) controls the funds of the trust, should identify the 
source of the funds, and should perform due diligence as 
appropriate.\71\ The reason for the focus on nominal and beneficial 
owners is to ensure that covered financial institutions are adequately 
and comprehensively addressing the risk involved in accepting and 
handling a large dollar private banking account for a non-U.S. person.
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    \69\ See, e.g., Wolfsberg Group, ``FAQs on Beneficial 
Ownership,'' supra note 42, at 2-3; Federal Reserve Guidance, supra 
note 61, Part III.
    \70\ Id.
    \71\ See, e.g., Wolfsberg Group, ``FAQs on Beneficial 
Ownership,'' supra note 42, at 3.
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    Some commenters suggested that we allow covered financial 
institutions to rely on the due diligence conducted by well-regulated 
foreign intermediaries (e.g., institutions regulated by jurisdictions 
that are members of the Financial Action Task Force) that open private 
banking accounts on behalf of their clients. We have determined that 
covered financial institutions may not rely on foreign intermediaries 
to satisfy their due diligence obligations under this rule. Because of 
the unique vulnerabilities for money laundering that exist in the 
private banking context, it is critical that covered financial 
institutions conduct their own due diligence with respect to the 
beneficial owners of private banking accounts.\72\ In the event that an 
intermediary maintains a single private banking account on behalf of 
two or more foreign individuals, due diligence would be required with 
regard to all individuals that meet the definition of beneficial 
owner.\73\
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    \72\ Senator Levin specifically discussed accounts opened in the 
name of investment advisers, shell corporations, or trusts on behalf 
of other persons, noting that ``[they] are exactly the types of 
accounts that terrorists and criminals use to hide their identities 
and infiltrate U.S. financial institutions. And thus they are 
exactly the accounts for which U.S. financial institutions need to 
verify and evaluate the real beneficial owners.'' 147 Cong. Rec., 
supra note 16, at 11036. See also Federal Reserve Guidance, supra 
note 61, n. 2.
    \73\ We understand that some financial institutions do not 
permit intermediaries to open pooled accounts for unrelated persons 
within the private banking units; instead, they treat the account as 
an institutional account. If a covered financial institution chooses 
to allow intermediaries to open these types of accounts within the 
private banking unit (and if they fall within the definition of 
private banking account in the final rule), it may want to require 
the intermediary to establish separate accounts in the name of each 
beneficial owner to ease the logistical burdens involved in 
conducting due diligence.
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    In addition, we note that due diligence is an ongoing obligation. 
Covered financial institutions will be in the best position to monitor 
accounts for suspicious transactions and possible money laundering if 
they are involved in obtaining information about their clients 
directly. Further, the very nature of a private banking relationship 
requires that financial institutions obtain extensive information about 
their clients in order to provide them with personalized financial 
services.
b. Source of Funds and Purpose and Expected Use of Account
    Section 103.178(b)(2) of the 2002 Proposal required covered 
financial institutions to take reasonable steps to ascertain the source 
of funds deposited into the private banking account. The final rule 
retains this language, but adds the requirement that covered financial 
institutions take reasonable steps to ascertain the purpose for which 
the private banking account is being established, as well as the 
anticipated account activity. As discussed below, we believe that the 
additional obligations of ascertaining the purpose and expected account 
activity are elements of the 2002 Proposal's requirement to verify the 
source of funds in an account and to monitor for suspicious activity, 
and, more generally, are fundamental elements of a sound due diligence 
program.\74\ Such information, which we believe most covered financial 
institutions currently obtain in the normal course of business when 
opening a private banking account, establishes a baseline for account 
activity that will enable a covered financial institution to better 
detect suspicious activity and to assess situations where additional 
verification regarding the source of funds may be necessary.
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    \74\ See Basel Committee on Banking Supervision, supra note 64 
at 6: ``The bank should always ask itself why the customer has 
chosen to open an account in a foreign jurisdiction.'' See also, 
Wolfsberg AML Principles on Private Banking, supra note 65, at 2, 
which identifies the ``purpose and reasons for opening the account'' 
and ``anticipated account activity'' among the elements of an 
effective due diligence program.
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    Commenters sought explanation of the due diligence requirement to 
ascertain the source of funds deposited into the private banking 
account, and specifically questioned the extent to which verification 
was required. We do not expect covered financial institutions, in the 
ordinary course, to verify the source of every deposit placed into 
every private banking account. However, they should monitor deposits 
and transactions as necessary to ensure that the activity is consistent 
with information the institution has received about the client's source 
of funds and with the stated purpose and expected use of the account, 
as needed to guard against money laundering, and to report any 
suspicious activity. Such monitoring will facilitate the identification 
of accounts that warrant additional scrutiny. For example, a single, 
large deposit may warrant additional scrutiny if it is unusual, given 
the information a client has provided about the account's purpose and 
anticipated activity and other expected sources of funds. Likewise, a 
deposit that comes from an unusual source, such as a charitable fund or 
foreign government agency trust funds or aid grants, may also warrant 
further scrutiny. In addition to contacting the client, the financial 
institution may consider contacting the financial institution that 
transmitted the funds and the organization that was the source of the 
funds.
c. Senior Foreign Political Figures
    Section 103.178(b)(3) of the 2002 Proposal required covered 
financial institutions to take reasonable steps to ascertain whether 
any nominal or beneficial account owner may be a senior foreign 
political figure.\75\ Many commenters argued that the definition of a 
senior foreign political figure was vague and overly broad and that the 
2002 Proposal failed to provide sufficient guidance on implementing the 
definition. Commenters particularly found the requirement to ascertain 
a client's close association with senior foreign political figures 
burdensome, and questioned whether the phrase ``widely and publicly 
known'' would require financial institutions to review vast amounts of 
public information. One commenter suggested waiving altogether the 
enhanced due diligence requirements for senior foreign political 
figures from Financial Action Task Force member countries, while 
allowing covered financial institutions to rely on a certification from 
citizens of non-Financial Action Task Force member countries regarding 
whether they are senior foreign political figures unless information to 
the contrary is received.
---------------------------------------------------------------------------

    \75\ The final rule adopts this provision without change, other 
than substituting ``is'' for ``may be'' for clarity.
---------------------------------------------------------------------------

    We recognize that the term senior foreign political figure is 
broadly defined in the Act to include immediate family members and 
close associates, and that reasonable efforts to ascertain an 
individual's status within this category will require robust due 
diligence procedures that need to go beyond reliance on a 
certification. We believe that the due diligence that covered financial 
institutions currently conduct with respect to private banking clients 
usually incorporates (or can readily incorporate) reasonable steps to 
ascertain a client's status as a senior

[[Page 510]]

foreign political figure.\76\ We also believe that institutions that 
provide private banking services as defined in this rule, particularly 
to foreign individuals, currently obtain considerable information about 
their clients. For example, in conducting related due diligence on a 
client's financial and professional background, a financial institution 
typically will review the sources of income of a client, which may 
entail reviewing past \77\ and present employment history and 
references from professional associates. This information should 
generally uncover the client's status as a current or former senior 
official.
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    \76\ The Department of the Treasury, the Federal banking 
regulators, and the Department of State jointly issued ``Guidance on 
Enhanced Scrutiny for Transactions That May Involve the Proceeds of 
Foreign Official Corruption'' in January 2001, available at http://www.treas.gov/press/releases/ls1123.htm.
    \77\ Past employment history may be relevant in determining 
source of income to the extent a client is receiving a pension or 
some other income.
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    We understand that ascertaining a client's close association with a 
senior foreign political figure will be more difficult than identifying 
whether the client holds a senior political position. However, in our 
view, the term ``widely and publicly known'' serves as a reasonable 
limitation on a covered financial institution's obligation to identify 
close associates who would be readily apparent from a review of 
publicly available information, as discussed below. Certainly, if a 
covered financial institution has actual knowledge of such a close 
associate, the individual also falls within the definition. Covered 
financial institutions, in fact, may become aware of a client's close 
association with a senior official simply in the course of gathering 
financial and professional information about a client.\78\ However, we 
do not expect a covered financial institution to undertake an 
unreasonable amount of due diligence or to be aware of unknown 
associations that could not be expected to have been uncovered through 
the exercise of due diligence ordinarily undertaken when opening or 
monitoring a private banking account as defined by this rule.
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    \78\ For example, when conducting due diligence on a client and 
his or her lines of business, a covered financial institution may 
uncover the fact that a client is a business partner of a senior 
official. This would likely qualify the individual as a close 
associate. Likewise, foreign clients may be referred to a covered 
financial institution by an existing client. If the existing client 
is a senior foreign political figure, that may be an indication that 
the prospective client is a close associate.
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    Covered financial institutions, thus, should be guided by the 
following basic procedures when drafting their due diligence procedures 
to identify senior foreign political figures. As we believe most 
covered financial institutions already do, the procedures should 
require obtaining information regarding employment and other sources of 
income. First, the institution should seek information directly from 
the individual regarding possible senior foreign political figure 
status. Second, the institution should check references, as 
appropriate, to determine whether the individual holds or has 
previously held a senior political position or may be a close associate 
of a senior foreign political figure. Third, the institution should 
also make reasonable efforts to review public sources of information in 
meeting this obligation.
    Many commenters sought clarification as to the 2002 Proposal's 
reference to publicly available sources of information, and as to what 
would constitute reasonable steps to review such information. The range 
of publicly available sources that should be consulted will vary 
depending upon the circumstances of the particular case. In virtually 
all cases, covered financial institutions will have an obligation to 
check the name of the prospective private banking client against 
databases of public information that are reasonably accessible and 
available. These include U.S. Government databases, major news 
publications and commercial databases available on the Internet, and 
fee-based databases, as appropriate. The country of residence of the 
private banking client is also relevant. We do not expect that, as a 
general procedure, a covered financial institution will need to review 
the local language newspapers in every country in which its private 
banking clients reside, although reviewing such newspapers could be 
prudent in an unusual situation, such as when the financial institution 
is not familiar with the country that the private client is from and 
the country is not generally covered in the press. Finally, we note 
that there are existing and developing databases of foreign political 
figures that may assist covered financial institutions with this 
inquiry.\79\
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    \79\ For example, a list of high level foreign officials is 
available at: http://www.odci.gov/cia/publications/chiefs/index.html.
---------------------------------------------------------------------------

    In the event that the covered financial institution learns (either 
during the initial establishment of the account or thereafter) of 
information indicating that a client may be a senior foreign political 
figure as defined in the rule, it should exercise additional, 
reasonable diligence in seeking to confirm whether the individual is, 
in fact, a senior foreign political figure. One of the first steps is 
to seek confirmation from the individual. If the individual denies 
holding or having held a political position or being closely associated 
with or in the immediate family of someone who has held or currently 
holds a political position, it still may be necessary to take further 
reasonable steps. These additional steps may include, for example, 
making more pointed inquiries of other references, obtaining additional 
information from branches of the covered financial institution that may 
be operating in the home country of the client, and making reasonable 
efforts to consult publicly available sources of information, as 
described above. If, after reasonable diligence, the covered financial 
institution does not learn of any information indicating that a nominal 
or beneficial owner may be a senior foreign political figure, it may 
conclude that the individual is not a senior foreign political 
figure.\80\
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    \80\ Section 103.178(c)(1) of the 2002 Proposal stated that, in 
performing the required due diligence,
    ``(i) If a covered financial institution learns of information 
indicating that a particular individual may be a senior foreign 
political figure, it should exercise reasonable diligence in seeking 
to determine whether the individual is, in fact, a senior foreign 
political figure.
    (ii) If a covered financial institution does not learn of any 
information indicating that an individual may be a former senior 
foreign political figure, and the individual states that he or she 
is not a former senior foreign political figure, the financial 
institution may rely on such statement in determining whether the 
account is subject to the due diligence requirements of paragraph 
(c)(2) of this section.'' 2002 Proposal, supra note 2, at 37744.
    Because the substance of this subparagraph is in effect subsumed 
within a covered financial institution's obligations under section 
103.178(b)(2), it has been eliminated from the text of the final 
rule.
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    The Act and this final rule require that covered financial 
institutions establish controls and procedures that include reasonable 
steps to ascertain the status of an individual as a senior foreign 
political figure and to conduct enhanced scrutiny of accounts held by 
these individuals. We recognize that covered financial institutions 
applying reasonable due diligence procedures in accordance with this 
rule may not be able to identify in every case individuals who qualify 
as senior foreign political figures, and, in particular, their close 
associates (nor does the rule require that they detect this fact in 
every case), and thus may not apply enhanced scrutiny to all such 
accounts. Rather, the rule requires a program that ensures that the 
institution take reasonable steps to ascertain whether a private 
banking account client is a senior foreign political figure.

[[Page 511]]

Moreover, if the institution's program is reasonably designed to make 
this determination, and the institution administers the program 
effectively, then the institution should generally be able to detect, 
report, and take appropriate action where suspected money laundering is 
occurring with respect to these accounts, even in cases where the 
financial institution has not been able to identify the account holder 
as a senior foreign political figure warranting enhanced scrutiny.
d. Reporting Known or Suspected Money Laundering
    Section 103.178(b)(4) of the 2002 Proposal required that the due 
diligence program of covered financial institutions ensure that the 
institution take reasonable steps to report, in accordance with 
applicable law and regulation, any known or suspected violation of law 
conducted through or involving a private banking account with a non-
U.S. citizen. For example, if a covered financial institution detects 
activity that is unusual for the account and client, and cannot obtain 
a satisfactory response from the client and/or other sources, it may 
``know, suspect, or have reason to suspect'' that money laundering or 
activity with ``no apparent lawful purpose'' is occurring, prompting 
the filing of a suspicious activity report.\81\ Other appropriate 
action may include suspending account activity or closing the account.
---------------------------------------------------------------------------

    \81\ See 31 CFR 103.17 to 103.19.
---------------------------------------------------------------------------

    In accord with the modification and clarification discussed above 
pertaining to source of funds in connection with section 103.178(b)(2), 
we have similarly clarified section 103.178(d). Specifically, we have 
incorporated the fact that, in order to adequately review for possible 
money laundering and suspicious activity, a covered financial 
institution must take reasonable steps to ensure that the information 
it obtains about the source of funds, as well as about the stated 
purpose and the expected use of the account, is consistent with the 
actual activity in the account. This paragraph otherwise remains 
unchanged in the final rule, except that the phrase ``money laundering 
or suspicious activity'' replaces the phrase ``violation of law'' for 
consistency with section 103.178(a) and with 31 U.S.C. 5318(i).
    3. Enhanced scrutiny. Section 103.178(c) of the 2002 Proposal 
established certain special requirements with respect to senior foreign 
political figures. Section 103.178(c)(2) generally required covered 
financial institutions to establish due diligence programs for accounts 
held by senior foreign political figures that included policies and 
procedures reasonably designed to detect transactions that may involve 
the proceeds of foreign corruption. As noted in the preamble to the 
2002 Proposal, covered financial institutions should involve senior 
management when deciding to accept a senior foreign political figure as 
a private banking client and should ensure that information regarding 
the account is available for review not only by the liaison but also by 
senior management.
    Such internal controls are particularly important in the private 
banking context because of the potentially close relationships managers 
may develop with private banking customers. In fact, money laundering 
has been shown to occur through private banking accounts established 
for senior foreign political figures when financial institutions have 
failed to apply internal controls, allowing liaisons to apply 
insufficient, non-impartial scrutiny to the activities of their private 
banking clients.\82\
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    \82\ We recently imposed a civil penalty against a bank for, 
among other things, its failure to implement internal controls in 
its private banking department. Lax supervision by the bank enabled 
the relationship manager to engage in suspicious transactions 
involving a private banking account held by a senior foreign 
political figure. See Matter of Riggs Bank, N.A., No. 2004-01 (May 
13, 2004), available at http://www.fincen.gov/riggsassessment3.pdf. 
In another publicized case, a liaison pled guilty to helping to 
launder over $11 million in narcotics proceeds through private 
banking accounts she managed for an influential Mexican governor. 
The liaison admitted to helping to disguise the identity of her 
client and the source of these funds by establishing accounts in the 
names of fictitious nominee account holders. She also admitted to 
intentionally avoiding asking questions of her client or informing 
her superiors regarding these activities. U.S. v. Madrid, et al., 
No. 02 CR 0414 (S.D.N.Y. August 25, 2005).
---------------------------------------------------------------------------

    We received two comments on this section. One commenter sought 
specific guidance as to how covered financial institutions can detect 
the proceeds of foreign corruption, while a congressional commenter 
asked us to specify in the rule that covered financial institutions are 
required to conduct enhanced scrutiny of accounts held by senior 
foreign political figures in accordance with the statutory provisions 
of 31 U.S.C. 5318(i). In response to the latter comment, we have 
amended the text of this provision (redesignated as section 
103.178(c)(1) of this final rule) to specifically require enhanced 
scrutiny, as follows ``In the case of a private banking account for 
which a senior foreign political figure is a nominal or beneficial 
owner, the due diligence program required by paragraph (a) of this 
section shall include enhanced scrutiny of such account that is 
reasonably designed to detect and report transactions that may involve 
the proceeds of foreign corruption.''
    As with the minimum due diligence program prescribed under section 
103.178(b), we expect that covered financial institutions will apply a 
risk-based enhanced scrutiny program. Reasonable steps to perform 
enhanced scrutiny may include the following: consulting publicly 
available information regarding the home jurisdiction of the client; 
\83\ contacting, where applicable, branches of the U.S. financial 
institution operating in the home jurisdiction of the client to obtain 
additional information about the client and the political environment; 
and conducting greater scrutiny of the client's employment history and 
sources of income. For example, wire transfers from a government 
account to the personal account of a government official with signature 
authority over the government account should raise an institution's 
suspicions of possible political corruption.\84\ If a covered financial 
institution's review of major news sources indicates that a client may 
be or is involved in political corruption, the institution should 
review that client's account for unusual activity.
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    \83\ For example, AAA FLASH, a weekly electronic newsletter 
sponsored by United States Agency for International Development, 
details corruption around the world and can be accessed at http://www.respondanet.com/english.
    \84\ See Matter of Riggs Bank, supra n. 82.
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    In addition, when the client is a former senior foreign political 
figure, a risk-based program should involve weighing such factors as 
the length of time the client has been out of office, the size of the 
account, and any information obtained from public sources, as well as 
other information obtained through the due diligence process. Thus, if 
a former official has been out of office for a substantial length of 
time, and a review of major news publications provides no indication of 
political corruption or continued involvement in politics, then less 
scrutiny would be reasonable.
    Section 103.178(c)(3) of the 2002 Proposal set forth the definition 
of ``proceeds of foreign corruption.'' No comments were submitted 
regarding this proposed definition, and it (redesignated as section 
103.178(c)(2)) is unchanged in the final rule.
    4. Special procedures. Section 103.178(d) of the 2002 Proposal 
contained special procedures to be included in the covered financial 
institution's due diligence program for private banking accounts, 
addressing situations where appropriate due diligence cannot be 
performed,

[[Page 512]]

including when the institution should refuse to open the account, 
suspend transaction activity, file a suspicious activity report, or 
close the account. No comments were submitted regarding this provision, 
which is unchanged in this final rule.
    5. Effective dates. Although the 2002 Proposal did not address the 
issue of an effective date, as with correspondent accounts, many 
commenters noted the difficulty of complying with the requirements of 
31 U.S.C. 5318(i) pertaining to private banking accounts, especially 
with regard to their application to previously existing accounts, and 
urged us to allow a sufficient transition period. We are mindful of the 
burden that will result from the statutory requirement that the 
provision applies to all private banking accounts, regardless of when 
they were opened. The final rule contains a new section 103.176(e) that 
provides for the effective dates of the obligations under this section: 
effective 90 days after the date of publication of the final rule, the 
requirements of the final rule will apply to private banking accounts 
opened on or after that date; and, effective 270 days after the date of 
publication of the final rule, the rule's requirements will apply to 
all private banking accounts opened prior to the date that is 90 days 
after the date of publication of the final rule.
    For all of the reasons explained above in section III.B.4., the 
final rule contains additional applicability rules to ensure 
consistency with the requirements of the Interim Rule until the 
effective dates of the final rule are triggered.
    Paragraph 103.178(e)(2) contains special applicability dates 
requiring banks, broker-dealers, futures commission merchants, and 
introducing brokers to continue to apply the requirements of 31 U.S.C. 
5318(i)(3) to private banking accounts until the 90 and 270-day 
implementation dates of paragraph 103.178(e)(1) are triggered. This 
preserves the status quo created by the provisions of the Interim Rule 
found at 31 CFR 103.181 and 103.182 until the provisions of this final 
rule go into effect.
    Paragraph 103.178(e)(3) continues to exempt trust banks or trust 
companies that have a federal regulator, and mutual funds from the 
requirements of 31 U.S.C. 5318(i)(3) until the 90 and 270-day 
implementation dates of paragraph 103.178(e)(1) are triggered.
    Finally, paragraph 103.178(e)(4) contains a general exemption from 
the due diligence requirements for private banking accounts contained 
in 31 U.S.C. 5318(i)(3) for all financial institutions which are not 
defined in the final rule as covered financial institutions. This 
exemption replaces without substantive change the provisions of the 
Interim Rule found at 31 CFR 103.183.
    In light of the special implementation provisions contained in the 
text of the final rule, the Interim Rule, codified at 31 CFR 103.181 
through 31 CFR 103.183 will no longer be effective on February 3, 2006.

IV. Regulatory Flexibility Act

    Pursuant to the Regulatory Flexibility Act (5 U.S.C. 610 et seq.), 
it is hereby certified that this final rule will not have a significant 
economic impact on a substantial number of small entities. The final 
rule provides guidance to financial institutions concerning the 
mandated due diligence and enhanced due diligence requirements in 
section 312 of the Act. Moreover, most of the financial institutions 
covered by the rule tend to be larger institutions. Accordingly, a 
regulatory flexibility analysis is not required.

V. Executive Order 12866

    This final rule is not a ``significant regulatory action'' as 
defined in Executive Order 12866, and, as such, a regulatory assessment 
is not required.

List of Subjects in 31 CFR Part 103

    Banks and banking, Brokers, Counter money laundering, Counter-
terrorism, Currency, Foreign banking, Reporting and recordkeeping 
requirements.

Authority and Issuance

0
For the reasons set forth in the preamble, 31 CFR part 103 is amended 
as follows:

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

0
1. The authority citation for part 103 continues to read as follows:

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

0
2. Section 103.120 of Subpart I of part 103 is amended as follows:
0
a. Paragraph (b) is amended by adding ``the requirements of Sec. Sec.  
103.176 and 103.178 and'' immediately after the words ``complies 
with''.
0
b. Paragraph (c)(1) is amended by adding ``the requirements of 
Sec. Sec.  103.176 and 103.178 and'' immediately after the words 
``complies with''.

0
3. Subpart I of part 103 is amended by revising Sec.  103.175 to read 
as follows:


Sec.  103.175  Definitions.

    Except as otherwise provided, the following definitions apply for 
purposes of Sec. Sec.  103.176 through 103.185:
    (a) Attorney General means the Attorney General of the United 
States.
    (b) Beneficial owner of an account means an individual who has a 
level of control over, or entitlement to, the funds or assets in the 
account that, as a practical matter, enables the individual, directly 
or indirectly, to control, manage or direct the account. The ability to 
fund the account or the entitlement to the funds of the account alone, 
however, without any corresponding authority to control, manage or 
direct the account (such as in the case of a minor child beneficiary), 
does not cause the individual to be a beneficial owner.
    (c) Certification and recertification mean the certification and 
recertification forms described in appendices A and B, respectively, to 
this subpart.
    (d) Correspondent account. (1) The term correspondent account 
means:
    (i) For purposes of Sec.  103.176(a), (d) and (e), an account 
established for a foreign financial institution to receive deposits 
from, or to make payments or other disbursements on behalf of, the 
foreign financial institution, or to handle other financial 
transactions related to such foreign financial institution; and
    (ii) For purposes of Sec. Sec.  103.176(b) and (c), 103.177 and 
103.185, an account established for a foreign bank to receive deposits 
from, or to make payments or other disbursements on behalf of, the 
foreign bank, or to handle other financial transactions related to such 
foreign bank.
    (2) For purposes of this definition, the term account:
    (i) As applied to banks (as set forth in paragraphs (f)(1)(i) 
through (vii) of this section):
    (A) Means any formal banking or business relationship established 
by a bank to provide regular services, dealings, and other financial 
transactions; and
    (B) Includes a demand deposit, savings deposit, or other 
transaction or asset account and a credit account or other extension of 
credit;
    (ii) As applied to brokers or dealers in securities (as set forth 
in paragraph (f)(1)(viii) of this section) means any formal 
relationship established with a broker or dealer in securities to 
provide regular services to effect transactions in securities, 
including, but not limited to, the purchase or sale of securities and 
securities loaned and borrowed activity, and to hold securities or 
other assets for safekeeping or as collateral;

[[Page 513]]

    (iii) As applied to futures commission merchants and introducing 
brokers (as set forth in paragraph (f)(1)(ix) of this section) means 
any formal relationship established by a futures commission merchant to 
provide regular services, including, but not limited to, those 
established to effect transactions in contracts of sale of a commodity 
for future delivery, options on any contract of sale of a commodity for 
future delivery, or options on a commodity; and
    (iv) As applied to mutual funds (as set forth in paragraph 
(f)(1)(x) of this section) means any contractual or other business 
relationship established between a person and a mutual fund to provide 
regular services to effect transactions in securities issued by the 
mutual fund, including the purchase or sale of securities.
    (e) Correspondent relationship has the same meaning as 
correspondent account for purposes of Sec. Sec.  103.177 and 103.185.
    (f) Covered financial institution means: (1) For purposes of 
Sec. Sec.  103.176 and 103.178:
    (i) An insured bank (as defined in section 3(h) of the Federal 
Deposit Insurance Act (12 U.S.C. 1813(h)));
    (ii) A commercial bank;
    (iii) An agency or branch of a foreign bank in the United States;
    (iv) A federally insured credit union;
    (v) A savings association;
    (vi) A corporation acting under section 25A of the Federal Reserve 
Act (12 U.S.C. 611 et seq.);
    (vii) A trust bank or trust company that is federally regulated and 
is subject to an anti-money laundering program requirement;
    (viii) A broker or dealer in securities registered, or required to 
be registered, with the Securities and Exchange Commission under the 
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), except persons 
who register pursuant to section 15(b)(11) of the Securities Exchange 
Act of 1934;
    (ix) A futures commission merchant or an introducing broker 
registered, or required to be registered, with the Commodity Futures 
Trading Commission under the Commodity Exchange Act (7 U.S.C. 1 et 
seq.), except persons who register pursuant to section 4(f)(a)(2) of 
the Commodity Exchange Act; and
    (x) A mutual fund, which means an investment company (as defined in 
section 3(a)(1) of the Investment Company Act of 1940 (``Investment 
Company Act'') (15 U.S.C. 80a-3(a)(1))) that is an open-end company (as 
defined in section 5(a)(1) of the Investment Company Act (15 U.S.C. 
80a-5(a)(1))) and that is registered, or is required to register, with 
the Securities and Exchange Commission pursuant to the Investment 
Company Act.
    (2) For purposes of Sec. Sec.  103.177 and 103.185:
    (i) An insured bank (as defined in section 3(h) of the Federal 
Deposit Insurance Act (12 U.S.C. 1813(h)));
    (ii) A commercial bank or trust company;
    (iii) A private banker;
    (iv) An agency or branch of a foreign bank in the United States;
    (v) A credit union;
    (vi) A savings association;
    (vii) A corporation acting under section 25A of the Federal Reserve 
Act (12 U.S.C. 611 et seq.); and
    (viii) A broker or dealer in securities registered, or required to 
be registered, with the Securities and Exchange Commission under the 
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), except persons 
who register pursuant to section 15(b)(11) of the Securities Exchange 
Act of 1934.
    (g) Foreign bank. The term foreign bank has the meaning provided in 
Sec.  103.11(o).
    (h) Foreign financial institution. (1) The term foreign financial 
institution means:
    (i) A foreign bank;
    (ii) Any branch or office located outside the United States of any 
covered financial institution described in paragraphs (f)(1)(viii) 
through (x) of this section;
    (iii) Any other person organized under foreign law (other than a 
branch or office of such person in the United States) that, if it were 
located in the United States, would be a covered financial institution 
described in paragraphs (f)(1)(viii) through (x) of this section; and
    (iv) Any person organized under foreign law (other than a branch or 
office of such person in the United States) that is engaged in the 
business of, and is readily identifiable as:
    (A) A currency dealer or exchanger; or
    (B) A money transmitter.
    (2) For purposes of paragraph (h)(1)(iv) of this section, a person 
is not ``engaged in the business'' of a currency dealer, a currency 
exchanger or a money transmitter if such transactions are merely 
incidental to the person's business.
    (i) Foreign shell bank means a foreign bank without a physical 
presence in any country.
    (j) Non-United States person or non-U.S. person means a natural 
person who is neither a United States citizen nor is accorded the 
privilege of residing permanently in the United States pursuant to 
title 8 of the United States Code. For purposes of this paragraph (j), 
the definition of person in Sec.  103.11(z) does not apply, 
notwithstanding paragraph (m) of this section.
    (k) Offshore banking license means a license to conduct banking 
activities that prohibits the licensed entity from conducting banking 
activities with the citizens of, or in the local currency of, the 
jurisdiction that issued the license.
    (l) Owner. (1) The term owner means any person who, directly or 
indirectly:
    (i) Owns, controls, or has the power to vote 25 percent or more of 
any class of voting securities or other voting interests of a foreign 
bank; or
    (ii) Controls in any manner the election of a majority of the 
directors (or individuals exercising similar functions) of a foreign 
bank.
    (2) For purposes of this definition:
    (i) Members of the same family shall be considered to be one 
person.
    (ii) The term same family means parents, spouses, children, 
siblings, uncles, aunts, grandparents, grandchildren, first cousins, 
stepchildren, stepsiblings, parents-in-law, and spouses of any of the 
foregoing.
    (iii) Each member of the same family who has an ownership interest 
in a foreign bank must be identified if the family is an owner as a 
result of aggregating the ownership interests of the members of the 
family. In determining the ownership interests of the same family, any 
voting interest of any family member shall be taken into account.
    (iv) Voting securities or other voting interests means securities 
or other interests that entitle the holder to vote for or to select 
directors (or individuals exercising similar functions).
    (m) Person has the meaning provided in Sec.  103.11(z).
    (n) Physical presence means a place of business that:
    (1) Is maintained by a foreign bank;
    (2) 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, at which location the foreign 
bank:
    (i) Employs one or more individuals on a full-time basis; and
    (ii) 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.
    (o) Private banking account means an account (or any combination of 
accounts) maintained at a covered financial institution that:
    (1) Requires a minimum aggregate deposit of funds or other assets 
of not less than $1,000,000;

[[Page 514]]

    (2) Is established on behalf of or for the benefit of one or more 
non-U.S. persons who are direct or beneficial owners of the account; 
and
    (3) Is assigned to, or is administered or managed by, in whole or 
in part, an officer, employee, or agent of a covered financial 
institution acting as a liaison between the covered financial 
institution and the direct or beneficial owner of the account.
    (p) Regulated affiliate. (1) The term regulated affiliate means a 
foreign shell bank that:
    (i) Is an affiliate of a depository institution, credit union, or 
foreign bank that maintains a physical presence in the United States or 
a foreign country, as applicable; and
    (ii) Is subject to supervision by a banking authority in the 
country regulating such affiliated depository institution, credit 
union, or foreign bank.
    (2) For purposes of this definition:
    (i) Affiliate means a foreign bank that is controlled by, or is 
under common control with, a depository institution, credit union, or 
foreign bank.
    (ii) Control means:
    (A) Ownership, control, or power to vote 50 percent or more of any 
class of voting securities or other voting interests of another 
company; or
    (B) Control in any manner the election of a majority of the 
directors (or individuals exercising similar functions) of another 
company.
    (q) Secretary means the Secretary of the Treasury.
    (r) Senior foreign political figure. (1) The term senior foreign 
political figure means:
    (i) A current or former:
    (A) Senior official in the executive, legislative, administrative, 
military, or judicial branches of a foreign government (whether elected 
or not);
    (B) Senior official of a major foreign political party; or
    (C) Senior executive of a foreign government-owned commercial 
enterprise;
    (ii) A corporation, business, or other entity that has been formed 
by, or for the benefit of, any such individual;
    (iii) An immediate family member of any such individual; and
    (iv) A person who is widely and publicly known (or is actually 
known by the relevant covered financial institution) to be a close 
associate of such individual.
    (2) For purposes of this definition:
    (i) Senior official or executive means an individual with 
substantial authority over policy, operations, or the use of 
government-owned resources; and
    (ii) Immediate family member means spouses, parents, siblings, 
children and a spouse's parents and siblings.
    (s) Territories and Insular Possessions has the meaning provided in 
Sec.  103.11(tt).
    (t) United States has the meaning provided in Sec.  103.11(nn).

0
4. Subpart I of part 103 is amended by adding Sec.  103.176 to read as 
follows:


Sec.  103.176  Due diligence programs for correspondent accounts for 
foreign financial institutions.

    (a) In general. A covered financial institution shall establish a 
due diligence program that includes appropriate, specific, risk-based, 
and, where necessary, enhanced policies, procedures, and controls that 
are reasonably designed to enable the covered financial institution to 
detect and report, on an ongoing basis, any known or suspected money 
laundering activity conducted through or involving any correspondent 
account established, maintained, administered, or managed by such 
covered financial institution in the United States for a foreign 
financial institution. The due diligence program required by this 
section shall be a part of the anti-money laundering program otherwise 
required by this subpart. Such policies, procedures, and controls shall 
include:
    (1) Determining whether any such correspondent account is subject 
to paragraph (b) of this section;
    (2) Assessing the money laundering risk presented by such 
correspondent account, based on a consideration of all relevant 
factors, which shall include, as appropriate:
    (i) The nature of the foreign financial institution's business and 
the markets it serves;
    (ii) The type, purpose, and anticipated activity of such 
correspondent account;
    (iii) The nature and duration of the covered financial 
institution's relationship with the foreign financial institution (and 
any of its affiliates);
    (iv) The anti-money laundering and supervisory regime of the 
jurisdiction that issued the charter or license to the foreign 
financial institution, and, to the extent that information regarding 
such jurisdiction is reasonably available, of the jurisdiction in which 
any company that is an owner of the foreign financial institution is 
incorporated or chartered; and
    (v) Information known or reasonably available to the covered 
financial institution about the foreign financial institution's anti-
money laundering record; and
    (3) Applying risk-based procedures and controls to each such 
correspondent account reasonably designed to detect and report known or 
suspected money laundering activity, including a periodic review of the 
correspondent account activity sufficient to determine consistency with 
information obtained about the type, purpose, and anticipated activity 
of the account.
    (b) Enhanced due diligence for certain foreign banks. [Reserved]
    (c) Foreign banks to be accorded enhanced due diligence. [Reserved]
    (d) Special procedures when due diligence cannot be performed. The 
due diligence program required by paragraph (a) of this section shall 
include procedures to be followed in circumstances in which a covered 
financial institution cannot perform appropriate due diligence with 
respect to a correspondent account, including when the covered 
financial institution should refuse to open the account, suspend 
transaction activity, file a suspicious activity report, or close the 
account.
    (e) Applicability rules. The provisions of this section apply to 
covered financial institutions as follows:
    (1) General rules--(i) Correspondent accounts established on or 
after April 4, 2006. Effective April 4, 2006, the requirements of this 
section shall apply to each correspondent account established on or 
after such date.
    (ii) Correspondent accounts established before April 4, 2006. 
Effective October 2, 2006, the requirements of this section shall apply 
to each correspondent account established before April 4, 2006.
    (2) Special rules for certain banks. The enhanced due diligence 
requirements of 31 U.S.C. 5318(i)(2) shall continue to apply to any 
covered financial institution listed in Sec.  103.175(f)(1)(i) through 
(vi). In addition, until the requirements of this section become 
applicable as set forth in paragraph (e)(1) of this section, the due 
diligence requirements of 31 U.S.C. 5318(i)(1) shall continue to apply 
to any covered financial institution listed in Sec.  103.175(f)(1)(i) 
through (vi).
    (3) Special rules for all other covered financial institutions. The 
due diligence requirements of 31 U.S.C. 5318(i)(1) shall not apply to a 
covered financial institution listed in Sec.  103.175(f)(1)(vii) 
through (x) until the requirements of this section become applicable as 
set forth in paragraph (e)(1) of this section. The enhanced due 
diligence requirements of 31 U.S.C. 5318(i)(2) shall not apply to any 
covered financial institution listed in Sec.  103.175(f)(1)(vii) 
through (x) until otherwise provided by the Financial Crimes 
Enforcement Network in a final rule published in the

[[Page 515]]

Federal Register with respect to these requirements.
    (4) Exemptions--(i) Exempt financial institutions. Except as 
provided in this section, a financial institution defined in 31 U.S.C. 
5312(a)(2) or (c)(1), or Sec.  103.11(n) is exempt from the due 
diligence and enhanced due diligence requirements of 31 U.S.C. 
5318(i)(1) and (2) pertaining to correspondent accounts.
    (ii) Other compliance obligations of financial institutions 
unaffected. Nothing in paragraph (e)(4) of this section shall be 
construed to relieve a financial institution from its responsibility to 
comply with any other applicable requirement of law or regulation, 
including title 31, United States Code, and this part.

0
5. Subpart I of part 103 is amended by adding Sec.  103.178 to read as 
follows:


Sec.  103.178  Due diligence programs for private banking accounts.

    (a) In general. A covered financial institution shall maintain a 
due diligence program that includes policies, procedures, and controls 
that are reasonably designed to detect and report any known or 
suspected money laundering or suspicious activity conducted through or 
involving any private banking account that is established, maintained, 
administered, or managed in the United States by such financial 
institution. The due diligence program required by this section shall 
be a part of the anti-money laundering program otherwise required by 
this subpart.
    (b) Minimum requirements. The due diligence program required by 
paragraph (a) of this section shall be designed to ensure, at a 
minimum, that the financial institution takes reasonable steps to:
    (1) Ascertain the identity of all nominal and beneficial owners of 
a private banking account;
    (2) Ascertain whether any person identified under paragraph (b)(1) 
of this section is a senior foreign political figure;
    (3) Ascertain the source(s) of funds deposited into a private 
banking account and the purpose and expected use of the account; and
    (4) Review the activity of the account to ensure that it is 
consistent with the information obtained about the client's source of 
funds, and with the stated purpose and expected use of the account, as 
needed to guard against money laundering, and to report, in accordance 
with applicable law and regulation, any known or suspected money 
laundering or suspicious activity conducted to, from, or through a 
private banking account.
    (c) Special requirements for senior foreign political figures. (1) 
In the case of a private banking account for which a senior foreign 
political figure is a nominal or beneficial owner, the due diligence 
program required by paragraph (a) of this section shall include 
enhanced scrutiny of such account that is reasonably designed to detect 
and report transactions that may involve the proceeds of foreign 
corruption.
    (2) For purposes of this paragraph (c), the term proceeds of 
foreign corruption means any asset or property that is acquired by, 
through, or on behalf of a senior foreign political figure through 
misappropriation, theft, or embezzlement of public funds, the unlawful 
conversion of property of a foreign government, or through acts of 
bribery or extortion, and shall include any other property into which 
any such assets have been transformed or converted.
    (d) Special procedures when due diligence cannot be performed. The 
due diligence program required by paragraph (a) of this section shall 
include procedures to be followed in circumstances in which a covered 
financial institution cannot perform appropriate due diligence with 
respect to a private banking account, including when the covered 
financial institution should refuse to open the account, suspend 
transaction activity, file a suspicious activity report, or close the 
account.
    (e) Applicability rules. The provisions of this section apply to 
covered financial institutions as follows:
    (1) General rules--(i) Private banking accounts established on or 
after April 4, 2006. Effective April 4, 2006, the requirements of this 
section shall apply to each private banking account established on or 
after such date.
    (ii) Private banking accounts established before April 4, 2006. 
Effective October 2, 2006, the requirements of this section shall apply 
to each private banking account established before April 4, 2006.
    (2) Special rules for certain banks and for brokers or dealers in 
securities, futures commission merchants, and introducing brokers. 
Until the requirements of this section become applicable as set forth 
in paragraph (e)(1) of this section, the requirements of 31 U.S.C. 
5318(i)(3) shall continue to apply to a covered financial institution 
listed in Sec.  103.175(f)(1)(i) through (vi), (viii), or (ix).
    (3) Special rules for federally regulated trust banks or trust 
companies, and mutual funds. Until the requirements of this section 
become applicable as set forth in paragraph (e)(1) of this section, the 
requirements of 31 U.S.C. 5318(i)(3) shall not apply to a covered 
financial institution listed in Sec.  103.175(f)(1)(vii), or (x).
    (4) Exemptions--(i) Exempt financial institutions. Except as 
provided in this section, a financial institution defined in 31 U.S.C. 
5312(a)(2) or (c)(1) or Sec.  103.11(n) is exempt from the requirements 
of 31 U.S.C. 5318(i)(3) pertaining to private banking accounts.
    (ii) Other compliance obligations of financial institutions 
unaffected. Nothing in paragraph (e)(4) of this section shall be 
construed to relieve a financial institution from its responsibility to 
comply with any other applicable requirement of law or regulation, 
including title 31, United States Code, and this part.

0
6. Subpart I of part 103 is amended by removing Sec. Sec.  103.181, 
103.182, and 103.183.

    Dated: December 15, 2005.
William J. Fox,
Director, Financial Crimes Enforcement Network.
[FR Doc. 06-5 Filed 1-3-06; 8:45 am]
BILLING CODE 4810-02-P