[Federal Register Volume 71, Number 2 (Wednesday, January 4, 2006)]
[Proposed Rules]
[Pages 516-520]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-6]



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

[[Page 516]]


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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: Notice of proposed rulemaking.

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SUMMARY: The Financial Crimes Enforcement Network is issuing this 
proposed Bank Secrecy Act regulation to implement section 312 of the 
Uniting and Strengthening America by Providing Appropriate Tools 
Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001 
(``Act''), which requires U.S. financial institutions to conduct 
enhanced due diligence with regard to correspondent accounts 
established, maintained, administered, or managed for certain types of 
foreign banks. We originally published a notice of proposed rulemaking 
seeking to implement section 312 in its entirety on May 30, 2002. Due 
to the significant number of issues raised during the comment period, 
we have determined that it is necessary and appropriate to issue 
another notice of proposed rulemaking (``Proposal'') to address issues 
associated with the enhanced due diligence provisions. A final rule 
implementing all other provisions of section 312 is published elsewhere 
in this separate part of the Federal Register.

DATES: Written comments must be submitted on or before March 6, 2006.

ADDRESSES: You may submit comments, identified by Regulatory 
Information Number 1506-AA29, by any of the following methods:
     Federal e-rulemaking portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: [email protected]. Include ``Regulatory 
Information Number 1506-AA29'' in the subject line of the message.
     Mail: Financial Crimes Enforcement Network, P.O. Box 39, 
Vienna, VA 22183. Include ``Regulatory Information Number 1506-AA29'' 
in the body of the text.
    Instructions: It is preferable for comments to be submitted by 
electronic mail because paper mail in the Washington, DC, area may be 
delayed. Please submit comments by one method only. All submissions 
received must include the agency name and the Regulatory Information 
Number for this rulemaking. All comments received will be posted 
without change to http://www.fincen.gov, including any personal 
information provided. We will consider all comments postmarked before 
the close of the comment period in developing a final regulation. 
Comments received after the close of the comment period will be 
considered if possible, but their consideration cannot be assured. 
Comments may be inspected at the Financial Crimes Enforcement Network 
between 10 a.m. and 4 p.m. in the Financial Crimes Enforcement Network 
reading room in Washington, DC. Persons wishing to inspect the comments 
submitted must request an appointment by telephone at (202) 354-6400 
(not a toll-free number).

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 to add a 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.
    In addition to the general due diligence requirements, which apply 
to all correspondent and private banking accounts for non-U.S. persons, 
section 5318(i)(2) requires enhanced due diligence measures for 
correspondent accounts established, maintained, managed, or 
administered for a foreign bank operating under an offshore banking 
license,\1\ operating 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 operating under a license issued by a country 
designated by the Secretary of the Treasury as warranting special 
measures due to money laundering concerns. This Proposal addresses 
these enhanced due diligence requirements.
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    \1\ ``Offshore banking license'' is defined in 31 CFR 103.175(k) 
(which was adopted in the final rule published elsewhere in this 
separate part of the Federal Register) to mean 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.
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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 2002 Proposal, we sought to take the broad statutory 
mandate of section 5318(i) and to translate it into specific regulatory 
directives for financial institutions to apply. The 2002 Proposal set 
forth a series of due diligence procedures that financial institutions 
subject to the rule must apply to correspondent accounts and private 
banking accounts for non-U.S. persons.
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    \2\ See 67 FR 37736 (May 30, 2002).
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B. The Interim Rule

    We received comments in response to the 2002 Proposal that raised 
many significant concerns regarding the numerous definitions in the 
2002 Proposal, the scope of the requirements of section 5318(i), and 
the financial 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 direction to the affected financial institutions, 
we issued an interim final rule (``Interim Rule'') \3\ on July 23, 
2002, in which we 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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    \3\ 67 FR 48348 (July 23, 2002).
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C. The Final Rule

    Published elsewhere in this separate part of the Federal Register 
is a final rule implementing all of the provisions of section 5318(i) 
with the exception of section 5318(i)(2)'s enhanced due

[[Page 517]]

diligence requirement for correspondent accounts established or 
maintained for certain foreign bank customers.
    Due to the issuance of this Proposal, the final rule maintains the 
status quo that existed under the Interim Rule with respect to the 
enhanced due diligence provisions of section 5318(i)(2). Specifically, 
until otherwise provided in a final rule issued pursuant to this 
Proposal, most banking organizations must continue to comply with 31 
U.S.C. 5318(i)(2), which requires enhanced due diligence for certain 
correspondent accounts. However, securities broker-dealers, futures 
commission merchants, introducing brokers, and mutual funds, as well as 
trust banks and trust companies that have a federal regulator, continue 
to be exempt from compliance with the enhanced due diligence provisions 
for correspondent accounts until a final rule is issued pursuant to 
this Proposal.

II. The Proposed Rule

A. Overview

    Section 5318(i) generally requires U.S. financial institutions to 
apply appropriate, specific, and, where necessary, enhanced due 
diligence to correspondent accounts established or maintained for 
foreign banks. Section 5318(i)(2) specifies enhanced due diligence 
procedures that must be performed with regard to foreign banks 
operating under any of the following three types of licenses: (1) An 
offshore banking license; (2) a license issued by a foreign country 
designated as non-cooperative with international money laundering 
principles or procedures by an intergovernmental group or organization 
of which the United States is a member and with which designation the 
U.S. representative to that group or organization concurs; or (3) a 
license issued by a country designated by the Secretary of the Treasury 
as warranting special measures due to money laundering concerns. The 
enhanced due diligence procedures required by section 5318(i)(2) 
include taking reasonable steps to: (1) Conduct enhanced scrutiny of 
the correspondent account to guard against money laundering and to 
report suspicious activity; (2) ascertain whether the foreign bank 
provides correspondent accounts to other foreign banks that use in any 
way the correspondent account established or maintained by the covered 
financial institution, and, if so, conduct appropriate due diligence; 
and (3) identify the owners of the foreign bank if the foreign bank's 
shares are not publicly traded.
    The 2002 Proposal recommended the exclusion of certain foreign 
banks operating under offshore banking licenses from the enhanced due 
diligence requirements. Specifically, we recommended excluding from the 
enhanced due diligence requirements offshore-licensed branches of 
foreign banks chartered in a jurisdiction where one or more foreign 
banks have been determined by the Board of Governors of the Federal 
Reserve System (``Federal Reserve'') to be subject to comprehensive 
supervision or regulation on a consolidated basis by the relevant 
supervisors in that jurisdiction (``the Consolidated Exception''), so 
long as such foreign banks did not fall within either of the other two 
categories of foreign banks for which the enhanced due diligence 
requirements apply.\4\
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    \4\ As of October 2005, the Federal Reserve has made a 
determination that one or more foreign banks in the following 
jurisdictions are subject to comprehensive supervision or regulation 
on a consolidated basis: Argentina, Australia, Austria, Belgium, 
Brazil, Canada, Chile, Finland, France, Germany, Greece, Hong Kong 
Special Administrative Region, Ireland, Israel, Italy, Japan, Korea, 
Mexico, the Netherlands, Norway, Portugal, Spain, Switzerland, 
Taiwan, Turkey, and the United Kingdom.
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    Commenters were strongly divided over the Consolidated Exception. A 
joint comment letter from several members of Congress urged us to 
eliminate the Consolidated Exception, calling it unfounded and contrary 
to the legislative intent of section 5318(i), which, in the 
congressional commenters' view, did not provide for any exceptions. The 
congressional comment letter reiterated concerns about the money 
laundering risks associated with offshore banks, such as the lack of 
regulatory oversight, excessive secrecy laws, and the general lack of 
transparency. Other commenters supported the Consolidated Exception as 
a reasonable basis to focus anti-money laundering programs on higher-
risk offshore banks, but suggested that the exception was not broad 
enough because a determination by the Federal Reserve that one or more 
foreign banks are subject to comprehensive supervision or regulation on 
a consolidated basis by the relevant supervisors in a jurisdiction is 
limited to those foreign banks that have sought to establish U.S. 
banking operations since 1991. These commenters asked that we address 
this potential inequity by, for example, expanding the jurisdictions 
included in the exception or by implementing a process for evaluating 
the level of supervision in other jurisdictions and determining whether 
banks chartered in such jurisdictions should also be exempted from 
mandatory enhanced due diligence. In addition, some commenters 
requested that we extend the Consolidated Exception to offshore-
licensed subsidiaries and affiliates, in addition to the branches, of 
foreign banks that are chartered in a jurisdiction where one or more 
foreign banks have been determined to be subject to comprehensive 
supervision on a consolidated basis.
    We recognize, as reflected in many of the comments, that most 
categorical exemptions, including the proposed Consolidated Exception, 
may be both over- and under-inclusive, thereby creating anomalies in 
the level of scrutiny to be applied to offshore banks. Further, we have 
some concerns as to whether the Consolidated Exception sufficiently 
accounts for the risks associated with offshore banking. We also 
understand that the Federal Reserve's determination that a foreign bank 
is subject to comprehensive supervision on a consolidated basis in its 
home jurisdiction does not focus primarily on the quality, risks, or 
appropriateness of the foreign jurisdiction's anti-money laundering 
regime, although those factors are taken into consideration as a 
general matter.
    Consequently, we have not adopted the Consolidated Exception as 
described in the 2002 Proposal. Under the current Proposal, all 
correspondent accounts for foreign banks set forth in 5318(i)(2) would 
be subject to a certain degree of enhanced due diligence.
    At the same time, we recognize that not all such correspondent 
accounts present the same type or level of risk, and that to impose an 
obligation of applying the same enhanced due diligence procedures in 
every case would require covered financial institutions to allocate 
limited resources inefficiently, thereby undermining the effectiveness 
of their anti-money laundering programs and the objectives of this 
statutory provision. Accordingly, we have determined that it is 
appropriate to propose a final rule that makes it clear that covered 
financial institutions should apply enhanced due diligence with regard 
to the three categories of foreign banks on a risk-basis, as 
contemplated by the statute.
    Under this risk-based approach, covered financial institutions 
would determine the nature and extent of the risks posed by the 
correspondent accounts for the foreign banks identified in 31 U.S.C. 
5318(i)(2)(A) and the corresponding extent of the enhanced due 
diligence that is necessary and appropriate to apply to control those 
risks. Such an approach tailors the

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required due diligence to the specific risks, enhancing protection and 
avoiding the problems created by a categorical exemption. This approach 
is consistent with the overall risk-based approach of the Bank Secrecy 
Act's anti-money laundering program and suspicious activity reporting 
rules and is consistent with the plain language and legislative intent 
of the statute.

B. Enhanced Due Diligence

    Pursuant to the proposed rule, a covered financial institution must 
establish procedures to assess the risks involved with each 
correspondent account that is subject to enhanced due diligence and 
must take reasonable steps to accomplish the following.
    i. Enhanced scrutiny to guard against money laundering. Section 
103.176(b)(1) requires that a covered financial institution's due 
diligence program ensure that the institution takes reasonable steps to 
conduct certain risk-based enhanced scrutiny of any correspondent 
account statutorily deemed to be high-risk in order to guard against 
money laundering and to report any suspicious transactions. The 
enhanced due diligence will vary based on the covered financial 
institution's assessment of the money laundering risk posed by the 
particular correspondent account established or maintained for a 
foreign correspondent bank.
    Pursuant to section 103.176(b)(1)(i) and (ii), the covered 
financial institution, shall, when appropriate based on its risk 
assessment, obtain and review documentation relating to the foreign 
correspondent bank's anti-money laundering program, and shall consider 
and evaluate the extent to which that program appears to be reasonably 
designed to detect and prevent money laundering. We do not contemplate 
that the covered financial institution would conduct an audit of the 
foreign correspondent bank's anti-money laundering program. Rather, we 
expect that the covered financial institution would conduct, as 
appropriate, a review of the foreign correspondent bank's written anti-
money laundering program (or a description of the program) to determine 
whether the program appears to be reasonably designed to accomplish its 
purpose. With regard to this requirement, we have determined that it 
may not be necessary in every instance, especially with a well-
regulated foreign correspondent bank that the covered financial 
institution knows well and has been doing business with for an extended 
time, for the covered financial institution to actually obtain and 
analyze that foreign bank's anti-money laundering program.
    Under section 103.176(b)(1)(iii), the covered financial institution 
shall, as appropriate, monitor transactions to, from or through the 
correspondent account in a manner reasonably designed to detect money 
laundering and other suspicious activity. This requirement means that, 
at a minimum, a covered financial institution should have reasonable 
procedures to monitor the overall activity through the account and to 
enable the covered financial institution to detect unusual and 
suspicious activity, including activity that is not in accord with the 
type, purpose, and anticipated activity of the account. In some cases, 
covered financial institutions will be expected to apply greater due 
diligence, as appropriate, in accordance with their risk assessment. 
Monitoring accounts is an important element of an enhanced due 
diligence program, and the covered financial institution must 
determine, on a risk-basis, the most effective scope and manner for 
such monitoring (e.g., computerized or manual, on an individual account 
basis or a product activity level). The monitoring procedures must be 
designed to reflect the additional risk posed by these categories of 
accounts above and beyond those posed by accounts not subject to the 
enhanced due diligence requirement.
    Section 103.176(b)(1)(iv) requires a covered financial institution 
to obtain information about the identity of persons with authority to 
direct transactions through the correspondent account and the sources 
and beneficial ownership of funds or other assets in the account. This 
obligation, however, applies only to payable-through accounts.\5\
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    \5\ Section 311 of the Act defines a payable-through account as 
``an account * * * opened at a depository institution by a foreign 
financial institution by means of which the foreign financial 
institution permits its customers to engage, either directly or 
through a subaccount, in banking activities usual in connection with 
the business of banking in the United States.'' 31 U.S.C. 
5318A(e)(1)(C).
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    The extent to which enhanced scrutiny may be appropriate will 
depend on the covered financial institution's risk assessment of the 
particular correspondent account. For example, foreign banks operating 
under an offshore banking license pose a range of money laundering 
risks, and covered financial institutions will need to consider a 
variety of factors in determining the appropriate level of enhanced 
scrutiny. Such factors could include whether such banks are branches or 
affiliates of financial institutions that are subject to supervision in 
their home jurisdiction, which might reduce the risks of money 
laundering, or whether they are offshore banks unaffiliated with any 
other supervised financial institution, in which case the risks may 
well be greater.
    ii. Foreign Bank Customers. Section 103.176(b)(2) requires that a 
covered financial institution determine whether the foreign 
correspondent bank in turn maintains correspondent accounts for other 
foreign banks (``nested banks'') for which the U.S. correspondent 
account is used to process transactions. If so, the covered financial 
institution must take reasonable steps to obtain information relevant 
to assess and minimize money laundering risks associated with the 
nested banks, including, as appropriate, obtaining the identity of the 
nested bank customers and conducting due diligence with regard to them.
    Under this provision, reasonable steps would include collecting 
information sufficient to describe the foreign bank customers of the 
foreign correspondent bank. We expect that a covered financial 
institution will request its foreign correspondent banks to provide 
information about their foreign bank customer base and will consult 
readily available banking reference guides. Such information will 
enable covered financial institutions to identify potential risks and 
to determine whether it is necessary to take the additional steps of 
identifying and conducting due diligence with regard to individual 
nested banks. Monitoring wire transfer activity originating from the 
foreign correspondent bank, for example, can be an important component 
of a robust program, as U.S. banks may be able to identify nested 
correspondent account activity through a review of wire transfers and 
payment instructions.
    The covered financial institution's due diligence program should 
contain procedures for assessing when the covered financial institution 
will identify nested banks and for assessing the risk posed by any such 
nested accounts. Relevant factors may include the type of nested bank, 
the anti-money laundering and supervisory regime of the nested bank's 
home jurisdiction, and the activity taking place through the U.S. 
correspondent account. The program should also contain procedures for 
determining the circumstances when due diligence with regard to the 
nested bank would be appropriate. Further, the covered financial 
institution should consider the extent to which the foreign 
correspondent bank's anti-money

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laundering program appears adequate to prevent the nested bank account 
from being used for money laundering. If the program does not appear 
adequate, then the covered financial institution may itself need to 
perform due diligence on the nested bank.
    Finally, if a foreign correspondent bank refuses to provide 
information about its nested banks, the covered financial institution 
will have to determine whether, in light of the reasons given for such 
refusal and the risk associated with the foreign correspondent bank, it 
is prudent to establish or maintain the correspondent account.
    iii. Identification of foreign correspondent banks' owners. 
Pursuant to section 103.176(b)(3), the covered financial institution 
must obtain the identity of owners of any foreign correspondent bank 
whose shares are not publicly traded. The 2002 Proposal defined the 
term ``owner'' for this purpose to mean any person who directly or 
indirectly owns, controls, or has the power to vote five (5) percent or 
more of any class of securities of a foreign bank, and defined the term 
``publicly traded'' to mean shares that are traded on an exchange or an 
organized over-the-counter market that is regulated by a foreign 
securities authority, as defined in the Securities Exchange Act of 
1934. Several commenters suggested that the definition of ownership 
should be consistent with the definition contained in the rule 
implementing sections 313 and 319 of the Act, which requires a 25 
percent threshold for ownership. Others thought that the threshold 
should be at least 10 or 15 percent. In our view, because this 
requirement applies to foreign banks that are deemed to present a high 
risk of money laundering by virtue of their location or the license 
under which they operate, the threshold should be lower than the 
threshold that applies for determining the ownership of foreign banks 
having correspondent accounts with covered financial institutions under 
the rules implementing sections 313 and 319 of the Act. However, we 
agree that a five (5) percent threshold is too low. Accordingly, we 
propose a 10 percent threshold in this Proposal.

C. Foreign Banks To Be Accorded Enhanced Due Diligence

    Pursuant to 103.176(c), a covered financial institution would be 
required to apply enhanced due diligence measures to three categories 
of foreign banks listed in 31 U.S.C. 5318(i)(2). These categories 
consist of foreign banks operating under three types of licenses: (1) 
An offshore banking license; (2) a license issued by a foreign country 
designated as non-cooperative with international money laundering 
principles or procedures by an intergovernmental group or organization, 
of which the United States is a member, and with which designation the 
U.S. representative concurs; \6\ or (3) a license issued by a country 
that the Secretary of the Treasury has designated as warranting special 
measures due to money laundering concerns.
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    \6\ The only intergovernmental organization that currently 
designates countries as non-cooperative with international anti-
money laundering standards is the Financial Action Task Force on 
Money Laundering. The Financial Action Task Force designation of 
non-cooperative jurisdictions can be found on the Financial Action 
Task Force Web site (www.oecd.org/fatf). The United States has 
concurred in all Financial Action Task Force designations made to 
date.
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D. Special Procedures

    We are proposing to modify 103.176(d) slightly simply to take into 
account that the special procedures required in this paragraph must be 
incorporated into the covered financial institution's enhanced due 
diligence program as well as its general due diligence program.

III. Request for Comments

    We invite comments on all aspects of this proposal.

IV. Regulatory Flexibility Act

    Pursuant to the Regulatory Flexibility Act (5 U.S.C. 610 et seq.), 
it is hereby certified that this proposed rule will not have a 
significant economic impact on a substantial number of small entities. 
This proposed rule provides guidance to financial institutions 
concerning certain mandated 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 proposed rule is not a ``significant regulatory action'' as 
defined by Executive Order 12866. Accordingly, a regulatory assessment 
is not required.

VI. Paperwork Reduction Act

    The collection of information contained in this proposed rule is 
being submitted to the Office of Management and Budget for review in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)). Comments on the collection of information should be sent 
(preferably by fax (202-395-6974)) to Desk Officer for the Department 
of the Treasury, Office of Information and Regulatory Affairs, Office 
of Management and Budget, Paperwork Reduction Project (1506), 
Washington, DC 20503 (or by the Internet to [email protected]), with a 
copy to the Financial Crimes Enforcement Network by mail or the 
Internet at the addresses previously specified. In accordance with the 
requirements of the Paperwork Reduction Act of 1995, 44 U.S.C. 
3506(c)(2)(A), and its implementing regulations, 5 CFR 1320, the 
following information concerning the collection of information is 
presented to assist those persons wishing to comment on the information 
collection.
    The collection of information in this proposed rule is in 31 CFR 
103.176(b)(i) and 103.176(b)(iv)(A). The information will be used by 
federal agencies to verify compliance by covered financial institutions 
with the provisions of 31 CFR 103.176. The collection of information is 
mandatory. The likely recordkeepers are mostly banking institutions; 
(2) securities broker-dealers; (3) futures commission merchants and 
introducing brokers in commodities; and (4) mutual funds.
    Description of Recordkeepers: Covered financial institutions as 
defined in 31 CFR 103.175(f)(1);
    Estimated Number of Recordkeepers: There are approximately 28,163 
covered financial institutions, consisting of 9,000 commercial banks 
and savings associations, 10,000 credit unions, 2,400 mutual funds, 
1,452 introducing brokers, 151 futures commission merchants, 5,160 
securities broker-dealers.
    Estimated Average Annual Burden Hours Per Recordkeeper: The 
estimated average burden associated with the recordkeeping requirement 
in this proposed rule is one hour per recordkeeper.
    Estimated Total Annual Recordkeeping Burden: 28,163 annual burden 
hours.
    We specifically invite comments on: (a) Whether the proposed 
recordkeeping requirement is necessary for the proper performance of 
the mission of the Financial Crimes Enforcement Network, and whether 
the information shall have practical utility; (b) the accuracy of our 
estimate of the burden of the proposed recordkeeping requirement; (c) 
ways to enhance the quality, utility, and clarity of the information 
required to be maintained; (d) ways to minimize the burden of the 
recordkeeping requirement, including through the use of automated 
collection techniques or other forms of information technology;

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and (e) estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to maintain the information.

List of Subjects in 31 CFR Part 103

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

Authority and Issuance

    For the reasons set forth above, we are proposing to amend subpart 
I of 31 CFR part 103 as follows:

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

    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, 
Pub. L. 107-56, 115 Stat. 307.

    2. In subpart I, amend Sec.  103.176 as follows:
    a. Revise paragraph (b),
    b. Revise paragraph (c), and
    c. Revise paragraph (d).
    The revisions read as follows:


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

* * * * *
    (b) Enhanced due diligence for certain foreign banks. In the case 
of a correspondent account established, maintained, administered, or 
managed in the United States for a foreign bank described in paragraph 
(c) of this section, the due diligence program required by paragraph 
(a) of this section shall include enhanced due diligence procedures 
designed to ensure that the covered financial institution, at a 
minimum, takes reasonable steps to:
    (1) Conduct enhanced scrutiny of such correspondent account to 
guard against money laundering and to identify and report any 
suspicious transactions in accordance with applicable law and 
regulation. This enhanced scrutiny shall reflect the risk assessment of 
the account and shall include, as appropriate:
    (i) Obtaining and reviewing documentation relating to the foreign 
bank's anti-money laundering program;
    (ii) Considering whether such program appears to be reasonably 
designed to detect and prevent money laundering;
    (iii) Monitoring transactions to, from, or through the 
correspondent account in a manner reasonably designed to detect money 
laundering and suspicious activity; and
    (iv)(A) Obtaining information from the foreign bank about the 
identity of any person with authority to direct transactions through 
any correspondent account that is a payable-through account, and the 
sources and beneficial owner of funds or other assets in the payable-
through account.
    (B) For purposes of paragraph (b)(1)(iv)(A) of this section, a 
payable-through account means a correspondent account maintained by a 
covered financial institution for a foreign bank by means of which the 
foreign bank permits its customers to engage, either directly or 
through a subaccount, in banking activities usual in connection with 
the business of banking in the United States.
    (2) Determine whether the foreign bank for which the correspondent 
account is established or maintained in turn maintains correspondent 
accounts for other foreign banks that use the foreign correspondent 
account established or maintained by the covered financial institution, 
and, if so, take reasonable steps to obtain information relevant to 
assess and minimize money laundering risks associated with the foreign 
bank's correspondent accounts for other foreign banks, including, as 
appropriate, the identity of those foreign banks.
    (3)(i) Determine, for any correspondent account established or 
maintained for a foreign bank whose shares are not publicly traded, the 
identity of each owner of the foreign bank and the nature and extent of 
each owner's ownership interest.
    (ii) For purposes of paragraph (b)(3)(i) of this section:
    (A) Owner means any person who directly or indirectly owns, 
controls, or has the power to vote 10 percent or more of any class of 
securities of a foreign bank. For purposes of this paragraph 
(b)(3)(ii)(A):
    (1) Members of the same family shall be considered to be one 
person; and
    (2) Same family has the meaning provided in Sec.  
103.175(l)(2)(ii).
    (B) Publicly traded means shares that are traded on an exchange or 
an organized over-the-counter market that is regulated by a foreign 
securities authority as defined in section 3(a)(50) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(50)).
    (c) Foreign banks to be accorded enhanced due diligence. The due 
diligence procedures described in paragraph (b) of this section are 
required for any correspondent account maintained for a foreign bank 
that operates under:
    (1) An offshore banking license;
    (2) A banking license issued by a foreign country that has been 
designated as 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 
U.S. representative to the group or organization concurs; or
    (3) A banking license issued by a foreign country that has been 
designated by the Secretary as warranting special measures due to money 
laundering concerns.
    (d) Special procedures when due diligence or enhanced due diligence 
cannot be performed. The due diligence program required by paragraphs 
(a) and (b) of this section shall include procedures to be followed in 
circumstances in which a covered financial institution cannot perform 
appropriate due diligence or enhanced 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.
* * * * *

    Dated: December 15, 2005.
William J. Fox,
Director, Financial Crimes Enforcement Network.
[FR Doc. 06-6 Filed 1-3-06; 8:45 am]
BILLING CODE 4810-02-P