[Federal Register Volume 71, Number 134 (Thursday, July 13, 2006)]
[Proposed Rules]
[Pages 39606-39609]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-10941]


-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA81


Financial Crimes Enforcement Network; Withdrawal of the Finding 
of Primary Money Laundering Concern and the Notice of Proposed 
Rulemaking Against Multibanka

AGENCY: Financial Crimes Enforcement Network, Department of the 
Treasury.

ACTION: Withdrawal of the notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: This document withdraws our April 26, 2005 finding that joint 
stock company Multibanka (``Multibanka'' or the ``bank'') is a 
financial institution of primary money laundering concern and our 
notice of proposed rulemaking recommending the imposition of a special 
measure, pursuant to the authority contained in 31 U.S.C. 5318A of the 
Bank Secrecy Act.

DATES: The notice of proposed rulemaking is withdrawn as of July 13, 
2006.

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

SUPPLEMENTARY INFORMATION: 

I. Background

A. Statutory Provisions

    On October 26, 2001, the President signed into law the Uniting and 
Strengthening America by Providing Appropriate Tools Required to 
Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56 (``USA 
PATRIOT Act''). Title III of the USA PATRIOT Act amends the anti-money 
laundering provisions of the Bank Secrecy Act, codified at 12 U.S.C. 
1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5314 and 5316-5332, to 
promote the prevention, detection, and prosecution of money laundering 
and the financing of terrorism. Regulations implementing the Bank 
Secrecy Act appear at 31 CFR part 103. The authority of the Secretary 
of the Treasury (the ``Secretary'') to administer the Bank Secrecy Act 
and its implementing regulations has been delegated to the Director of 
the Financial Crimes Enforcement Network (the ``Director'').\1\ The 
Bank Secrecy Act authorizes the Director to issue regulations requiring 
all financial institutions defined as such in the Bank Secrecy Act to 
maintain or file certain reports or records that have been determined 
to have a high degree of usefulness in criminal, tax, or regulatory 
investigations or proceedings, or in the conduct of intelligence or 
counter-intelligence activities, including analysis, to protect against 
international terrorism, and to implement anti-money laundering 
programs and compliance procedures.\2\
---------------------------------------------------------------------------

    \1\ Therefore, references to the authority of the Secretary of 
the Treasury under section 311 of the USA PATRIOT Act apply equally 
to the Director of the Financial Crimes Enforcement Network.
    \2\ Language expanding the scope of the Bank Secrecy Act to 
intelligence or counter-intelligence activities to protect against 
international terrorism was added by section 358 of the USA PATRIOT 
Act.
---------------------------------------------------------------------------

    Section 311 of the USA PATRIOT Act added section 5318A to the Bank 
Secrecy Act, granting the Secretary the authority, after finding that 
reasonable grounds exist for concluding that a foreign jurisdiction, 
foreign financial institution, class of international transactions, or 
type of account is of ``primary money laundering concern,'' to require 
domestic financial institutions and domestic financial agencies to take 
certain ``special measures'' against the primary money laundering 
concern. Section 311 identifies factors for the Secretary to consider 
and Federal agencies to consult before he may find that reasonable 
grounds exist for concluding that a jurisdiction, financial 
institution, class of transactions, or type of account is of primary 
money laundering concern. The statute also provides similar procedures, 
including factors and consultation requirements, for selecting the 
specific special measures to be imposed against the primary money 
laundering concern.
    Taken as a whole, section 311 provides the Secretary with a range 
of options that can be adapted to target specific money laundering and 
terrorist financing concerns most effectively. These options provide 
the authority to bring additional and useful pressure on those 
jurisdictions and institutions that pose money laundering threats and 
the ability to take steps to protect the U.S. financial system. Through 
the imposition of various special measures, we can: Gain more 
information about the concerned jurisdictions, financial institutions, 
transactions, and accounts; monitor more effectively the respective 
jurisdictions, financial institutions, transactions, and accounts; and 
ultimately protect U.S. financial institutions from involvement with 
jurisdictions, financial institutions, transactions, or accounts that 
pose a money laundering concern.
    Before making a finding that reasonable grounds exist for 
concluding that a foreign financial institution is of primary money 
laundering concern, the Secretary is required by the Bank Secrecy Act 
to consult with both the Secretary of State and the Attorney General.
    In addition to these consultations, when finding that a foreign 
financial institution is of primary money laundering concern, the 
Secretary is required by section 311 to consider ``such information as 
the Secretary determines to be relevant, including the following 
potentially relevant factors:''
     The extent to which such financial institution is used to 
facilitate or promote money laundering in or through the jurisdiction;
     The extent to which such financial institution is used for 
legitimate business purposes in the jurisdiction; and
     The extent to which such action is sufficient to ensure, 
with respect to

[[Page 39607]]

transactions involving the institution operating in the jurisdiction, 
that the purposes of the Bank Secrecy Act continue to be fulfilled, and 
to guard against international money laundering and other financial 
crimes.
    If we determine that reasonable grounds exist for concluding that a 
foreign financial institution is of primary money laundering concern, 
we must determine the appropriate special measure(s) to address the 
specific money laundering risks. Section 311 provides a range of 
special measures that can be imposed, individually or jointly, in any 
combination, and in any sequence.\3\ In the imposition of special 
measures, we follow procedures similar to those for finding a foreign 
financial institution to be of primary money laundering concern, but we 
also engage in additional consultations and consider additional 
factors. Section 311 requires us to consult with other appropriate 
Federal agencies and parties \4\ and to consider the following specific 
factors:
---------------------------------------------------------------------------

    \3\ Available special measures include requiring: (1) 
Recordkeeping and reporting of certain financial transactions; (2) 
collection of information relating to beneficial ownership; (3) 
collection of information relating to certain payable-through 
accounts; (4) collection of information relating to certain 
correspondent accounts; and (5) prohibition or conditions on the 
opening or maintaining of correspondent or payable-through accounts. 
31 U.S.C. 5318A(b)(1)-(5). For a complete discussion of the range of 
possible countermeasures, see 68 FR 18917 (April 17, 2003) 
(proposing to impose special measures against Nauru).
    \4\ Section 5318A(a)(4)(A) requires the Secretary to consult 
with the Chairman of the Board of Governors of the Federal Reserve 
System, any other appropriate Federal banking agency, the Secretary 
of State, the U.S. Securities and Exchange Commission, the Commodity 
Futures Trading Commission, the National Credit Union 
Administration, and, in our sole discretion, ``such other agencies 
and interested parties as the Secretary may find to be 
appropriate.'' The consultation process must also include the 
Attorney General, if the Secretary is considering prohibiting or 
imposing conditions upon the opening or maintaining of a 
correspondent account by any domestic financial institution or 
domestic financial agency for the foreign financial institution of 
primary money laundering concern.
---------------------------------------------------------------------------

     Whether similar action has been or is being taken by other 
nations or multilateral groups;
     Whether the imposition of any particular special measure 
would create a significant competitive disadvantage, including any 
undue cost or burden associated with compliance, for financial 
institutions organized or licensed in the United States;
     The extent to which the action or the timing of the action 
would have a significant adverse systemic impact on the international 
payment, clearance, and settlement system, or on legitimate business 
activities involving the particular institution; and
     The effect of the action on U.S. national security and 
foreign policy.\5\
---------------------------------------------------------------------------

    \5\ Classified information used in support of a section 311 
finding of primary money laundering concern and imposition of 
special measure(s) may be submitted by the Department of the 
Treasury to a reviewing court ex parte and in camera. See section 
376 of the Intelligence Authorization Act for Fiscal Year 2004, 
Public Law 108-177 (amending 31 U.S.C. 5318A by adding new paragraph 
(f)).
---------------------------------------------------------------------------

B. Multibanka

    Multibanka is headquartered in Riga, the capital of the Republic of 
Latvia (``Latvia''). Multibanka is the oldest commercial bank in Latvia 
and is among the smallest of Latvia's 23 banks. It has: Four foreign 
offices, which are located in Russia, Ukraine, and Belarus; five 
domestic branches; and one leasing subsidiary, Multilizings. Multibanka 
provides a full range of banking services in the Latvian market and is 
a member of the Riga Stock Exchange, the Central Depository, and the 
Association of Commercial Banks of Latvia. Multibanka currently has 
direct ties to the U.S. financial system through one of its 
correspondent relationships.

II. The 2005 Finding and Subsequent Developments

A. The 2005 Finding

    Based upon review and analysis of relevant information, 
consultations with relevant Federal agencies and parties, and after 
consideration of the factors enumerated in section 311, in April 2005 
the Secretary, through his delegate, the Director of the Financial 
Crimes Enforcement Network, found that reasonable grounds exist for 
concluding that Multibanka is a financial institution of primary money 
laundering concern. This finding was published in a notice of proposed 
rulemaking which proposed prohibiting covered financial institutions 
from, directly or indirectly, opening or maintaining correspondent 
accounts in the United States for Multibanka or any of its branches, 
offices, or subsidiaries, pursuant to the authority under 31 U.S.C. 
5318A.\6\
---------------------------------------------------------------------------

    \6\ See 70 FR 21362 (April 26, 2005).
---------------------------------------------------------------------------

    The notice of proposed rulemaking outlined the various factors 
supporting the finding and proposed prohibition. In finding Multibanka 
to be of primary money laundering concern, we determined that:
     Multibanka was used by criminals to facilitate or promote 
money laundering. In particular, we determined Multibanka was an 
important banking resource for illicit shell companies and financial 
fraud rings, allowing criminals to pursue illegal financial activities.
     Any legitimate business use of Multibanka appeared to be 
significantly outweighed by its use to promote or facilitate money 
laundering and other financial crimes.
     A finding that Multibanka was a financial institution of 
primary money laundering concern and prohibiting the maintenance of 
correspondent accounts for that financial institution would prevent 
suspect accountholders at Multibanka from accessing the U.S. financial 
system to facilitate money laundering and would bring criminal conduct 
occurring at or through Multibanka to the attention of the 
international financial community, thus serving the purposes of the 
Bank Secrecy Act and guarding against international money laundering 
and other financial crimes.
    We determined, based on a variety of sources, that Multibanka had 
been used to facilitate or promote money laundering based in part on 
its lax identification and verification of accountholders and on its 
weak internal controls. In addition, the proceeds of alleged illicit 
activity had been transferred to or through accounts held by Multibanka 
at U.S. financial institutions.

B. Jurisdictional Developments

    Latvia's geographical position, situated by the Baltic Sea and 
bordering Russia, Estonia, Belarus, and Lithuania, makes it an 
attractive transit country for both legitimate and illegitimate trade. 
Sources of illegitimate trade include counterfeiting, arms trafficking, 
contraband smuggling, and other crimes. It is believed that most of 
Latvia's narcotics trafficking is conducted by organized crime groups 
that began with cigarette and alcohol smuggling and then progressed to 
narcotics. Latvian authorities recently have sought tighter legislative 
controls designed to fight money laundering and other financial crime. 
However, Latvia's role as a regional financial center, the number of 
commercial banks (23), and those banks' sizeable non-resident deposit 
base continue to make it vulnerable to money laundering.
    Latvia has taken a number of significant steps to address the 
reported money laundering risks and corruption highlighted in the 
notice of proposed rulemaking. The Parliament of Latvia recently passed 
a new law, On the Declaration of Cash on the State Border, which will 
go into effect on July 1, 2006.\7\ The law is aimed at preventing

[[Page 39608]]

money laundering consistent with the United Nations Convention Against 
Transnational Organized Crime and the European Union draft regulation 
on the control of cash leaving and entering the European Community. In 
2005, Latvian law was amended to broaden supervisory authority to 
revoke banking licenses and to allow enforcement agencies greater 
access to bank account information. The amendments: Provide for fines 
of between 5,000 and 100,000 LATS (equivalent to over $8,687.50 and 
over $173,750.00, respectively) against banks in violation of the anti-
money laundering laws; include a definition of and procedures for 
determining who qualifies as a ``true beneficiary''; and introduce 
criminal liability for providing false information to banks. 
Additionally, Latvia has: Banned the establishment of shell banks; 
clarified the authority of Latvian financial institutions to demand 
customer disclosure regarding the source of funds; and allowed for the 
sharing of information between financial institutions on suspicious 
activities.
---------------------------------------------------------------------------

    \7\ The law requires that individuals crossing the Latvian 
border with the equivalent of 10,000 Euros ([euroi]10,000) in coins, 
cash, and/or certain monetary instruments to complete a form stating 
the origin of the currency or monetary instruments, the purpose or 
use of the currency or monetary instruments, and the receiver of the 
currency or monetary instruments.
---------------------------------------------------------------------------

    In terms of implementation, the Latvian authorities have made 
strides in strengthening their anti-money laundering regulation and 
supervision and in developing more robust anti-money laundering 
examination procedures. To ensure proper protection of Latvia's 
financial sector, authorities will need to continue their efforts to 
effectively implement and enforce their strengthened anti-money 
laundering regime.

C. Multibanka's Subsequent Developments

    Multibanka has informed us that it has taken significant steps to 
address deficiencies in its anti-money laundering programs and 
controls. Although some of these efforts were initiated prior to the 
finding that Multibanka was a financial institution of primary money 
laundering concern, the bank is continuing to improve its anti-money 
laundering procedures and is working to ensure that these are 
translated effectively into practice. First, the bank revised its 
policies, procedures, and internal controls, and established an Anti-
Money Laundering Manual to address previously identified weaknesses, 
which included lax practices in the identification and verification of 
accountholders and insufficient internal controls. Second, it committed 
to review, and has since reviewed, its entire portfolio of accounts 
with the aim of verifying the identities of all accountholders. We 
understand that, in connection with this review process, the bank 
terminated relationships with more than 2,600 customers that were 
unwilling or unable to comply with Multibanka's enhanced information 
collection and verification standards. As a result, 98 percent of the 
bank's non-resident accounts and more than 50 percent of the bank's 
resident accounts have been closed. Third, Multibanka retained the 
services of an independent, international accounting firm to identify 
weaknesses in its anti-money laundering program and to assist the bank 
in its goal of reaching a best international practices standard for its 
anti-money laundering program and internal controls. Together, the bank 
and the international accounting firm have created an action plan to 
address deficiencies and have targeted compliance dates, and the bank 
has evinced implementation of the plan. Fourth, the bank has made 
organizational changes to coordinate and lead anti-money laundering 
activities, including the creation of a Compliance Committee, a Finance 
Monitoring Department, a Corporate Customer Department, and a Customer 
Management Division. In addition to hiring additional employees to 
assist with compliance, the bank has enhanced training opportunities 
for bank personnel with key anti-money laundering responsibilities. 
Fifth, in an effort to improve internal controls, the bank has enhanced 
and continues to enhance information technology systems that assist in 
the automated screening of accountholders, beneficial owners, and other 
persons and transactions that need to be flagged for enhanced scrutiny 
or possible reporting.
    We believe that Multibanka has been forthcoming in addressing the 
concerns that we identified in the notice of proposed rulemaking and 
has instituted measures to guard against money laundering abuses. The 
bank, through its counsel, initiated meetings with us in May and 
October 2005, with the intent to demonstrate the remedial measures 
taken. We permitted the bank to submit additional documentation to 
demonstrate its continued efforts and the bank has provided copies of 
its revised policies, procedures, and internal controls.
    Multibanka has significantly improved its anti-money laundering 
policies, procedures, and internal controls, has enhanced its 
organizational structure, and has strengthened its accountholder 
identification and verification requirements. We believe that the 
bank's cumulative efforts demonstrate its continuing commitment to 
fighting money laundering and other financial crimes.
    If a financial institution that is the object of a proposed section 
311 special measure is determined to no longer be of primary money 
laundering concern, we have authority to withdraw the finding and to 
withdraw any related proposal to impose a special measure. In light of 
Multibanka's significant remedial measures, described above, to address 
deficiencies in its anti-money laundering program and internal 
controls, particularly the bank's attempts to review its accounts to 
focus on legitimate business customers, we believe that the risk of 
criminals using Multibanka to facilitate or promote money laundering 
has decreased.

III. Notice of Proposed Rulemaking and Comments

    In the April 26, 2005 notice of proposed rulemaking, we proposed to 
impose the fifth special measure authorized by 31 U.S.C. 5318A(b)(5) 
against Multibanka, which would prohibit U.S. financial institutions 
from opening or maintaining correspondent or payable-through accounts 
for Multibanka in the United States.
    We received six comments on the notice of proposed rulemaking. 
Three comments, one each from an industry association, a firm providing 
search software to financial institutions, and a private individual, 
addressed the finding and rulemaking under Section 311 generally, but 
did not provide specifics with respect to Multibanka. The Latvian 
financial intelligence unit and a Latvian financial services 
supervisory authority jointly filed a comment regarding Latvian anti-
money laundering requirements, but similarly provided no specifics with 
respect to Multibanka. Legal counsel to Multibanka submitted two 
comment letters, and representatives of Multibanka met with us to 
discuss the anti-money laundering efforts described in their comments.

IV. Withdrawal of the Finding of Multibanka as a Financial Institution 
of Primary Laundering Concern

    For the reasons set forth above, we hereby withdraw our finding 
that Multibanka is a financial institution of primary money laundering 
concern as of July 13, 2006.

[[Page 39609]]

V. Withdrawal of Notice of Proposed Rulemaking

    For the reasons set forth above, we hereby withdraw the notice of 
proposed rulemaking imposing the fifth special measure authorized by 31 
U.S.C. 5318A(b)(5) against Multibanka for purposes of section 5318A as 
published in the Federal Register on April 26, 2005 (70 FR 21362).

    Dated: May 12, 2006.
Robert W. Werner,
Director, Financial Crimes Enforcement Network.
 [FR Doc. E6-10941 Filed 7-12-06; 8:45 am]
BILLING CODE 4810-02-P