[Federal Register Volume 73, Number 70 (Thursday, April 10, 2008)]
[Proposed Rules]
[Pages 19452-19453]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-7627]



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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA89


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

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

ACTION: Withdrawal of the finding of primary money laundering concern 
and notice of proposed rulemaking.

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SUMMARY: This document withdraws our August 24, 2004 finding that First 
Merchant Bank is a financial institution of primary money laundering 
concern and our notice of proposed rulemaking recommending the 
imposition of the fifth 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DATES: The notice of proposed rulemaking is withdrawn as of April 10, 
2008.

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.\1\
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    \1\ Therefore, references to the authority of the Secretary 
under section 311 of the USA PATRIOT Act apply equally to the 
Director of the Financial Crimes Enforcement Network.
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    Section 311 of the USA PATRIOT Act added section 5318A to the Bank 
Secrecy Act, granting the Secretary the authority, upon 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.\2\
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    \2\ 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).
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    Taken as a whole, section 5318A 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.

B. First Merchant Bank

    First Merchant Bank OSH Ltd. (``First Merchant Bank'') was licensed 
in the ``Turkish Republic of Northern Cyprus'' \3\ in 1993 as an 
offshore bank. It had 21 employees and was a privately owned commercial 
bank specializing in the provision of commercial and investment banking 
services to individual and corporate offshore customers. First Merchant 
Bank was owned by Standard Finance Ltd. (Ireland) and private 
shareholders (98% and 2%, respectively).\4\ Standard Finance Ltd., in 
turn, was owned by Provincial & Allied Funding Corp. (Bahamas) and 
Millvale Holdings Inc. (British Virgin Islands). First Merchant Bank's 
website stated that it had four wholly owned subsidiaries: FMB Finance 
Ltd. (British Virgin Islands), First Merchant International Inc. 
(Bahamas), First Merchant Finance Ltd. (Ireland), and First Merchant 
Trust Ltd. (Ireland).\5\ For the purposes of this document, unless the 
context dictates otherwise, references to First Merchant Bank include 
FMB Finance Ltd., First Merchant International Inc., First Merchant 
Finance Ltd., and First Merchant Trust Ltd., and any other branch, 
office, or subsidiary of First Merchant Bank operating in the ``Turkish 
Republic of Northern Cyprus'' or in any other jurisdiction.
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    \3\ The ``Turkish Republic of Northern Cyprus'' was described at 
length in the August 24, 2004 notice of proposed rulemaking, 69 FR 
51979, Aug. 24, 2004 (RIN 1506-AA65). Today's withdrawal of that 
proposed rulemaking does not provide updates on jurisdictional 
developments. Further discussion of jurisdictional developments can 
be found in FinCEN's advisory Guidance to Financial Institutions on 
the Money Laundering Threat Involving the Turkish Cypriot 
Administered Area of Cyprus, published on March 20, 2008 at http://www.fincen.gov/fin-2008-a003.html. The advisory, however, has no 
bearing on today's withdrawal, nor does this withdrawal have any 
bearing on the advisory.
    \4\ See The Bankers' Almanac, Reed Business Information Ltd 
(2005).
    \5\ First Merchant Finance, Ltd. and First Merchant Trust, Ltd. 
both listed their address as Kildress House Pembroke Row, LWR Baggot 
St., Dublin, BUE 2, Ireland. First Merchant International Inc. and 
FMB Finance, Ltd. were listed on First Merchant Bank's Web site at 
http://www.firstmerchantbank.com/home_main.htm (no longer 
accessible).
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II. The 2004 Finding, Proposed Rulemaking, and Subsequent Developments

A. The 2004 Finding and Proposed Rulemaking

    Based upon review and analysis of relevant information, 
consultations with relevant Federal agencies and departments, and after 
consideration of the factors enumerated in section 311, the Secretary, 
through his delegate, the Director of the Financial Crimes Enforcement 
Network, found that reasonable grounds existed for concluding that 
First Merchant Bank was a financial institution of primary money 
laundering concern. This finding was published on August 24, 2004,\6\ 
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 First 
Merchant Bank or any of its branches, offices, or subsidiaries, 
pursuant to the authority under 31 U.S.C. 5318A. The notice of proposed 
rulemaking outlined the various factors supporting the finding and 
proposed prohibition.

[[Page 19453]]

During an extended comment period,\7\ we received two comment letters 
on the notice of proposed rulemaking: one comment letter from First 
Merchant Bank through its U.S. legal counsel and one comment letter 
from a securities industry trade association.
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    \6\ See 69 FR 51979 (Aug. 24, 2004, RIN 1506-AA65).
    \7\ See 69 FR 58374 (September 30, 2004) (extension of original 
comment period from September 23, 2004, to November 1, 2004.).
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B. First Merchant Bank's Subsequent Developments

    The United States government has recent information indicating that 
First Merchant Bank is no longer conducting transactions as a financial 
institution. The Ministry of Finance of the ``Turkish Republic of 
Northern Cyprus'' ceased First Merchant Bank's operations on December 
4, 2006.\8\ After this date, no Cypriot banks have reported conducting 
any transactions with First Merchant Bank. On February 21, 2007, the 
Ministry of Finance cancelled First Merchant Bank's license, 
withdrawing First Merchant Bank's authority to operate as a financial 
institution in the ``Turkish Republic of Northern Cyprus.'' \9\ On June 
26, 2007, the Turkish Cypriot Money Laundering Board ordered First 
Merchant Bank's website be taken down and its offices closed. 
Furthermore, we confirmed the dissolution of First Merchant Bank's 
parent, Standard Finance Ltd. (Ireland), and two of First Merchant 
Bank's subsidiaries, First Merchant Finance Ltd. (Ireland) and First 
Merchant Trust Ltd. (Ireland). As for First Merchant Bank's two other 
subsidiaries, our research indicates FMB Finance Limited (British 
Virgin Islands) is no longer registered and First Merchant 
International Inc. (Bahamas) is not in existence and is not known to 
have operated there.
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    \8\ Off-Shore Bank, Operations of which have been ceased by the 
Ministry of Finance of TRNC with an announcement published in the 
Official Gazette No: 201 on December 04, 2006 at http://www.kktcmb.trnc.net/ENGLISH/banks/offshore-banks-eng.html.
    \9\ Off-Shore Banks, Licences of which have been cancelled by 
the Ministry of Finance of TRNC with an announcement published in 
the Official Gazette No: 32 on February 21, 2007 at http://www.kktcmb.trnc.net/ENGLISH/banks/offshore-banks-eng.html.
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III. Withdrawal of the Finding of First Merchant Bank as a Financial 
Institution of Primary Laundering Concern

    For the reasons set forth above, we hereby withdraw our finding 
that First Merchant Bank is a financial institution of primary money 
laundering concern as of April 10, 2008. Our withdrawal of the finding 
of First Merchant Bank as a financial institution of primary money 
laundering concern does not acknowledge any remedial measure taken by 
First Merchant Bank, but is the result of First Merchant Bank no longer 
operating as a financial institution because it no longer exists.

IV. 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 First Merchant Bank as published in the 
Federal Register on August 24, 2004 (69 FR 51979).

    Dated: April 4, 2008.
James H. Freis, Jr.,
Director, Financial Crimes Enforcement Network.
[FR Doc. E8-7627 Filed 4-9-08; 8:45 am]
BILLING CODE 4810-02-P