[Federal Register Volume 76, Number 33 (Thursday, February 17, 2011)]
[Proposed Rules]
[Pages 9268-9273]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-3348]


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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AB11


Financial Crimes Enforcement Network; Imposition of Special 
Measure Against the Lebanese Canadian Bank SAL as a Financial 
Institution of Primary Money Laundering Concern

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

ACTION: Notice of proposed rulemaking.

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SUMMARY: In a notice of finding published elsewhere in this issue of 
the Federal Register, the Secretary of the Treasury, through his 
delegate, the Director of FinCEN, found that reasonable grounds exist 
for concluding that the Lebanese Canadian Bank SAL (``LCB'') is a 
financial institution of primary money laundering concern pursuant to 
31 U.S.C. 5318A. FinCEN is issuing this notice of proposed rulemaking 
to impose a special measure against LCB.

DATES: Written comments on the notice of proposed rulemaking must be 
submitted on or before April 18, 2011.

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

FOR FURTHER INFORMATION CONTACT: Regulatory Policy and Programs 
Division, FinCEN, (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 (the ``USA PATRIOT Act''), 
Public Law 107-56. Title III of the USA PATRIOT Act amended the anti-
money laundering provisions of the Bank Secrecy Act (``BSA''), codified 
at 12 U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5314 and 
5316-5332, to promote the prevention, detection, and prosecution of 
international money laundering and the financing of terrorism. 
Regulations implementing the BSA appear at 31 CFR part 103. The 
authority of the Secretary of the Treasury (``the Secretary'') to 
administer the BSA and its implementing regulations has been delegated 
to the Director of FinCEN.\1\
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    \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 FinCEN.
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    Section 311 of the USA PATRIOT Act (``section 311'') added section 
5318A to the BSA, granting the Secretary the authority, upon finding 
that reasonable grounds exist for concluding that a foreign 
jurisdiction, institution, class of transaction, or type of account is 
of ``primary money laundering concern,'' to require domestic financial 
institutions and financial agencies to take certain ``special 
measures'' against the primary money laundering concern. Section 311 
identifies factors for the Secretary to consider and Federal agencies 
to consult before the Secretary may conclude that a jurisdiction, 
institution, class of transaction, or type of account is of primary 
money laundering concern. The statute also provides similar procedures, 
i.e., 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 give the 
Secretary the authority to bring additional pressure on those 
jurisdictions and institutions that pose money laundering threats. 
Through the imposition of various special measures, the Secretary can 
gain more information about the jurisdictions, institutions, 
transactions, or accounts of concern; can more effectively monitor the 
respective jurisdictions, institutions, transactions, or accounts; or 
can protect U.S. financial institutions from involvement with 
jurisdictions, institutions, transactions, or accounts that are of 
money laundering concern.
    Before making a finding that reasonable grounds exist for 
concluding that a foreign financial institution is of primary money 
laundering concern, the Secretary is required to consult with both the 
Secretary of State and the Attorney General. The Secretary is also 
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 the finding that the institution is of 
primary money laundering concern is sufficient to ensure, with respect 
to transactions involving the institution operating in the 
jurisdiction, that the purposes of the BSA continue to be fulfilled, 
and to guard against international money laundering and other financial 
crimes.
    If the Secretary determines that reasonable grounds exist for 
concluding that a financial institution is of primary money laundering 
concern, the Secretary must determine the appropriate special 
measure(s) to address the specific money laundering risks. Section 311 
provides a range of

[[Page 9269]]

special measures that can be imposed individually, jointly, in any 
combination, and in any sequence.\2\ The Secretary's imposition of 
special measures requires additional consultations to be made and 
factors to be considered. The statute requires the Secretary to consult 
with appropriate Federal agencies and other interested parties \3\ and 
to consider the following specific factors:
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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 special measures against Nauru).
    \3\ Section 5318A(a)(4)(A) requires the Secretary to consult 
with the Chairman of the Board of Governors of the Federal Reserve 
System, any other appropriate Federal banking agency, the Secretary 
of State, the Securities and Exchange Commission (SEC), the 
Commodity Futures Trading Commission (CFTC), the National Credit 
Union Administration (NCUA), and, in the sole discretion of the 
Secretary, ``such other agencies and interested parties as the 
Secretary may find to be appropriate.'' The consultation process 
must also include the Attorney General if the Secretary is 
considering prohibiting or imposing conditions on domestic financial 
institutions opening or maintaining correspondent account 
relationships with the designated jurisdiction.
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     Whether similar action has been or is being taken by other 
nations or multilateral groups;
     Whether the imposition of any particular special measures 
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 the United States national 
security and foreign policy.\4\
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    \4\ Classified information used in support of a section 311 
finding and measure(s) may be submitted by Treasury to a reviewing 
court ex parte and in camera. See section 376 of the Intelligence 
Authorization Act for fiscal year 2004, Pub. L. 108-177 (amending 31 
U.S.C. 5318A by adding new paragraph (f)).
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B. The Lebanese Canadian Bank SAL

    In this rulemaking, FinCEN proposes to impose the fifth special 
measure (31 U.S.C. 5318A(b)(5)) against LCB. The fifth special measure 
prohibits or conditions the opening or maintaining of correspondent or 
payable-through accounts for the designated institution by U.S. 
financial institutions. This special measure may be imposed only 
through the issuance of a regulation.
    LCB is based in Beirut, Lebanon, and maintains a network of 35 
branches in Lebanon and a representative office in Montreal, Canada.\5\ 
The bank is considered among the top 10 banks in Lebanon in assets and 
has over 600 employees.\6\ Originally established in 1960 as Banque des 
Activities Economiques SAL, it operated as a subsidiary of the Royal 
Bank of Canada Middle East (1968-1988) and is now a privately owned 
bank.\7\ LCB offers a broad range of corporate, retail, and investment 
products, and it maintains extensive correspondent accounts with banks 
worldwide, including several U.S. financial institutions.\8\ As of 
2009, LCB's total assets were worth over $5 billion.\9\
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    \5\ Bankers Almanac, Lebanese Canadian Bank SAL, June 22, 2010 
(http://www.bankersalmanac.com).
    \6\ Id.
    \7\ Id.
    \8\ Id.
    \9\ Lebanese Canadian Bank, 2009 Annual Report.
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    LCB has a controlling financial interest in a number of 
subsidiaries, including LCB Investments SAL, LCB Finance SAL, LCB 
Estates SAL, LCB Insurance Brokerage House SAL, Dubai-based Tabadul for 
Shares and Bonds LLC, Prime Bank Limited (``Prime Bank'') of 
Gambia.\10\ Prime Bank is a private commercial bank located in 
Serrekunda, Gambia.\11\ LCB owns 51% of Prime Bank, while the remaining 
shares are held by local and Lebanese partners.\12\ LCB apparently 
serves as the sole correspondent bank for Prime Bank.\13\ For purposes 
of this document and, unless expressly stated otherwise, references to 
LCB include the aforementioned subsidiaries.
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    \10\ Id.
    \11\ See http://primebankgambia.gm/index.
    \12\ Id.
    \13\ Id.
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II. Imposition of Special Measure Against the Lebanese Canadian Bank 
SAL as a Financial Institution of Primary Money Laundering Concern

    As a result of the finding on February 17, 2011 by the Secretary, 
through his delegate, the Director of FinCEN, that reasonable grounds 
exist for concluding that LCB is a financial institution of primary 
money laundering concern (see the notice of this finding published 
elsewhere today in the Federal Register), and based upon the additional 
consultations and the consideration of all relevant factors discussed 
in the finding and in this notice of proposed rulemaking, the 
Secretary, through FinCEN, has determined that reasonable grounds exist 
for the imposition of the special measure authorized by section 
5318A(b)(5).\14\ That special measure authorizes the prohibition 
against the opening or maintaining of correspondent accounts \15\ by 
any domestic financial institution or agency for or on behalf of a 
targeted financial institution. A discussion of the section 311 factors 
relevant to imposing this particular special measure follows.
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    \14\ In connection with this action, FinCEN consulted with staff 
of the Federal functional regulators, the Department of Justice, and 
the Department of State.
    \15\ For purposes of the proposed rule, a correspondent account 
is defined as an account established to receive deposits from, or 
make payments or other disbursements on behalf of, a foreign bank, 
or handle other financial transactions related to the foreign bank.
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1. Whether Similar Actions Have Been or Will Be Taken by Other Nations 
or Multilateral Groups Against LCB
    Other countries or multilateral groups have not taken action 
similar to the one proposed in this rulemaking that would prohibit 
domestic financial institutions and agencies from opening or 
maintaining a correspondent account for or on behalf of LCB, and 
require those domestic financial institutions and agencies to screen 
their correspondents in a manner that is reasonably designed to guard 
against their indirect use by nested correspondent accounts held by 
LCB. FinCEN encourages other countries to take similar action based on 
the findings contained in this rulemaking.
2. Whether the Imposition of the Fifth Special Measure Would Create a 
Significant Competitive Disadvantage, Including Any Undue Cost or 
Burden Associated With Compliance, for Financial Institutions Organized 
or Licensed in the United States
    The fifth special measure sought to be imposed by this rulemaking 
would prohibit covered financial institutions from opening and 
maintaining correspondent accounts for, or on behalf of, LCB. As a 
corollary to this measure, covered financial institutions also would be 
required to take reasonable steps to apply special due diligence, as 
set forth below, to all of their correspondent accounts to help ensure 
that no such account is being used indirectly to provide services to 
LCB. FinCEN does not expect the burden associated with these 
requirements to be significant, given its understanding that few U.S. 
financial institutions currently maintain a correspondent account for

[[Page 9270]]

LCB.\16\ There is a minimal burden involved in transmitting a one-time 
notice to correspondent account holders concerning the prohibition on 
indirectly providing services to LCB. In addition, U.S. financial 
institutions generally apply some degree of due diligence in screening 
their transactions and accounts, often through the use of commercially 
available software such as that used for compliance with the economic 
sanctions programs administered by the Office of Foreign Assets Control 
(OFAC) of the Department of the Treasury. As explained in more detail 
in the section-by-section analysis below, financial institutions 
should, if necessary, be able to easily adapt their current screening 
procedures to comply with this special measure. Thus, the special due 
diligence that would be required by this rulemaking is not expected to 
impose a significant additional burden upon U.S. financial 
institutions.
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    \16\ Bankers Almanac, Lebanese Canadian Bank SAL, June 22, 2010 
(http://www.bankersalmanac.com).
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3. The Extent To Which the Proposed Action or Timing of the Action Will 
Have a Significant Adverse Systemic Impact on the International 
Payment, Clearance, and Settlement System, or on Legitimate Business 
Activities of the Lebanese Canadian Bank SAL
    This proposed rulemaking targets LCB specifically; it does not 
target a class of financial transactions (such as wire transfers) or a 
particular jurisdiction. LCB is not a major participant in the 
international payment system and is not relied upon by the 
international banking community for clearance or settlement services. 
Thus, the imposition of the fifth special measure against LCB would not 
have a significant adverse systemic impact on the international 
payment, clearance, and settlement system. In light of the reasons for 
imposing this special measure, FinCEN does not believe that it would 
impose an undue burden on legitimate business activities, and notes 
that the presence of several larger banks in Lebanon would alleviate 
the burden on legitimate business activities within that jurisdiction.
4. The Effect of the Proposed Action on United States National Security 
and Foreign Policy
    The exclusion from the U.S. financial system of banks that serve as 
conduits for significant money laundering activity and other financial 
crimes enhances national security, making it more difficult for money 
launderers to access the substantial resources of the U.S. financial 
system. More generally, the imposition of the fifth special measure 
would complement the U.S. Government's worldwide efforts to expose and 
disrupt international money laundering.
    Therefore, pursuant to the finding of the Secretary of the Treasury 
that LCB is an institution of primary money laundering concern, and 
after conducting the required consultations and weighing the relevant 
factors, FinCEN has determined that reasonable grounds exist for 
imposing the special measure.

III. Section-by-Section Analysis

    The proposed rule would prohibit covered financial institutions 
from establishing, maintaining, or managing in the United States any 
correspondent account for or on behalf of LCB. As a corollary to this 
prohibition, covered financial institutions would be required to apply 
special due diligence to their correspondent accounts to guard against 
their indirect use by LCB. At a minimum, that special due diligence 
must include two elements. First, a covered financial institution must 
notify those correspondent account holders that the covered financial 
institution knows or has reason to know provide services to LCB that 
such correspondents may not provide LCB with access to the 
correspondent account maintained at the covered financial institution. 
Second, a covered financial institution must take reasonable steps to 
identify any indirect use of its correspondent accounts by LCB, to the 
extent that such indirect use can be determined from transactional 
records maintained by the covered financial institution in the normal 
course of business. A covered financial institution should take a risk-
based approach when deciding what, if any, additional due diligence 
measures it should adopt to guard against the indirect use of its 
correspondent accounts by LCB, based on risk factors such as the type 
of services it offers and geographic locations of its correspondents.

A. 103.194(a)--Definitions

1. The Lebanese Canadian Bank SAL
    Section 103.194(a)(1) of the proposed rule defines LCB to include 
all branches, offices, and subsidiaries of LCB operating in Lebanon or 
in any jurisdiction. These branches, offices, and subsidiaries include, 
but are not necessarily limited to, LCB Investments (Holding) SAL, LCB 
Finance SAL, LCB Estates SAL, LCB Insurance Brokerage House SAL, Dubai-
based Tabadul for Shares and Bonds LLC, and Prime Bank Limited in 
Serrekunda, Gambia. FinCEN will provide updated information, as it is 
available; however, covered financial institutions should take 
commercially reasonable measures to determine whether a customer is a 
branch, office, or subsidiary of LCB.
2. Correspondent account
    Section 103.194(a)(2) defines the term ``correspondent account'' by 
reference to the definition contained in 31 CFR 103.175(d)(1)(ii). 
Section 103.175(d)(1)(ii) defines a correspondent account to mean an 
account established to receive deposits from, or make payments or other 
disbursements on behalf of, a foreign bank, or handle other financial 
transactions related to the foreign bank.
    In the case of a U.S. depository institution, this broad definition 
includes most types of banking relationships between a U.S. depository 
institution and a foreign bank that are established to provide regular 
services, dealings, and other financial transactions including a demand 
deposit, savings deposit, or other transaction or asset account, and a 
credit account or other extension of credit.
    In the case of securities broker-dealers, futures commission 
merchants, introducing brokers in commodities, and investment companies 
that are open-end companies (mutual funds), we are using the same 
definition of ``account'' for purposes of this rule as was established 
in the final rule implementing section 312 of the USA PATRIOT Act.\17\
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    \17\ See 31 CFR 103.175(d)(2)(ii) through (iv).
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3. Covered Financial Institution
    Section 103.194(a)(3) of the proposed rule defines ``covered 
financial institution'' with the same definition used in the final rule 
implementing section 312 of the USA PATRIOT Act,\18\ which in general 
includes the following:
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    \18\ See 31 CFR 103.175(f)(1).
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     An insured bank (as defined in section 3(h) of the Federal 
Deposit Insurance Act (12 U.S.C. 1813(h));
     A commercial bank;
     An agency or branch of a foreign bank in the United 
States;
     A Federally insured credit union;
     A savings association;
     A corporation acting under section 25A of the Federal 
Reserve Act (12 U.S.C. 611);
     A trust bank or trust company;
     A broker or dealer in securities;
     A futures commission merchant or an introducing broker; or

[[Page 9271]]

     A mutual fund.

B. 03.194(b)--Requirements for Covered Financial Institutions

    For purposes of complying with the proposed rule's prohibition on 
the opening or maintaining of correspondent accounts for, or on behalf 
of, LCB, FinCEN expects that a covered financial institution would take 
such steps that a reasonable and prudent financial institution would 
take to protect itself from loan fraud or other fraud or loss based on 
misidentification of a person's status.
1. Prohibition on Direct Use of Correspondent Accounts
    Section 103.194(b)(1) of the proposed rule would prohibit all 
covered financial institutions from establishing, maintaining, 
administering, or managing a correspondent or payable-through account 
in the United States for, or on behalf of, LCB. The prohibition would 
require all covered financial institutions to review their account 
records to ensure that they maintain no accounts directly for, or on 
behalf of, LCB.
2. Special Due Diligence of Correspondent Accounts To Prohibit Indirect 
Use
    As a corollary to the prohibition on maintaining correspondent 
accounts directly for LCB, section 103.194(b)(2) would require a 
covered financial institution to apply special due diligence to its 
correspondent accounts \19\ that is reasonably designed to guard 
against their indirect use by LCB. At a minimum, that special due 
diligence must include notifying those correspondent account holders 
that the covered financial institution knows or has reason to know 
provide services to LCB, that such correspondents may not provide LCB 
with access to the correspondent account maintained at the covered 
financial institution. A covered financial institution would, for 
example, have knowledge that the correspondents provide access to LCB 
through transaction screening software. A covered financial institution 
may satisfy this requirement by transmitting the following notice to 
its correspondent account holders that it knows or has reason to know 
provide services to LCB:
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    \19\ Again, for purposes of the proposed rule, a correspondent 
account is defined as an account established to receive deposits 
from, or make payments or other disbursements on behalf of, a 
foreign bank, or handle other financial transactions related to the 
foreign bank.

    Notice: Pursuant to U.S regulations issued under section 311 of 
the USA PATRIOT Act, 31 CFR 103.194, we are prohibited from 
establishing, maintaining, administering or managing a correspondent 
account for, or on behalf of, the Lebanese Canadian Bank SAL or any 
of its subsidiaries (including, but not limited to, LCB Investments 
(Holding) SAL, LCB Finance SAL, LCB Estates SAL, LCB Insurance 
Brokerage House SAL, Dubai-based Tabadul for Shares and Bonds LLC, 
and Prime Bank Limited of Gambia). The regulations also require us 
to notify you that you may not provide the Lebanese Canadian Bank 
SAL or any of its subsidiaries with access to the correspondent 
account you hold at our financial institution. If we become aware 
that the Lebanese Canadian Bank SAL or any of its subsidiaries is 
indirectly using the correspondent account you hold at our financial 
institution for transactions, we will be required to take 
appropriate steps to prevent such access, including terminating your 
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account.

    The purpose of the notice requirement is to help ensure cooperation 
from correspondent account holders in denying LCB access to the U.S. 
financial system. However, FinCEN does not require or expect a covered 
financial institution to obtain a certification from any of its 
correspondent account holders that indirect access will not be provided 
in order to comply with this notice requirement. Instead, methods of 
compliance with the notice requirement could include, for example, 
transmitting a one-time notice by mail, fax, or e-mail to certain of 
the covered financial institution's correspondent account customers, 
informing them that they may not provide LCB with access to the covered 
financial institution's correspondent account, or including such 
information in the next regularly occurring transmittal from the 
covered financial institution to those correspondent account holders. 
FinCEN specifically solicits comments on the form and scope of the 
notice that would be required under the rule.
    A covered financial institution also would be required under this 
rulemaking to take reasonable steps to identify any indirect use of its 
correspondent accounts by LCB, to the extent that such indirect use can 
be determined from transactional records maintained by the covered 
financial institution in the normal course of business. For example, a 
covered financial institution would be expected to apply an appropriate 
screening mechanism to be able to identify a funds transfer order that 
on its face listed LCB as the originator's or beneficiary's financial 
institution, or otherwise referenced LCB in a manner detectable under 
the financial institution's normal screening processes. An appropriate 
screening mechanism could be the mechanism used by a covered financial 
institution to comply with various legal requirements, such as the 
commercially available software programs used to comply with the 
economic sanctions programs administered by OFAC. FinCEN specifically 
solicits comments on the requirement under the proposed rule that 
covered financial institutions take reasonable steps to screen their 
correspondent accounts in order to identify any indirect use of such 
accounts by LCB.
    Notifying certain correspondent account holders and taking 
reasonable steps to identify any indirect use of its correspondent 
accounts by LCB in the manner discussed above would be the minimum due 
diligence requirements under the proposed rule. Beyond these minimum 
steps, a covered financial institution should adopt a risk-based 
approach for determining what, if any, additional due diligence 
measures it should implement to guard against the indirect use of its 
correspondent accounts by LCB, based on risk factors such as the type 
of services it offers and the geographic locations of its correspondent 
account holders.
    A covered financial institution that obtains knowledge that a 
correspondent account is being used by a foreign bank to provide 
indirect access to LCB must take all appropriate steps to prevent such 
indirect access, including the notification of its correspondent 
account holder per section 103.194(b)(2)(i)(A) and, where necessary, 
terminating the correspondent account. A covered financial institution 
may afford the foreign bank a reasonable opportunity to take corrective 
action prior to terminating the correspondent account. Should the 
foreign bank refuse to comply, or if the covered financial institution 
cannot obtain adequate assurances that the account will no longer be 
available to LCB, the covered financial institution must terminate the 
account within a commercially reasonable time. This means that the 
covered financial institution should not permit the foreign bank to 
establish any new positions or execute any transactions through the 
account, other than those necessary to close the account. A covered 
financial institution may reestablish an account closed under the 
proposed rule if it determines that the account will not be used to 
provide banking services indirectly to LCB. FinCEN specifically 
solicits comments on the requirement under the proposed rule that 
covered financial institutions prevent indirect access to LCB, once 
such indirect access is identified.
3. Reporting Not Required
    Section 103.194(b)(3) of the proposed rule clarifies that the rule 
would not

[[Page 9272]]

impose any reporting requirement upon any covered financial institution 
that is not otherwise required by applicable law or regulation. A 
covered financial institution must, however, document its compliance 
with the requirement that it notify those correspondent account holders 
that the covered financial institution knows or has reason to know 
provide services to LCB, that such correspondents may not provide LCB 
with access to the correspondent account maintained at the covered 
financial institution.

IV. Request for Comments

    FinCEN invites comments on all aspects of the proposal to prohibit 
the opening or maintaining of correspondent accounts for or on behalf 
of LCB, and specifically invites comments on the following matters:
    1. The form and scope of the notice to certain correspondent 
account holders that would be required under the rule;
    2. The appropriate scope of the proposed requirement for a covered 
financial institution to take reasonable steps to identify any indirect 
use of its correspondent accounts by LCB;
    3. The appropriate steps a covered financial institution should 
take once it identifies an indirect use of one of its correspondent 
accounts by LCB; and
    4. The impact of the proposed special measure upon legitimate 
transactions with LCB involving, in particular, U.S. persons and 
entities; foreign persons, entities, and governments; and multilateral 
organizations doing legitimate business with persons or entities 
operating in Lebanon.

V. Regulatory Flexibility Act

    It is hereby certified that this proposed rule will not have a 
significant economic impact on a substantial number of small entities. 
FinCEN understands that LCB currently maintains few correspondent 
accounts in the United States.\20\ Thus, the prohibition on maintaining 
such accounts would not have a significant impact on a substantial 
number of small entities. In addition, all U.S. persons, including U.S. 
financial institutions, currently must exercise some degree of due 
diligence in order to comply with various legal requirements. The tools 
used for such purposes, including commercially available software used 
to comply with the economic sanctions programs administered by OFAC, 
can easily be modified to monitor for the use of correspondent accounts 
by LCB. Thus, the special due diligence that would be required by this 
rulemaking--i.e., the one-time transmittal of notice to certain 
correspondent account holders and the screening of transactions to 
identify any indirect use of correspondent accounts, would not be 
expected to impose a significant additional economic burden upon small 
U.S. financial institutions. FinCEN invites comments about the impact 
on small entities.
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    \20\ Bankers Almanac, Lebanese Canadian Bank SAL, June 22, 2010 
(http://www.bankersalmanac.com).
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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 to 
the Desk Officer for the Department of Treasury, Office of Information 
and Regulatory Affairs, Office of Management and Budget, Paperwork 
Reduction Project (1506), Washington, DC 20503 (or by e-mail to [email protected]) with a copy to FinCEN by mail or e-mail at the 
addresses previously specified. Comments should be submitted by one 
method only. Comments on the collection of information should be 
received by April 18, 2011. 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 part 1320, the following information 
concerning the collection of information as required by 31 CFR 103.194 
is presented to assist those persons wishing to comment on the 
information collection.
    The collection of information in this proposed rule is in 
103.194(b)(2)(i) and 103.194(b)(3)(i). The notification requirement in 
103.194(b)(2)(i) would be intended to ensure cooperation from 
correspondent account holders in denying LCB access to the U.S. 
financial system. The information required to be maintained by 
103.194(b)(3)(i) would be used by Federal agencies and certain self-
regulatory organizations to verify compliance by covered financial 
institutions with the provisions of 31 CFR 103.194. The class of 
financial institutions affected by the notification requirement would 
be identical to the class of financial institutions affected by the 
recordkeeping requirement. The collection of information is mandatory.
    Description of Affected Financial Institutions: Banks, broker-
dealers in securities, futures commission merchants and introducing 
brokers, and mutual funds maintaining correspondent accounts.
    Estimated Number of Affected Financial Institutions: 5,000.
    Estimated Average Annual Burden Hours per Affected Financial 
Institutions: The estimated average burden associated with the 
collection of information in this proposed rule is one hour per 
affected financial institution.
    Estimated Total Annual Burden: 5,000 hours.
    FinCEN specifically invites comments on: (a) Whether the proposed 
collection of information is necessary for the proper performance of 
the mission of FinCEN, including whether the information shall have 
practical utility; (b) the accuracy of FinCEN's estimate of the burden 
of the proposed collection of information; (c) ways to enhance the 
quality, utility, and clarity of the information required to be 
maintained; (d) ways to minimize the burden of the required collection 
of information, including through the use of automated collection 
techniques or other forms of information technology; and (e) estimates 
of capital or start-up costs and costs of operation, maintenance, and 
purchase of services to maintain the information.

VII. Location in Chapter X

    As discussed in the Federal Register rule published 75 FR 65806, 
October 26, 2010, FinCEN will be removing Part 103 of Chapter I of 
Title 31, Code of Federal Regulations, and adding Parts 1000 to 1099 
(``Chapter X'') effective March 1, 2011. As of this effective date, the 
changes in the present proposed rule, if finalized, would be 
reorganized according to Chapter X. The planned reorganization will 
have no substantive effect on the regulatory changes herein. The 
regulatory changes of this specific rulemaking would be renumbered 
according to Chapter X as follows:
    Section 103.194 would be moved to Sec.  1010.656.

VIII. Executive Order 12866

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

List of Subjects in 31 CFR Part 103

    Administrative practice and procedure, Banks and banking, Brokers, 
Currency, Foreign banking, Foreign currencies, Gambling, 
Investigations, Penalties, Reporting and recordkeeping requirements, 
Securities, Terrorism.

Authority and Issuance

    For the reasons set forth in the preamble, part 103 of title 31 of 
the

[[Page 9273]]

Code of Federal Regulations is proposed to be amended as follows:

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

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

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

    2. Subpart I of part 103 is amended by adding Sec.  103.194 under 
an undesignated center heading to read as follows:

Special Due Diligence for Correspondent Accounts and Private Banking 
Accounts


Sec.  103.194  Special measures against the Lebanese Canadian Bank SAL

    (a) Definitions. For purposes of this section:
    (1) The Lebanese Canadian Bank SAL means all branches, offices, and 
subsidiaries of the Lebanese Canadian Bank operating in any 
jurisdiction.
    (2) Correspondent account has the same meaning as provided in Sec.  
103.175(d)(1)(ii).
    (3) Covered financial institution has the same meaning as provided 
in Sec.  103.175(f)(1).
    (4) Subsidiary means a company of which more than 50 percent of the 
voting stock or analogous equity interest is owned by another company.
    (b) Requirements for covered financial institutions. (1) 
Prohibition on direct use of correspondent accounts. A covered 
financial institution shall terminate any correspondent account that is 
established, maintained, administered, or managed in the United States 
for, or on behalf of, the Lebanese Canadian Bank SAL.
    (2) Special due diligence of correspondent accounts to prohibit 
indirect use. (i) A covered financial institution shall apply special 
due diligence to its correspondent accounts that is reasonably designed 
to guard against their indirect use by the Lebanese Canadian Bank SAL. 
At a minimum, that special due diligence must include:
    (A) Notifying those correspondent account holders that the covered 
financial institution knows or has reason to know provide services to 
the Lebanese Canadian Bank SAL, that such correspondents may not 
provide the Lebanese Canadian Bank SAL with access to the correspondent 
account maintained at the covered financial institution; and
    (B) Taking reasonable steps to identify any indirect use of its 
correspondent accounts by the Lebanese Canadian Bank SAL, to the extent 
that such indirect use can be determined from transactional records 
maintained in the covered financial institution's normal course of 
business.
    (ii) A covered financial institution shall take a risk-based 
approach when deciding what, if any, other due diligence measures it 
should adopt to guard against the indirect use of its correspondent 
accounts by the Lebanese Canadian Bank SAL.
    (iii) A covered financial institution that obtains knowledge that a 
correspondent account is being used by the foreign bank to provide 
indirect access to the Lebanese Canadian Bank SAL, shall take all 
appropriate steps to prevent such indirect access, including the 
notification of its correspondent account holder under paragraph 
(b)(2)(i)(A) of this section and, where necessary, terminating the 
correspondent account.
    (3) Recordkeeping and reporting. (i) A covered financial 
institution is required to document its compliance with the notice 
requirement set forth in paragraph (b)(2)(i)(A) of this section.
    (ii) Nothing in this section shall require a covered financial 
institution to report any information not otherwise required to be 
reported by law or regulation.

    Dated: February 9, 2011.
James H. Freis, Jr.,
Director, Financial Crimes Enforcement Network.
[FR Doc. 2011-3348 Filed 2-16-11; 8:45 am]
BILLING CODE 4810-02-P