[Federal Register Volume 80, Number 228 (Friday, November 27, 2015)]
[Proposed Rules]
[Pages 74064-74067]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-30119]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Financial Crimes Enforcement Network
31 CFR Part 1010
RIN 1506-AB27
Imposition of Special Measure Against FBME Bank Ltd., Formerly
Known as the Federal Bank of the Middle East Ltd., as a Financial
Institution of Primary Money Laundering Concern
AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.
ACTION: Proposed rule; re-opening of comment period and availability of
supplemental information.
-----------------------------------------------------------------------
SUMMARY: On July 29, 2015, FinCEN issued a Final Rule imposing the
fifth special measure against FBME Bank Ltd. (FBME), formerly known as
the Federal Bank of the Middle East, Ltd., with an effective date of
August 28, 2015. On August 27, 2015, the United States District Court
for the District of Columbia granted FBME's motion for a preliminary
injunction and enjoined the
[[Page 74065]]
Final Rule from taking effect. On November 6, 2015, the Court granted
the Government's motion for voluntary remand to allow for further
rulemaking proceedings. FinCEN is hereby re-opening the Final Rule to
solicit additional comment in connection with the rulemaking,
particularly with respect to the unclassified, non-protected documents
that support the rulemaking and whether any alternatives to the
prohibition of the opening or maintaining of correspondent accounts
with FBME would effectively mitigate the risk to domestic financial
institutions.
DATES: Written comments on this document must be submitted on or before
January 26, 2016.
ADDRESSES: You may submit comments, identified by 1506-AB27, by any of
the following methods:
Federal E-rulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments. Include 1506-AB27 in
the submission.
Mail: The Financial Crimes Enforcement Network, P.O. Box
39, Vienna, VA 22183. Include 1506-AB27 in the body of the text. Please
submit comments by one method only.
Absent a sufficient showing that a submission warrants
confidential treatment, comments submitted in response to this document
will become a matter of public record. Therefore, you should generally
only submit information that you wish to make publicly available.
Inspection of comments: The public dockets for FinCEN can be found
at www.Regulations.gov. Proposed and final rules published by FinCEN in
the Federal Register are searchable by docket number, RIN, or document
title, among other things, and the docket number, RIN, and title may be
found at the beginning of the document. FinCEN uses the electronic,
Internet-accessible dockets at Regulations.gov as their complete
docket; all hard copies of materials that should be in the docket,
including public comments, are electronically scanned and placed in the
docket. In general, FinCEN will make all comments publicly available by
posting them on http://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: The FinCEN Resource Center at (800)
767-2825.
SUPPLEMENTARY INFORMATION:
I. Regulatory Background
On July 22, 2014, FinCEN published in the Federal Register a Notice
of Finding (NOF) in which the Director of FinCEN explained that
reasonable grounds exist for concluding that FBME Bank Ltd. (FBME) is a
financial institution of primary money laundering concern pursuant to
Section 311 of the USA PATRIOT Act (Section 311),\1\ which is codified
at 31 U.S.C. 5318A. FinCEN's NOF identified two main areas of concern:
(i) FBME's facilitation of money laundering, terrorist financing,
transnational organized crime, fraud schemes, sanctions evasion,
weapons proliferation, corruption by politically-exposed persons, and
other financial crime; and (ii) FBME's weak anti-money laundering
controls, which allow its customers to perform a significant volume of
obscured transactions and activities through the U.S. financial system.
Simultaneously with the issuance of the NOF, FinCEN also published in
the Federal Register a related Notice of Proposed Rulemaking (NPRM)
proposing the imposition of the fifth special measure available under
Section 311 against FBME.\2\ In particular, FinCEN proposed to prohibit
covered U.S. financial institutions from opening or maintaining a
correspondent account in the United States for, or on behalf of, FBME.
On July 29, 2015, after considering comments from the public on these
documents, and other information available to FinCEN, including both
public and non-public reporting, FinCEN published in the Federal
Register a Final Rule imposing the fifth special measure as proposed in
the NPRM, with an effective date of August 28, 2015.\3\
---------------------------------------------------------------------------
\1\ Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001,
Public Law 107-56.
\2\ 79 FR 42486 (July 22, 2014) (RIN 1506-AB27).
\3\ 80 FR 45057 (July 29, 2015) (RIN 1506-AB27).
---------------------------------------------------------------------------
FBME filed suit on August 7, 2015 in the United States District
Court for the District of Columbia and sought a preliminary injunction
against the Final Rule. On August 27, 2015, the Court granted the
motion for preliminary injunction and enjoined the Final Rule from
taking effect.\4\ In its order, the Court found that FBME was likely to
succeed on the merits of two of its claims: (i) That FinCEN provided
insufficient notice of unclassified, non-protected information on which
it relied during the rulemaking proceedings, and (ii) that FinCEN
failed to adequately consider at least one potentially significant,
viable, and obvious alternative to the special measure it imposed.\5\
On November 6, 2015, the Court granted FinCEN's motion for voluntary
remand so that FinCEN may engage in further rulemaking to address the
procedural issues identified by the Court in enjoining the Final Rule.
Accordingly, FinCEN is issuing this document to solicit additional
comment regarding the Section 311 rulemaking related to FBME. In
addition, FinCEN is making available for comment the unclassified, non-
protected material that FinCEN relied upon and intends to rely upon
during the rulemaking proceeding.\6\ That unclassified, non-protected
material is available at www.regulations.gov [Fincen-2014-0007]. Those
comments previously submitted in connection with the rulemaking need
not be resubmitted, as FinCEN will consider all comments received to
date. In addition, if FinCEN decides to consider any additional
unclassified, non-protected material other than that provided in the
comments, such information will be added to www.regulations.gov
[Fincen-2014-0007].
---------------------------------------------------------------------------
\4\ FBME Bank Ltd. v. Lew, No. 1:15-cv-01270, 2015 WL 5081209
(D.D.C. Aug. 27, 2015).
\5\ Id. at *5.
\6\ As previously disclosed in the litigation involving the
Final Rule, FinCEN notes that it does not intend to rely on three
documents that were originally included in its administrative record
supporting the NOF and NPRM: Two were law enforcement sensitive
documents and the other was mistakenly included.
---------------------------------------------------------------------------
II. Proposed Imposition of the Fifth Special Measure
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 (the
USA PATRIOT Act). Title III of the USA PATRIOT Act amends 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, 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 chapter X. The
authority of the Secretary of the Treasury to administer the BSA and
its implementing regulations has been delegated to the Director of
FinCEN.
Section 311 of the USA PATRIOT Act grants the Director of FinCEN
the authority, upon finding that reasonable grounds exist for
concluding that a foreign jurisdiction, foreign financial institution,
class of transactions, or type of account is of ``primary money
laundering concern,'' to require domestic financial institutions and
financial agencies to take certain ``special measures'' to address the
primary money laundering concern. The special measures enumerated under
Section 311 are prophylactic safeguards
[[Page 74066]]
that defend the U.S. financial system from money laundering and
terrorist financing. FinCEN may impose one or more of these special
measures in order to protect the U.S. financial system from these
threats. To that end, special measures one through four, codified at 31
U.S.C. 5318A(b)(1-4), impose additional recordkeeping, information
collection, and information reporting requirements on covered U.S.
financial institutions. The fifth special measure, codified at 31
U.S.C. 5318A(b)(5), allows the Director to prohibit or impose
conditions on the opening or maintaining of correspondent or payable-
through accounts for the identified institution by U.S. financial
institutions.
Given FinCEN's finding that FBME is of primary money laundering
concern, in the Final Rule, FinCEN imposed the fifth special measure's
prohibition on the opening or maintaining of a correspondent account in
the United States for FBME. In further evaluation of alternative
measures pursuant to the Court's November 6, 2015 opinion and order,
FinCEN is reopening the Final Rule to solicit additional comment.
First, FinCEN seeks comment on whether any of special measures one
through four under Section 311 with respect to covered U.S. financial
institutions' activities involving FBME would be an effective
alternative to mitigate the risk posed by FBME, as explained in the
Notice of Finding. FinCEN also seeks comment on whether, pursuant to
special measure five of Section 311, FinCEN should impose conditions,
rather than a prohibition, on the opening or maintaining of
correspondent accounts with FBME.
III. Request for Comments
FinCEN invites comments on all aspects of this rulemaking,
including, but not limited to, the following:
1. The unclassified, non-protected information that FinCEN intends
to rely upon during the rulemaking proceeding; \7\
---------------------------------------------------------------------------
\7\ FinCEN anticipates that certain confidential business
information (``CBI'') pertaining to FBME will not be made available.
To the extent documents containing such CBI can be disclosed
publicly in redacted form, they will be added to
www.regulations.gov.
---------------------------------------------------------------------------
2. Whether any of special measures one through four under Section
311 with respect to covered U.S. financial institutions' activities
involving FBME would be an effective alternative to mitigate the risk
posed by FBME as explained in the Notice of Finding;
3. Whether, pursuant to special measure five of Section 311, FinCEN
should impose conditions, rather than a prohibition, on the opening or
maintaining of correspondent accounts with FBME as an effective
alternative to mitigate the risk posed by FBME as explained in the
Notice of Finding; and
4. Any material developments that have occurred with respect to
FBME since the issuance of the NOF and NPRM on July 22, 2014, including
whether reasonable grounds continue to exist for concluding that FBME
is a primary money laundering concern.
IV. Regulatory Flexibility Act
When an agency issues a rulemaking proposal, the Regulatory
Flexibility Act (RFA) requires the agency to ``prepare and make
available for public comment an initial regulatory flexibility
analysis'' that will ``describe the impact of the proposed rule on
small entities.'' (5 U.S.C. 603(a)). Section 605 of the RFA allows an
agency to certify a rule, in lieu of preparing an analysis, if the
proposed rulemaking is not expected to have a significant economic
impact on a substantial number of small entities. FinCEN previously
provided information about the number and types of entities that would
be affected by the earlier proposal to impose special measure five.\8\
FinCEN is restating that information in this document so that persons
may comment on FinCEN's proposed certification concerning whether the
imposition of any of the special measures would have a significant
economic impact on a substantial number of small entities. As explained
in more detail, the limited number of foreign banking institutions with
which FBME maintains or will maintain accounts will likely limit the
number of affected covered financial institutions to the largest U.S.
banks, which actively engage in international transactions.
---------------------------------------------------------------------------
\8\ 79 FR 42486, 42489 (July 22, 2014) and 80 FR 45057, 45063
(July 29, 2015).
---------------------------------------------------------------------------
A. Estimate of the Number of Small Entities to Whom Any of Special
Measures One Through Five Would Apply
For purposes of the RFA, both banks and credit unions are
considered small entities if they have less than $500,000,000 in
assets.\9\ Of the estimated 7,000 banks, 80 percent have less than
$500,000,000 in assets and are considered small entities.\10\ Of the
estimated 7,000 credit unions, 94 percent have less than $500,000,000
in assets.\11\
---------------------------------------------------------------------------
\9\ Table of Small Business Size Standards Matched to North
American Industry Classification System Codes, Small Business
Administration Size Standards (SBA Jan. 22, 2014) [hereinafter SBA
Size Standards].
\10\ Federal Deposit Insurance Corporation, Find an Institution,
http://www2.fdic.gov/idasp/main.asp; select Size or Performance:
Total Assets, type Equal or less than $: ``500000'' and select Find.
\11\ National Credit Union Administration, Credit Union Data,
http://webapps.ncua.gov/customquery/ select Search Fields: Total
Assets, select Operator: Less than or equal to, type Field Values:
``500000000'' and select Go.
---------------------------------------------------------------------------
Broker-dealers are defined in 31 CFR 1010.100(h) as those broker-
dealers required to register with the Securities and Exchange
Commission (SEC). Because FinCEN and the SEC regulate substantially the
same population, for the purposes of the RFA, FinCEN relies on the
SEC's definition of small business as previously submitted to the Small
Business Administration (SBA). The SEC has defined the term ``small
entity'' to mean a broker or dealer that: (a) Had total capital (net
worth plus subordinated liabilities) of less than $500,000 on the date
in the prior fiscal year as of which its audited financial statements,
were prepared pursuant to Rule 17a-5(d) or, if not required to file
such statements, a broker or dealer that had total capital (net worth
plus subordinated debt) of less than $500,000 on the last business day
of the preceding fiscal year (or in the time that it has been in
business if shorter); and (b) is not affiliated with any person (other
than a natural person) that is not a small business or small
organization as defined in this release.\12\ Based on SEC estimates, 17
percent of broker-dealers are classified as ``small'' entities for
purposes of the RFA.\13\
---------------------------------------------------------------------------
\12\ 17 CFR 240.0-10(c).
\13\ 76 FR 37572, 37602 (June 27, 2011) (the SEC estimates 871
small broker-dealers of the 5,063 total registered broker-dealers).
---------------------------------------------------------------------------
Futures commission merchants (FCMs) are defined in 31 CFR
1010.100(x) as those FCMs that are registered or required to be
registered as a FCM with the Commodity Futures Trading Commission
(CFTC) under the Commodity Exchange Act (CEA), except persons who
register pursuant to section 4f(a)(2) of the CEA, 7 U.S.C. 6f(a)(2).
Because FinCEN and the CFTC regulate substantially the same population,
for the purposes of the RFA, FinCEN relies on the CFTC's definition of
small business as previously submitted to the SBA. In the CFTC's
``Policy Statement and Establishment of Definitions of `Small Entities'
for Purposes of the Regulatory Flexibility Act,'' the CFTC concluded
that registered FCMs should not be considered to be small entities for
purposes of the RFA.\14\ The CFTC's determination in this regard was
based, in part, upon the obligation of registered
[[Page 74067]]
FCMs to meet the capital requirements established by the CFTC.
---------------------------------------------------------------------------
\14\ 47 FR 18618, 18619 (Apr. 30, 1982).
---------------------------------------------------------------------------
For purposes of the RFA, an introducing broker-commodities dealer
is considered small if it has less than $35,500,000 in gross receipts
annually.\15\ Based on information provided by the National Futures
Association (NFA), 95 percent of introducing brokers-commodities
dealers have less than $35.5 million in Adjusted Net Capital and are
considered to be small entities.
---------------------------------------------------------------------------
\15\ SBA Size Standards at 28.
---------------------------------------------------------------------------
Mutual funds are defined in 31 CFR 1010.100(gg) as those investment
companies that are open-end investment companies that are registered or
are required to register with the SEC. Because FinCEN and the SEC
regulate substantially the same population, for the purposes of the
RFA, FinCEN relies on the SEC's definition of small business as
previously submitted to the SBA. The SEC has defined the term ``small
entity'' under the Investment Company Act to mean an investment company
that, together with other investment companies in the same group of
related investment companies, has net assets of $50 million or less as
of the end of its most recent fiscal year.\16\ Based on SEC estimates,
7 percent of mutual funds are classified as ``small entities'' for
purposes of the RFA under this definition.\17\
---------------------------------------------------------------------------
\16\ 17 CFR 270.0-10.
\17\ 78 FR 23637, 23658 (April 19, 2013).
---------------------------------------------------------------------------
B. Special Measures One Through Five
As noted above, 80 percent of banks, 94 percent of credit unions,
17 percent of broker-dealers, 95 percent of introducing brokers-
commodities, zero FCMs, and 7 percent of mutual funds are small
entities. The limited number of foreign banking institutions with which
FBME maintains or will maintain accounts will likely limit the number
of affected covered financial institutions to the largest U.S. banks,
which actively engage in international transactions. Thus, the
imposition of the recordkeeping, information collection, or reporting
provisions in any of special measures one through four would not impact
a substantial number of small entities. Similarly, the imposition of
the prohibition on maintaining correspondent accounts for foreign
banking institutions that engage in transactions involving FBME under
the fifth special measure, together with related notice and special due
diligence, would not impact a substantial number of small entities.
Finally, imposing conditions on the opening or maintenance of such a
correspondent account under special measure five would not impact a
substantial number of small entities.
C. Certification
For these reasons, FinCEN certifies that the proposals contained in
this rulemaking would not have a significant impact on a substantial
number of small businesses.
FinCEN invites comments from members of the public who believe
there would be a significant economic impact on small entities from the
imposition of any of special measures one through five.
Jamal El-Hindi,
Deputy Director, Financial Crimes Enforcement Network.
[FR Doc. 2015-30119 Filed 11-25-15; 8:45 am]
BILLING CODE 4810-02-P