Financial Crimes Enforcement Network; Withdrawal of the Finding of Primary Money Laundering Concern and the Notice of Proposed Rulemaking Against Multibanka, 39606-39609 [E6-10941]
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Federal Register / Vol. 71, No. 134 / Thursday, July 13, 2006 / Proposed Rules
(3) Positive adjustments—(i) In
general. The items described in this
paragraph (d)(3) are dividend
distributions for the taxable year and
any items that decrease net worth for
the taxable year but that generally do
not affect income or loss or earnings and
profits (or a deficit in earnings and
profits). Such items include a transfer to
the home office of a QBU branch and a
return of capital.
(ii) Translation. Except as provided by
ruling or administrative
pronouncement, items described in
paragraph (d)(3)(i) of this section shall
be translated into dollars as follows:
(A) If the item giving rise to the
adjustment would be translated under
paragraph (d)(5) of this section at the
exchange rate for the last translation
period of the taxable year if it were
shown on the QBU’s year-end balance
sheet, such item shall be translated at
the exchange rate on the date the item
is transferred.
(B) If the item giving rise to the
adjustment would be translated under
paragraph (d)(5) of this section at the
exchange rate for the translation period
in which the cost of the item was
incurred if it were shown on the QBU’s
year-end balance sheet, such item shall
be translated at the same historical rate.
(iii) Effective date. Paragraph (d)(3)(ii)
of this section is applicable for any
transfer, dividend, or distribution that is
a return of capital that is made after
March 8, 2005, and that gives rise to an
adjustment under this paragraph (d)(3).
*
*
*
*
*
Mark E. Matthews,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. E6–10998 Filed 7–12–06; 8:45 am]
BILLING CODE 4830–01–P
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
Financial Crimes Enforcement
Network, Department of the Treasury.
ACTION: Withdrawal of the notice of
proposed rulemaking.
rwilkins on PROD1PC63 with PROPOSAL
AGENCY:
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
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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 counterintelligence activities, including
analysis, to protect against international
terrorism, and to implement anti-money
laundering programs and compliance
procedures.2
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
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.
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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
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Federal Register / Vol. 71, No. 134 / Thursday, July 13, 2006 / Proposed Rules
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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:
• 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
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.
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• The effect of the action on U.S.
national security and foreign policy.5
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
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.
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)).
6 See 70 FR 21362 (April 26, 2005).
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• 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
7 The law requires that individuals crossing the
Latvian border with the equivalent of 10,000 Euros
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Federal Register / Vol. 71, No. 134 / Thursday, July 13, 2006 / Proposed Rules
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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.
In terms of implementation, the
Latvian authorities have made strides in
strengthening their anti-money
laundering regulation and supervision
and in developing more robust antimoney 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
(◊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.
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18:46 Jul 12, 2006
Jkt 208001
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 antimoney 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
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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.
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Federal Register / Vol. 71, No. 134 / Thursday, July 13, 2006 / Proposed Rules
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
DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 100
[CGD05–06–066]
RIN 1625–AA08
Special Local Regulations for Marine
Events; Sunset Lake, Wildwood Crest,
NJ
Coast Guard, DHS.
Notice of proposed rulemaking.
AGENCY:
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ACTION:
SUMMARY: The Coast Guard proposes to
establish permanent special local
regulations during the ‘‘Sunset Lake
Hydrofest’’, a marine event to be held
annually on the last weekend in
September or the first weekend in
October on the waters of Sunset Lake,
Wildwood Crest, New Jersey. For 2006
this marine event will be held on
September 30 and October 1, 2006.
These special local regulations are
necessary to provide for the safety of life
on navigable waters during the event.
This action is intended to restrict vessel
traffic in portions of Sunset Lake during
the event.
DATES: Comments and related material
must reach the Coast Guard on or before
August 14, 2006.
ADDRESSES: You may mail comments
and related material to Commander
(dpi), Fifth Coast Guard District, 431
Crawford Street, Portsmouth, Virginia
23704–5004, hand-deliver them to
Room 415 at the same address between
9 a.m. and 2 p.m., Monday through
Friday, except Federal holidays, or fax
them to (757) 398–6203. The
Inspections and Investigations Branch,
Fifth Coast Guard District, maintains the
public docket for this rulemaking.
Comments and material received from
the public, as well as documents
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18:46 Jul 12, 2006
Jkt 208001
indicated in this preamble as being
available in the docket, will become part
of this docket and will be available for
inspection or copying at the above
address between 9 a.m. and 2 p.m.,
Monday through Friday, except Federal
holidays.
FOR FURTHER INFORMATION CONTACT:
Dennis Sens, Project Manager,
Inspections and Investigations Branch,
at (757) 398–6204.
SUPPLEMENTARY INFORMATION:
Request for Comments
We encourage you to participate in
this rulemaking by submitting
comments and related material. If you
do so, please include your name and
address, identify the docket number for
this rulemaking (CGD05–06–066),
indicate the specific section of this
document to which each comment
applies, and give the reason for each
comment. Please submit all comments
and related material in an unbound
format, no larger than 81⁄2 by 11 inches,
suitable for copying. If you would like
to know they reached us, please enclose
a stamped, self-addressed postcard or
envelope. We will consider all
comments and material received during
the comment period. We may change
this proposed rule in view of them.
39609
weekend in September or the first
weekend in October, and will restrict
general navigation in the regulated area
during the event. Determination of the
weekend schedule for this event is
dependent on tide cycles that will
provide safe race conditions. The Coast
Guard will publish a Notice of
Enforcement in the Federal Register and
in the Fifth Coast Guard District Local
Notice to Mariners that announces the
dates and times this rule is in effect. For
2006, the enforcement period of the
regulation would be on September 30
and October 1, 2006. Except for
participants and vessels authorized by
the Coast Guard Patrol Commander, no
person or vessel will be allowed to enter
or remain in the regulated area. These
regulations are needed to control vessel
traffic during the event to enhance the
safety of participants, spectators and
transiting vessels.
Background and Purpose
Annually, the Sunset Lake Hydrofest
Association sponsors the ‘‘Sunset Lake
Hydrofest’’, on the waters of Sunset
Lake near Wildwood Crest, New Jersey.
The event consists of approximately 100
inboard hydroplanes, Jersey speed skiffs
and flat-bottom ski boats racing in heats
counter-clockwise around an oval
racecourse. A fleet of approximately 100
spectator vessels is anticipated to gather
nearby to view the competition. Due to
the need for vessel control during the
event, vessel traffic will be temporarily
restricted to provide for the safety of
participants, spectators and transiting
vessels.
Regulatory Evaluation
This proposed rule is not a
‘‘significant regulatory action’’ under
section 3(f) of Executive Order 12866,
Regulatory Planning and Review, and
does not require an assessment of
potential costs and benefits under
section 6(a)(3) of that Order. The Office
of Management and Budget has not
reviewed it under that Order. It is not
‘‘significant’’ under the regulatory
policies and procedures of the
Department of Homeland Security
(DHS).
We expect the economic impact of
this proposed rule to be so minimal that
a full Regulatory Evaluation under the
regulatory policies and procedures of
DHS is unnecessary.
Although this proposed permanent
rule will prevent traffic from transiting
a portion of Sunset Lake during the
event, the effect of this regulation would
not be significant due to the limited
duration that the regulated area will be
in effect. Extensive advance
notifications will be made to the
maritime community via Local Notice to
Mariners, marine information
broadcasts, and area newspapers, so
mariners can adjust their plans
accordingly. Additionally, the proposed
regulated area has been narrowly
tailored to impose the least impact on
general navigation yet provide the level
of safety deemed necessary. Vessel
traffic will be able to transit Sunset Lake
by navigating around the regulated area.
Discussion of Proposed Rule
The Coast Guard proposes to establish
this permanent special local regulation
on specified waters of Sunset Lake. This
rule would be enforced annually from
8:30 a.m. to 5:30 p.m. on the last
Small Entities
Under the Regulatory Flexibility Act
(5 U.S.C. 601–612), we have considered
whether this proposed rule would have
a significant economic impact on a
substantial number of small entities.
Public Meeting
We do not now plan to hold a public
meeting. But you may submit a request
for a meeting by writing to the address
listed under ADDRESSES explaining why
one would be beneficial. If we
determine that one would aid this
rulemaking, we will hold one at a time
and place announced by a later notice
in the Federal Register.
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]]>Agencies
[Federal Register Volume 71, Number 134 (Thursday, July 13, 2006)]
[Proposed Rules]
[Pages 39606-39609]
From the Federal Register Online via the Government Printing 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\
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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 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.
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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:
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\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.
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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 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\
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\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)).
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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\
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\6\ See 70 FR 21362 (April 26, 2005).
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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.
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\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.
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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.
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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
