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, 45057-45065 [2015-18552]
Download as PDF
<![CDATA[
mstockstill on DSK4VPTVN1PROD with RULES
Federal Register / Vol. 80, No. 145 / Wednesday, July 29, 2015 / Rules and Regulations
(2) Indirect costs are a proportionate
share of the following A&CC costs:
(i) Compensation and benefit hours
worked in support of all A&CC
activities;
(ii) A&CC building and equipment
depreciation costs;
(iii) A&CC utilities, facility and
equipment maintenance, and supplies
and materials; and
(iv) Information Technology and other
services the Department of Labor
provides to the A&CC.
(c) Fees are charged for—
(1) Application processing (e.g.,
administrative and technical review of
applications, computer tracking, and
status reporting);
(2) Testing and evaluation (e.g.,
analysis of drawings, technical
evaluation, testing, test set up and test
tear down, and internal quality control
activities);
(3) Approval decisions (e.g.,
consultation on applications, records
control and security, document
preparation); and
(4) Two post-approval activities:
changes to approvals and post-approval
product audits.
(d) Fees are not charged for—
(1) Technical assistance not related to
processing an approval application;
(2) Technical programs, including
development of new technology
programs;
(3) Participation in research
conducted by other government
agencies or private organizations; and
(4) Regulatory review activities,
including participation in the
development of health and safety
standards, regulations, and legislation.
(e) Fee estimate. Except as provided
in paragraphs (e)(1) and (2) of this
section, on completion of an initial
administrative review of the
application, the A&CC will prepare a
maximum fee estimate for each
application. A&CC will begin the
technical evaluation after the applicant
authorizes the fee estimate.
(1) The applicant may pre-authorize
an expenditure for services, and may
further choose to pre-authorize either a
maximum dollar amount or an
expenditure without a specified
maximum amount.
(i) All applications containing a preauthorization statement will be put in
the queue for the technical evaluation
on completion of an initial
administrative review.
(ii) MSHA will concurrently prepare a
maximum fee estimate for applications
containing a statement pre-authorizing a
maximum dollar amount, and will
provide the applicant with this estimate.
(2) Where MSHA’s estimated
maximum fee exceeds the pre-
VerDate Sep<11>2014
16:16 Jul 28, 2015
Jkt 235001
authorized maximum dollar amount, the
applicant has the choice of cancelling
the action and paying for all work done
up to the time of the cancellation, or
authorizing MSHA’s estimate.
(3) Under the Revised Acceptance
Modification Program (RAMP), MSHA
expedites applications for acceptance of
minor changes to previously approved,
certified, accepted, or evaluated
products. The applicant must preauthorize a fixed dollar amount, set by
MSHA, for processing the application.
(f) If unforeseen circumstances are
discovered during the evaluation, and
MSHA determines that these
circumstances would result in the actual
costs exceeding either the preauthorized expenditure or the
authorized maximum fee estimate, as
appropriate, MSHA will prepare a
revised maximum fee estimate for
completing the evaluation. The
applicant will have the option of either
cancelling the action and paying for
services rendered or authorizing
MSHA’s revised estimate, in which case
MSHA will continue to test and
evaluate the product.
(g) If the actual cost of processing the
application is less than MSHA’s
maximum fee estimate, MSHA will
charge the actual cost.
§ 5.40
Fee administration.
Applicants and approval holders will
be billed for all fees, including actual
travel expenses, if any, when approval
program activities are completed.
Invoices will contain specific payment
instruction, including the address to
mail payments and authorized methods
of payment.
§ 5.50
Fee revisions.
The hourly rate will remain in effect
for at least one year and be subject to
revision at least once every three years.
[FR Doc. 2015–18617 Filed 7–28–15; 8:45 am]
BILLING CODE 4510–43–P
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
Financial Crimes Enforcement
Network (FinCEN), Treasury.
ACTION: Final rule.
AGENCY:
PO 00000
Frm 00007
Fmt 4700
Sfmt 4700
45057
In a Notice of Finding (NOF)
published in the Federal Register on
July 22, 2014, the Director of FinCEN
found that reasonable grounds exist for
concluding that FBME Bank Ltd.
(FBME), formerly known as the Federal
Bank of the Middle East, Ltd., is a
financial institution of primary money
laundering concern pursuant to the
United States Code (U.S.C.). On the
same date, FinCEN also published in the
Federal Register a Notice of Proposed
Rulemaking (NPRM) to propose the
imposition of a special measure
authorized by the U.S.C. against FBME.
FinCEN is issuing this final rule
imposing the fifth special measure
against FBME.
DATES: This final rule is effective August
28, 2015.
FOR FURTHER INFORMATION CONTACT: The
FinCEN Resource Center at (800) 767–
2825.
SUMMARY:
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 (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 (the Secretary)
to administer the BSA and its
implementing regulations has been
delegated to the Director of FinCEN.
Section 311 of the USA PATRIOT Act
(Section 311), codified at 31 U.S.C.
5318A, grants the Director of FinCEN
the authority, upon finding that
reasonable grounds exist for concluding
that a foreign jurisdiction, financial
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’’ to address the
primary money laundering concern.
This rulemaking imposes the fifth
special measure, codified at 31 U.S.C.
5318A(b)(5), against FBME. The fifth
special measure allows the Director to
prohibit or impose conditions on the
opening or maintaining of
E:\FR\FM\29JYR1.SGM
29JYR1
45058
Federal Register / Vol. 80, No. 145 / Wednesday, July 29, 2015 / Rules and Regulations
correspondent or payable-through
accounts for the identified institution by
U.S. financial institutions.
B. FBME
FBME was established in 1982 in
Cyprus as the Federal Bank of the
Middle East, Ltd., a subsidiary of the
private Lebanese bank, the Federal Bank
of Lebanon. Both FBME and the Federal
Bank of Lebanon are owned by AyoubFarid M. Saab and Fadi M. Saab. In
1986, FBME changed its country of
incorporation to the Cayman Islands,
and its banking presence in Cyprus was
re-registered as a branch of the Cayman
Islands entity. In 2003, FBME left the
Cayman Islands and incorporated and
established its headquarters in
Tanzania. At the same time, FBME’s
Cypriot operations became a branch of
FBME Tanzania Ltd. In 2005, FBME
changed its name from the Federal Bank
of the Middle East, Ltd. to FBME Bank
Ltd.
FBME’s headquarters in Tanzania is
widely regarded as the largest bank in
Tanzania based on its $2 billion asset
size, but it has only four Tanzania-based
branches. While FBME is presently
headquartered in Tanzania, FBME
transacts over 90 percent of its global
banking business and holds over 90
percent of its assets in its Cyprus
branch. FBME has always maintained a
significant presence in Cyprus. FBME
has stated, however, that it is not in
direct competition with local retail
banks in Cyprus for several reasons,
including that it does not issue checks,
it has no retail counters there, and its
Cypriot customers are limited mainly to
staff, contractors, and professionals
providing services to FBME.
II. The 2014 Finding and Subsequent
Developments
mstockstill on DSK4VPTVN1PROD with RULES
A. The 2014 Finding
In a NOF published in the Federal
Register on July 22, 2014, the Director
of FinCEN explained her finding that
reasonable grounds exist for concluding
that FBME is a financial institution of
primary money laundering concern
pursuant to 31 U.S.C. 5318A.1 FinCEN’s
NOF identified two main areas of
concern: (1) FBME’s facilitation of
money laundering, terrorist financing,
transnational organized crime, fraud
schemes, sanctions evasion, weapons
proliferation, corruption by politicallyexposed persons, and other financial
crime, and (2) FBME’s weak anti-money
laundering (AML) controls, which allow
its customers to perform a significant
volume of obscured transactions and
1 See
16:16 Jul 28, 2015
B. FBME Subsequent Developments
On July 21, 2014, the Central Bank of
Cyprus (CBC) issued a decree
announcing that it would formally place
FBME’s Cyprus branch ‘‘under
resolution,’’ allowing the CBC to take
numerous unilateral measures to protect
FBME’s depositors. On July 24, 2014,
the Bank of Tanzania took over
management of FBME’s headquarters in
Tanzania because of the potential effects
of the CBC’s actions on the Tanzanian
banking system.
After considering all relevant
comments and other information
available to the agency, including both
public and non-public reporting,
2 See 79 FR 42486 (July 22, 2014) (RIN 1506–
AB27).
79 FR 42639 (July 22, 2014).
VerDate Sep<11>2014
activities through the U.S. financial
system. In particular, the Director found
that FBME is used to facilitate money
laundering, terrorist financing,
transnational organized crime, fraud,
sanctions evasion, and other illicit
activity internationally and through the
U.S. financial system and has systemic
failures in its AML controls that attract
high-risk shell companies (i.e.,
companies formed for the sole purpose
of holding property or funds and that do
not engage in any legitimate business
activity). FBME performs a significant
volume of transactions and activities
that have little or no transparency and
often no apparent legitimate business
purpose.
As detailed in the NOF, these
activities have included (1) an FBME
customer receiving a deposit of
hundreds of thousands of dollars from
a financier for Lebanese Hezbollah; (2)
providing financial services to a
financial advisor for a major
transnational organized crime figure; (3)
FBME’s facilitation of the transfers to an
FBME account involved in fraud against
a U.S. person, with the FBME customer
operating the alleged fraud scheme later
being indicted in the United States
District Court for the Northern District
of Ohio; and (4) FBME’s facilitation of
U.S. sanctions evasion through its
extensive customer base of shell
companies, including at least one FBME
customer that was a front company for
a U.S.-sanctioned Syrian entity, the
Scientific Studies and Research Center
(SSRC) and which used its FBME
account to process transactions through
the U.S. financial system.
On the same date it published the
NOF, FinCEN also published in the
Federal Register a related NPRM to
propose the imposition of the fifth
special measure against FBME and to
seek comment.2
Jkt 235001
PO 00000
Frm 00008
Fmt 4700
Sfmt 4700
FinCEN is issuing this final rule
imposing the fifth special measure
against FBME, which prohibits the
opening or maintaining of
correspondent or payable-through
accounts for FBME by U.S. financial
institutions. This information continues
to provide reason to believe that FBME’s
AML compliance efforts are not
adequate to address the risks faced by
FBME, and that FBME facilitates illicit
financial activity. As described below,
audits performed by third parties in
2013 and 2014 that were provided to
FinCEN by FBME to demonstrate the
effectiveness of its AML compliance
program instead identified significant,
recurring weaknesses in FBME’s
compliance program. Several
deficiencies were identified by one of
the third party auditors as being of
‘‘high or medium significance.’’ These
deficiencies, which FinCEN has reason
to believe continue to exist following
the issuance of the NOF, facilitate the
illicit financial activities of FBME’s
customers.
III. FBME’s September 22, 2014
Comment and Other Comments
FBME, through outside counsel,
submitted comments, dated September
22, 2014, during the comment period.
FBME made six additional submissions
of information related to comments
made during the comment period after
the close of the comment period.
FBME’s September 22, 2014, comments
were received during the comment
period and accordingly made a part of
the public record. The six additional
submissions were not made a part of the
public record, based in part on FBME’s
claim that these additional submissions
contained sensitive commercial and
business information and FBME’s
corresponding request that the
additional submissions be afforded
confidential treatment. However,
FinCEN reviewed and considered each
of these submissions in drafting this
final rule.
FBME’s September 22, 2014 comment
consists of an introduction followed by
two major sections. In its introduction,
FBME makes six key points. First,
FBME states that its AML compliance
program policies are in line with
applicable requirements, including the
requirements of the European Union’s
Third Money Laundering Directive and
the CBC’s Fourth Directive. FBME
contends that this alignment has been
the case since at least 2013, according
to third party audits. Second, FBME
states that, in response to
recommendations made as a result of
audits conducted by Ernst & Young (EY)
in 2011 and KPMG in 2013, FBME has
E:\FR\FM\29JYR1.SGM
29JYR1
mstockstill on DSK4VPTVN1PROD with RULES
Federal Register / Vol. 80, No. 145 / Wednesday, July 29, 2015 / Rules and Regulations
substantially strengthened its
compliance program over the last two
years. Third, FBME states that FBME
and its officers and directors do not
condone the use of FBME for illicit
purposes and strive to prevent such
misuse. Fourth, FBME contends that
some of the statements made in the NOF
are incorrect or are based on incomplete
information, which FBME also describes
in the second section of its comment.
Fifth, FBME states that, in some cases,
FBME filed Suspicious Transaction
Reports (STRs) with the Cypriot
Financial Intelligence Unit (MOKAS) on
activity described in the NOF and
NPRM. Sixth, FBME claims that the
NOF and NPRM have had a significant
adverse impact on FBME and its
customers.
The first section of FBME’s September
22, 2014 comment then describes
aspects of its AML compliance program,
and the second section responds to
statements made in the NOF that FBME
asserts are inaccurate or based on
incomplete information.
In this final rule, FinCEN is focusing
its response on the six points in the
introduction, which summarize FBME’s
concerns with the NOF and the NPRM.
In responding to the first three points of
FBME’s introduction, FinCEN also
refutes the first section of FBME’s
comment because the first three points
of FBME’s introduction and the first
section of FBME’s comment all refer to
FBME’s AML compliance program, its
policies, audits conducted by third
parties, and FBME’s management. In
responding to the fourth point of
FBME’s introduction, FinCEN is also
addressing the second section of
FBME’s comment because both the
fourth point of the introduction and the
second section of the comment refer to
the same statements in the NOF that
FBME asserts are inaccurate or based on
incomplete information.
With regard to FBME’s first and
second points, the information provided
by FBME on the audits conducted by
KPMG and EY in 2013 and 2014,
respectively, show a pattern of recurring
AML deficiencies at the bank. These
included failures to maintain adequate
customer identification files, along with
other customer due diligence
weaknesses, failure to ensure that third
parties the bank relied on to establish
new customer relationships employed
appropriate AML controls with regard to
such persons, and issues with sanctionsrelated screening.
According to FBME’s comment, EY
conducted an audit in 2011 (the 2011
EY Audit). During that audit, according
to FBME, EY found that FBME’s due
diligence procedures with respect to
VerDate Sep<11>2014
16:16 Jul 28, 2015
Jkt 235001
obtaining information from new clients
met the requirements of the CBC
Directive at the time, but also noted that
some customer information
requirements of the Directive had not
been fully met by FBME in previous
iterations of its AML procedures and
policies. According to FBME’s
comment, EY subsequently conducted
another audit in 2014 (the 2014 EY
Audit), which found that, although
FBME had an AML compliance program
in place that incorporated the
requirements of both the CBC Fourth
Directive and the European Union Third
Directive, FBME nevertheless had
deficiencies in its customer due
diligence, automated alerts system, and
AML training areas.
According to FBME’s September 22,
2014 comment, KPMG also conducted
an audit in 2013 (the 2013 KPMG Audit)
which found that FBME ‘‘basically
fulfills’’ its AML regulatory
requirements set forth by the CBC and
the European Union, but also identified
issues of ‘‘high or medium’’ significance
with FBME’s use of Approved Third
Parties and FBME’s sanction screening
procedures. As FBME stated in its
September 22, 2014 comment, FBME
uses its relationships with Approved
Third Parties, some of which are in
foreign jurisdictions, to develop
potential new customer relationships.
According to the KPMG 2013 Audit,
FBME had never attempted to ensure
the adequacy of its Approved Third
Parties’ AML measures. In addition, the
2013 KPMG Audit found that FBME
only screened the related parties of its
Approved Third Parties when the
customers were initially onboarded.
The 2013 KPMG Audit also found
FBME’s customer due diligence
deficient. As FBME disclosed in its
September 22, 2014 comment, in its
2013 audit, KPMG ‘‘recommended
better presentation of ownership
information to demonstrate links
between group entities for older
customers, in line with a new structure
that had been introduced for new
customers. KPMG also found that
certain customer files reviewed did not
have sufficient information to gain a
complete understanding of the
customers’ activities or business
rationale.’’ In its 2013 audit, KPMG
further found that FBME’s use of holdmail accounts and post office boxes
managed by Approved Third Parties
should be reconsidered by FBME in
order to ‘‘avoid potential
anonymisation.’’
The 2014 EY Audit identified
numerous deficiencies in FBME’s
compliance program. Specifically, the
2014 EY Audit found that the following
PO 00000
Frm 00009
Fmt 4700
Sfmt 4700
45059
recommendations were necessary for
FBME’s compliance program:
Consistently documenting the efforts
taken to verify the sources of funds and
business purpose of accounts from
prospective customers; more thoroughly
investigating relationships among FBME
customers, especially when inordinate
volumes of internal transfers are
identified; modifying FBME’s periodic
customer due diligence process to align
with industry practices (e.g., moving to
a rolling 12 or 36-month review cycle,
depending on the customer’s risk);
implementing an automated case
management system to record the alerts
generated, stage of investigation, and
ultimate disposition of the alerts
generated by FBME’s screening
software, as opposed to the current
process of manually entering the alerts/
outcome on several different
spreadsheets; and more thoroughly
documenting the AML/sanctions
training given for new hires and
providing general awareness training to
all employees on an annual basis.
The numerous AML compliance
program deficiencies described in the
2013 KPMG Audit and the 2014 EY
Audit in particular are similar to AML
deficiencies FinCEN identified in the
NOF. All of these findings follow action
against FBME by the CBC for similar
issues. As FBME acknowledged in its
September 22, 2014 comment, in 2010,
the CBC fined FBME 80,000 euros for
customer identification, due diligence,
and automated monitoring deficiencies.
According to the 2013 KPMG Audit,
FBME also undertook an extensive
Know Your Customer (KYC)
remediation project from 2009 through
2011 that was ordered by the CBC and
resulted in the closure of thousands of
FBME accounts.
Finally, FBME’s argument that its
AML compliance program is now
adequate is weakened by the list of
illicit actors identified in the NOF that
have continued to make use of FBME as
recently as 2014, including narcotics
traffickers, terrorist financiers, and
organized crime figures.
With regard to FBME’s third point,
information available to FinCEN makes
it reasonable to conclude that FBME’s
management facilitated, either actively
or passively, the illicit activities of its
customers, as FinCEN set forth in the
NOF.
With regard to FBME’s fourth point,
in which FBME has argued that portions
of the eight statements in the NOF were
incorrect or based on incomplete
information, FinCEN believes that it is
appropriate in two cases to amend the
NOF based on these comments. In the
first case, FBME stated that it was not
E:\FR\FM\29JYR1.SGM
29JYR1
mstockstill on DSK4VPTVN1PROD with RULES
45060
Federal Register / Vol. 80, No. 145 / Wednesday, July 29, 2015 / Rules and Regulations
fined by the CBC in 2008, but that the
CBC imposed an administrative fine on
FBME in 2010. FinCEN agrees that the
fine in question was imposed in 2010,
not in 2008.
In the second case, FBME argued that
the report that FBME may be subject to
a fine of up to 240 million euros is from
a November 2013 article in the Cypriot
press that relied on anonymous sources
at the CBC. FinCEN agrees that the
source of this statement was an article
that appeared in the Cypriot press that
referenced statements by a CBC official
speaking anonymously. Neither these
two cases nor any of FBME’s remaining
claims of incompleteness and factual
inaccuracy presents any new
information or in any way cause
FinCEN to doubt the accuracy of the
information presented in the NOF.
With regard to FBME’s fifth point,
FinCEN notes that the filing of STRs on
suspicious activities or transactions by a
financial institution is not, taken in
isolation, an adequate indicator of the
robustness and comprehensiveness of a
compliance program. Although the
filing of STRs is a critical component of
any financial institution’s AML
compliance program, if STRs are filed in
an incomplete, inaccurate, or untimely
manner, their usefulness to authorities
responsible for investigating money
laundering and other illicit activities is
greatly diminished. Moreover, filing
STRs does not excuse a financial
institution’s failure to adequately
implement other areas of its AML
program, such as, for example, customer
due diligence procedures.
With regard to FBME’s sixth point, as
part of FinCEN’s consideration of the
statutory factors supporting its selection
of the fifth special measure, FinCEN has
considered ‘‘the extent to which the
action or the timing of the action would
have a significant adverse systemic
impact on . . . legitimate business
activities involving’’ FBME. This is
discussed in Part IV, section A below.3
In addition to its public comment,
FBME has submitted a substantial
volume of supplemental information
regarding FBME’s policies and
procedures, and reports of the audits
conducted by KPMG in 2013 and EY in
2014. FinCEN has carefully considered
these materials, which outline some of
the steps that FBME has taken to
strengthen its compliance program.
However, after a thorough review of
these materials, FinCEN believes that,
except as acknowledged above, the
statements made in the NOF remain true
and accurate, and that FBME is of
‘‘primary money laundering concern.’’
3 31
U.S.C. 5318A(a)(4)(B)(iii).
VerDate Sep<11>2014
16:16 Jul 28, 2015
Jkt 235001
FinCEN continues to have serious
concerns regarding FBME’s potential to
be used wittingly or unwittingly for
illicit purposes. As FinCEN explained in
its NOF, FBME customers continue to
exhibit shell company attributes and
many are located in high-risk
jurisdictions. FinCEN continues to have
concerns with FBME’s AML compliance
program, in particular with the
aforementioned customer due diligence
deficiencies, which were identified over
a number of years and which enable
FBME customers to conduct financial
activity in relative obscurity.
FinCEN also considered a comment
received from the American Bankers’
Association (ABA), dated September 22,
2014; a joint comment received from the
Securities Industry and Financial
Markets Association (SIFMA) and The
Clearing House (TCH), dated September
22, 2014; and a separate comment
received from SIFMA, dated September
22, 2014. FinCEN notes that these
comments were procedural in nature
and did not address the underlying
conclusion surrounding the risk of
money laundering through FBME.
FinCEN appreciates the thoughtful
comments that were submitted and has
addressed these comments, as
appropriate, in the section-by-section
analysis below.
IV. Imposition of Special Measure
Against FBME as a Financial Institution
of Primary Money Laundering Concern
As described in the NOF and this
final rule, the Director of FinCEN found
that reasonable grounds exist for
concluding that FBME is a financial
institution of primary money laundering
concern. Based upon that finding, the
Director of FinCEN is authorized to
impose one or more special measures.
Following the required consultations
and the consideration of all relevant
factors discussed in the NOF, the
Secretary, through the Director of
FinCEN, proposed the imposition of the
fifth special measure in an NPRM
published on July 22, 2014. The fifth
special measure authorizes a prohibition
against the opening or maintaining of
correspondent accounts by any
domestic financial institution or agency
for, or on behalf of, a financial
institution found to be a primary money
laundering concern.
Consistent with the finding that
FBME is a financial institution of
primary money laundering concern and
in consideration of additional relevant
factors, this final rule imposes the fifth
special measure with regard to FBME.
The prohibition on the maintenance of
correspondent accounts imposed by the
fifth special measure will help to guard
PO 00000
Frm 00010
Fmt 4700
Sfmt 4700
against the money laundering risks that
FBME presents to the U.S. financial
system as identified in the NOF, NPRM,
and this final rule.
A. Discussion of Section 311 Factors
In determining which special measure
to implement to address the primary
money laundering concern posed by
FBME, FinCEN has considered the
following factors.
1. Whether Similar Actions Have Been
or Will Be Taken by Other Nations or
Multilateral Groups Against FBME
Other countries or multilateral groups
have not yet taken action similar to
those proposed in this rulemaking that
would prohibit domestic financial
institutions and agencies from opening
or maintaining a correspondent account
for, or on behalf of, FBME and that
would require those domestic financial
institutions and agencies to screen their
correspondents in a manner that is
reasonably designed to guard against
indirect use by FBME, including access
through the use of nested correspondent
accounts held by FBME.
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 imposed by
this rulemaking prohibits covered
financial institutions from opening and
maintaining correspondent accounts for,
or on behalf of, FBME. As a corollary to
this measure, covered financial
institutions also are 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
FBME. FinCEN does not expect the
burden associated with these
requirements to be significant.
Additionally, there is only a minimal
burden involved in transmitting a onetime notice to correspondent account
holders concerning the prohibition on
indirectly providing services to FBME.
U.S. financial institutions generally
apply some level of transaction and
account screening, often through the use
of commercially available software. As
explained in more detail in the sectionby-section analysis below, financial
institutions should, if necessary, be able
to easily adapt their current screening
procedures to support compliance with
this final rule. Thus, the prohibition on
the maintenance of correspondent
accounts that would be required by this
E:\FR\FM\29JYR1.SGM
29JYR1
Federal Register / Vol. 80, No. 145 / Wednesday, July 29, 2015 / Rules and Regulations
rulemaking is not expected to impose a
significant additional burden upon U.S.
financial institutions.
3. The Extent to Which the 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 Involving FBME
FBME 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 FBME will
not have a significant adverse systemic
impact on the international payment,
clearance, and settlement system. In
light of the underlying money
laundering risks posed by FBME,
FinCEN does not believe that the rule
will impose an undue burden on
legitimate business activities involving
FBME. There are other banks in both
Cyprus and Tanzania that could
alleviate potential impact on legitimate
business activities within those
jurisdictions.4 On July 21, 2014, the
CBC, under the authority of the Cyprus
Resolution Act, issued a decree
announcing that it would formally place
FBME’s Cyprus branch ‘‘under
resolution,’’ allowing the CBC to take
numerous unilateral measures regarding
FBME, including selling off Cyprusbased FBME branch locations, to protect
FBME’s depositors. On July 24, 2014,
the Bank of Tanzania took over
management of FBME’s headquarters in
Tanzania because of the potential effects
of the CBC’s actions on the Tanzanian
banking system. The control of FBME
branches by state authorities in both
jurisdictions also offers a means to
support legitimate business activity
involving FBME. Finally, FinCEN
anticipates that its identification of the
money laundering risks associated with
FBME will assist banks in appropriately
policing legitimate business involving
FBME to guard against the use of their
institutions for financial crime.
mstockstill on DSK4VPTVN1PROD with RULES
4. The Effect of the Action on United
States National Security and Foreign
Policy
The exclusion from the U.S. financial
system of banks that, like FBME, serve
as conduits for money laundering
activity and other financial crimes will
enhance U.S. national security by
making it more difficult for terrorists,
sanctions evaders, and money
4 See Central Bank of Cyprus (Web site: https://
www.centralbank.gov.cy/) and Bank of Tanzania
(Web site: https://www.bot-tz.org/) for lists of banks
in Cyprus and Tanzania, respectively.
VerDate Sep<11>2014
16:16 Jul 28, 2015
Jkt 235001
launderers to access the substantial
resources of the U.S. financial system.
More generally, the imposition of the
fifth special measure will complement
the U.S. Government’s worldwide
foreign policy efforts to expose and
disrupt international money laundering,
and to encourage other nations to do the
same. The United States has played a
leadership role in combating money
laundering and terrorist financing not
only through action with regard to
specific institutions but also through
participation in international
operational and standard-setting bodies
such as the Egmont Group and the
Financial Action Task Force.
V. Section-by-Section Analysis for
Imposition of the Fifth Special Measure
A. 1010.658(a)—Definitions
1. FBME
Section 1010.658(a)(1) of the rule
defines FBME to include all branches,
offices, and subsidiaries of FBME
operating in any jurisdiction, including
Tanzania and Cyprus. Financial
institutions should take commercially
reasonable measures to determine
whether a customer is a branch, office,
or subsidiary of FBME. Currently,
FBME’s bank branches are located in
Tanzania and Cyprus, with a
representative office in Moscow,
Russian Federation.
SIFMA, TCH, and the ABA noted that
it would be useful for FinCEN to
provide a list of FBME’s subsidiaries;
however, because subsidiary
relationships can change frequently,
covered financial institutions should
use commercially-reasonable tools to
determine the current subsidiaries of
FBME.
2. Correspondent Account
Section 1010.658(a)(2) of the rule
defines the term ‘‘correspondent
account’’ by reference to the definition
contained in 31 CFR 1010.605(c)(1)(ii).
Section 1010.605(c)(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 to handle other financial
transactions related to the foreign bank.
Under this definition, ‘‘payable through
accounts’’ are a type of correspondent
account.
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
PO 00000
Frm 00011
Fmt 4700
Sfmt 4700
45061
deposit, savings deposit, or other
transaction or asset account, and a
credit account or other extension of
credit. FinCEN is using the same
definition of ‘‘account’’ for purposes of
this rule as was established for
depository institutions in the final rule
implementing the provisions of section
312 of the USA PATRIOT Act requiring
enhanced due diligence for
correspondent accounts maintained for
certain foreign banks.5
In the case of securities brokerdealers, futures commission merchants,
introducing brokers-commodities, and
investment companies that are open-end
companies (mutual funds), FinCEN is
also using the same definition of
‘‘account’’ for purposes of this rule as
was established for these entities in the
final rule implementing the provisions
of section 312 of the USA PATRIOT Act
requiring enhanced due diligence for
correspondent accounts maintained for
certain foreign banks.6
3. Covered Financial Institution
Section 1010.658(a)(3) of the rule
defines ‘‘covered financial institution’’
with the same definition used in the
final rule implementing section 312 of
the USA PATRIOT Act,7 which, in
general, includes the following:
• 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-commodities; and
• A mutual fund.
4. Subsidiary
Section 1010.658(a)(4) of the rule
defines ‘‘subsidiary’’ as a company of
which more than 50 percent of the
voting stock or analogous equity interest
is owned by another company.
B. 1010.658(b)—Requirements for
Covered Financial Institutions With
Regard to the Fifth Special Measure
For purposes of complying with the
final rule’s prohibition on the opening
or maintaining in the United States of
correspondent accounts for, or on behalf
of, FBME, covered financial institutions
5 See
31 CFR 1010.605(c)(2)(i).
31 CFR 1010.605(c)(2)(ii)–(iv).
7 See 31 CFR 1010.605(e)(1).
6 See
E:\FR\FM\29JYR1.SGM
29JYR1
45062
Federal Register / Vol. 80, No. 145 / Wednesday, July 29, 2015 / Rules and Regulations
should take such steps as a reasonable
and prudent financial institution would
take to protect itself from loan or other
fraud or loss based on misidentification
of a person’s status.
1. Prohibition on Opening or
Maintaining Correspondent Accounts
Section 1010.658(b)(1) of the rule
imposing the fifth special measure
prohibits all covered financial
institutions from establishing,
maintaining, administering, or
managing a correspondent account in
the United States for, or on behalf of,
FBME. The prohibition requires all
covered financial institutions to review
their account records to ensure that they
maintain no accounts directly for, or on
behalf of, FBME.
2. Special Due Diligence of
Correspondent Accounts To Prohibit
Indirect Use
mstockstill on DSK4VPTVN1PROD with RULES
As a corollary to the prohibition on
maintaining correspondent accounts
directly for FBME, § 1010.658(b)(2) of
the rule imposing the fifth special
measure requires a covered financial
institution to apply special due
diligence to its correspondent accounts
that is reasonably designed to guard
against processing transactions
involving FBME. As part of that special
due diligence, covered financial
institutions must notify those foreign
correspondent account holders that
covered financial institutions know or
have reason to know provide services to
FBME that such correspondents may not
provide FBME with access to the
correspondent account maintained at
the covered financial institution.
Covered financial institutions should
implement appropriate risk-based
procedures to identify transactions
involving FBME.
A covered financial institution may
satisfy the notification requirement by
transmitting the following notice to its
foreign correspondent account holders
that it knows or has reason to know
provide services to FBME:
Notice: Pursuant to U.S. regulations issued
under Section 311 of the USA PATRIOT Act,
see 31 CFR 1010.658, we are prohibited from
establishing, maintaining, administering, or
managing a correspondent account for, or on
behalf of, FBME Bank, Ltd., or any of its
branches, offices or subsidiaries. The
regulations also require us to notify you that
you may not provide FBME Bank, Ltd., or
any of its branches, offices or subsidiaries
with access to the correspondent account you
hold at our financial institution. If we
become aware that the correspondent
account you hold at our financial institution
has processed any transactions involving
FBME Bank, Ltd., or any of its branches,
offices or subsidiaries, we will be required to
VerDate Sep<11>2014
16:16 Jul 28, 2015
Jkt 235001
take appropriate steps to prevent such access,
including terminating your account.
A covered financial institution may,
for example, have knowledge through
transaction screening software that a
correspondent account processes
transactions for FBME. The purpose of
the notice requirement is to aid
cooperation with correspondent account
holders in preventing transactions
involving FBME from accessing the U.S.
financial system. However, FinCEN
would not require or expect a covered
financial institution to obtain a
certification from any of its
correspondent account holders that
access will not be provided 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 email to appropriate
correspondent account holders of the
covered financial institution, informing
them that they may not provide FBME
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.
In its comment to the NPRM, SIFMA
requested reconsideration of the notice
provision, specifically regarding the
meaning of ‘‘one-time notice,’’ and
further objected to the requirement to
send such a notice as overly
burdensome and possibly duplicative.
SIFMA also requested further
clarification with regard to the timing of
the required notice. FinCEN emphasizes
that the scope of notice requirement is
targeted toward those correspondent
account holders that the covered
financial institution knows or has
reason to know provide services to
FBME, not to all correspondent account
holders. The term ‘‘one-time notice’’
means that a financial institution should
provide notice to all existing
correspondent account holders who the
covered financial institution knows or
has reason to know provide services to
FBME, within a reasonably short time
after this final rule is published, and to
new correspondent account holders
during the account opening process who
the covered financial institution knows
or has reason to know provide services
to FBME. It is not necessary for the
notice to be provided in any particular
form. It may be provided electronically,
orally (with documentation), or as part
of the standard paperwork involved in
opening or maintaining a correspondent
account. Given the limited nature of
FBME’s correspondent relationships,
PO 00000
Frm 00012
Fmt 4700
Sfmt 4700
FinCEN does not expect this
requirement to be burdensome.
A covered financial institution is also
required to take reasonable steps to
identify any indirect use of its
correspondent accounts by FBME, 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. Covered financial institutions
are expected to apply an appropriate
screening mechanism to be able to
identify a funds transfer order that on its
face lists FBME as the financial
institution of the originator or
beneficiary, or otherwise references
FBME. 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 the Office of
Foreign Assets Control (OFAC).
Notifying certain correspondent
account holders and taking reasonable
steps to identify any indirect use of its
correspondent accounts by FBME in the
manner discussed above are the
minimum due diligence requirements
under the rule imposing the fifth special
measure. Beyond these minimum steps,
a covered financial institution must
adopt a risk-based approach for
determining what, if any, additional due
diligence measures are appropriate to
guard against the risk of indirect use of
its correspondent accounts by FBME,
based on risk factors such as the type of
services it offers and the geographic
locations of its correspondent account
holders.
Under this rule imposing the fifth
special measure, a covered financial
institution that obtains knowledge that
a correspondent account is being used
by a foreign bank to provide indirect
access to FBME must take all
appropriate steps to prevent such
indirect access, including the
notification of its correspondent account
holder per § 1010.658(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 FBME, the
covered financial institution must
terminate the account within a
commercially reasonable time. This
means that the covered financial
E:\FR\FM\29JYR1.SGM
29JYR1
Federal Register / Vol. 80, No. 145 / Wednesday, July 29, 2015 / Rules and Regulations
institution may 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 rule if it determines
that the account will not be used to
provide banking services indirectly to
FBME.
3. Reporting Not Required
Section 1010.658(b)(3) of the rule
imposing the fifth special measure
clarifies that the rule does not 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 FBME, that such
correspondents may not process any
transaction involving FBME through the
correspondent account maintained at
the covered financial institution.
VI. Regulatory Flexibility Act
When an agency issues a final rule,
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
Final 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 final rule is
not expected to have a significant
economic impact on a substantial
number of small entities.
A. Proposal To Prohibit Covered
Financial Institutions From Opening or
Maintaining Correspondent Accounts
With Certain Foreign Banks Under the
Fifth Special Measure
mstockstill on DSK4VPTVN1PROD with RULES
1. Estimate of the Number of Small
Entities to Whom the Proposed Fifth
Special Measure Will 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.8 Of the
estimated 7,000 banks, 80 percent have
less than $500,000,000 in assets and are
considered small entities.9 Of the
8 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’’].
9 Federal Deposit Insurance Corporation, Find an
Institution, https://www2.fdic.gov/idasp/main.asp;
select Size or Performance: Total Assets, type Equal
or less than $: ‘‘500000’’ and select Find.
VerDate Sep<11>2014
16:16 Jul 28, 2015
Jkt 235001
estimated 7,000 credit unions, 94
percent have less than $500,000,000 in
assets.10
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:
(1) 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 (2) 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.11 Based on SEC
estimates, 17 percent of broker-dealers
are classified as small entities for
purposes of the RFA.12
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.13 The CFTC’s
determination in this regard was based,
in part, upon the obligation of registered
10 National Credit Union Administration, Credit
Union Data, https://webapps.ncua.gov/
customquery/; select Search Fields: Total Assets,
select Operator: Less than or equal to, type Field
Values: ‘‘500000000’’ and select Go.
11 17 CFR 240.0–10(c).
12 76 FR 37572, 37602 (June 27, 2011) (the SEC
estimates 871 small broker-dealers of the 5,063 total
registered broker-dealers).
13 47 FR 18618, 18619 (Apr. 30, 1982).
PO 00000
Frm 00013
Fmt 4700
Sfmt 4700
45063
FCMs to meet the capital requirements
established by the CFTC.
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.14 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.
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.’’ 15 Based on SEC estimates, seven
percent of mutual funds are classified as
‘‘small entities’’ for purposes of the RFA
under this definition.16
As noted above, 80 percent of banks,
94 percent of credit unions, 17 percent
of broker-dealers, 95 percent of
introducing brokers-commodities, no
FCMs, and seven 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 prohibition on
maintaining correspondent accounts for
foreign banking institutions that engage
in transactions involving FBME under
the fifth special measure would not
impact a substantial number of small
entities.
2. Description of the Projected Reporting
and Recordkeeping Requirements of the
Fifth Special Measure
The fifth special measure would
require covered financial institutions to
provide a notification intended to aid
cooperation from foreign correspondent
account holders in preventing
transactions involving FBME from
accessing the U.S. financial system.
14 SBA
Size Standards at 28.
CFR 270.0–10.
16 78 FR 23637, 23658 (April 19, 2013).
15 17
E:\FR\FM\29JYR1.SGM
29JYR1
45064
Federal Register / Vol. 80, No. 145 / Wednesday, July 29, 2015 / Rules and Regulations
FinCEN estimates that the time it takes
institutions to provide this notice is one
hour. Covered financial institutions
would also be required to take
reasonable measures to detect use of
their correspondent accounts to process
transactions involving FBME. All U.S.
persons, including U.S. financial
institutions, currently must exercise
some degree of due diligence to comply
with OFAC sanctions and suspicious
activity reporting 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 identify
correspondent accounts with foreign
banks that involve FBME. Thus, the
special due diligence that would be
required by the imposition of the fifth
special measure—i.e., the one-time
transmittal of notice to certain
correspondent account holders, the
screening of transactions to identify any
use of correspondent accounts, and the
implementation of risk-based measures
to detect use of correspondent
accounts—would not impose a
significant additional economic burden
upon small U.S. financial institutions.
B. Certification
For these reasons, FinCEN certifies
that this final rulemaking would not
have a significant impact on a
substantial number of small businesses.
mstockstill on DSK4VPTVN1PROD with RULES
VII. Paperwork Reduction Act
The collection of information
contained in the final rule has been
approved by the Office of Management
and Budget (OMB) in accordance with
the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)), and has been
assigned OMB Control Number 1506–
AB19. An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control
number assigned by OMB.
Description of Affected Financial
Institutions: Banks, broker-dealers in
securities, futures commission
merchants and introducing brokerscommodities, and mutual funds.
Estimated Number of Affected
Financial Institutions: 5,000.
Estimated Average Annual Burden in
Hours per Affected Financial
Institution: The estimated average
burden associated with the collection of
information in this rule is one hour per
affected financial institution.
Estimated Total Annual Burden:
5,000 hours.
VerDate Sep<11>2014
16:16 Jul 28, 2015
Jkt 235001
VIII. Executive Order 12866
Executive Orders 12866 and 13563
direct agencies to assess costs and
benefits of available regulatory
alternatives and, if regulation is
necessary, to select regulatory
approaches that maximize net benefits
(including potential economic,
environmental, public health and safety
effects, distributive impacts, and
equity). Executive Order 13563
emphasizes the importance of
quantifying both costs and benefits, of
reducing costs, of harmonizing rules,
and of promoting flexibility. It has been
determined that the Final Rule is not a
‘‘significant regulatory action’’ for
purposes of Executive Order 12866.
List of Subjects in 31 CFR Part 1010
Administrative practice and
procedure, Banks and banking, Brokers,
Counter-money laundering, Counterterrorism, Foreign banking.
Authority and Issuance
For the reasons set forth in the
preamble, chapter X of title 31 of the
Code of Federal Regulations is amended
as follows:
PART 1010—GENERAL PROVISIONS
1. The authority citation for part 1010
is revised 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 F of chapter X is amended
by adding § 1010.658 to read as follows:
■
§ 1010.658 Special measures against
FBME Bank, Ltd.
(a) Definitions. For purposes of this
section:
(1) FBME Bank, Ltd. means all
branches, offices, and subsidiaries of
FBME Bank, Ltd. operating in any
jurisdiction.
(2) Correspondent account has the
same meaning as provided in
§ 1010.605(c)(1)(ii).
(3) Covered financial institution has
the same meaning as provided in
§ 1010.605(e)(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) Prohibition on accounts and due
diligence requirements for covered
financial institutions—(1) Prohibition
on use of correspondent accounts. A
covered financial institution shall
terminate any correspondent account
that is established, maintained,
administered, or managed in the United
PO 00000
Frm 00014
Fmt 4700
Sfmt 4700
States for, or on behalf of, FBME Bank,
Ltd.
(2) Special due diligence of
correspondent accounts to prohibit
use—(i) A covered financial institution
shall apply special due diligence to its
foreign correspondent accounts that is
reasonably designed to guard against
their use to process transactions
involving FBME Bank, Ltd. 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
FBME Bank, Ltd., that such
correspondents may not provide FBME
Bank, Ltd. with access to the
correspondent account maintained at
the covered financial institution; and
(B) Taking reasonable steps to identify
any use of its foreign correspondent
accounts by FBME Bank, Ltd., to the
extent that such 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 reasonably must
adopt to guard against the use of its
foreign correspondent accounts to
process transactions involving FBME
Bank, Ltd.
(iii) A covered financial institution
that obtains knowledge that a foreign
correspondent account may be being
used to process transactions involving
FBME Bank, Ltd. shall take all
appropriate steps to further investigate
and prevent such access, including the
notification of its correspondent account
holder under paragraph (b)(2)(i)(A) of
this section and, where necessary,
termination of the correspondent
account.
(iv) A covered financial institution
required to terminate a correspondent
account pursuant to paragraph (b)(2)(iii)
of this section:
(A) Should do so within a
commercially reasonable time, and
should not permit the foreign bank to
establish any new positions or execute
any transaction through such
correspondent account, other than those
necessary to close the correspondent
account; and
(B) May reestablish a correspondent
account closed pursuant to this
paragraph if it determines that the
correspondent account will not be used
to provide banking services indirectly to
FBME Bank Ltd.
(3) Recordkeeping and reporting. (i) A
covered financial institution is required
to document its compliance with the
E:\FR\FM\29JYR1.SGM
29JYR1
Federal Register / Vol. 80, No. 145 / Wednesday, July 29, 2015 / Rules and Regulations
notice requirement set forth in
paragraph (b)(2)(i)(A) of this section.
(ii) Nothing in this paragraph (b) shall
require a covered financial institution to
report any information not otherwise
required to be reported by law or
regulation.
Dated: July 23, 2015.
Jennifer Shasky Calvery,
Director, Financial Crimes Enforcement
Network.
[FR Doc. 2015–18552 Filed 7–28–15; 8:45 am]
BILLING CODE 4810–2P–P
POSTAL SERVICE
39 CFR Parts 261, 262, and 265
Records and Information
Postal ServiceTM.
Final rule.
AGENCY:
ACTION:
The Postal Service is
amending its regulations concerning
records and information management
for administrative purposes, to clarify
existing text, and to update and add
definitions.
SUMMARY:
These regulations will be
effective July 29, 2015.
DATES:
FOR FURTHER INFORMATION CONTACT:
Matthew J. Connolly, Chief Privacy
Officer, 202–268–2608.
SUPPLEMENTARY INFORMATION:
Overview
The Postal Service is amending 39
CFR parts 261, 262, and 265 to delineate
more clearly the responsibility for
managing postal records and ensuring
compliance with the Freedom of
Information Act (FOIA). See 5 U.S.C.
552; 39 U.S.C. 410(c). In general, these
modifications should promote the
coordination of activities among the
Officers, Public Liaisons, Coordinators,
and Records Custodians tasked with
FOIA compliance, and facilitate the
response to information requests by
FOIA Requester Service Centers (RSCs).
mstockstill on DSK4VPTVN1PROD with RULES
Records and Information Management
(Part 261)
As required by 5 U.S.C. 552(a)(1), the
amendments to part 261 provide
descriptions of the Postal Service’s
central and field organization for FOIA
processing. Specifically, the
amendments clarify the position of the
Postal Service’s Privacy and Records
Office within the General Counsel’s
Office. As further required by 5 U.S.C.
552(a)(6)(B)(ii), the amendments also
describe the Postal Service’s FOIA
Public Liaisons and their
responsibilities to requesters through
VerDate Sep<11>2014
16:16 Jul 28, 2015
Jkt 235001
the Postal Service’s FOIA Requester
Service Centers.
Records and Information Management
Definitions (Part 262)
As required by 5 U.S.C. 552(a)(6)(B),
the amendments to part 262 provide
further descriptions of the Postal
Service’s central and field organization
for FOIA processing. Specifically, the
amendments describe various officials
involved in FOIA processing and their
responsibilities.
Release of Information (Part 265)
As required by 5 U.S.C. 552(a)(1), the
amendments to part 265 provide
descriptions of the established places at
which, the employees from whom, and
the methods whereby the public may
obtain information, make submittals or
requests, and obtain decisions regarding
FOIA requests. Specifically, the
amendments describe how and to whom
a FOIA request must be submitted, and
clarify that the regulations must be read
in conjunction with the text of the
FOIA, the Fee Schedule and Guidelines
published by the Office of Management
and Budget, and Postal Service
Handbook AS–353, Guide to Privacy,
the Freedom of Information Act, and
Records Management. FOIA requests
must now be sent to the appropriate
FOIA Requester Service Center (RSC), as
detailed in the regulations. A request
that is not initially submitted to the
appropriate FOIA RSC will be deemed
to have been received by the Postal
Service for purposes of computing the
time for response at the time that it is
actually received by the appropriate
FOIA RSC or at the time the request is
referred to the appropriate records
custodians by a FOIA RSC, but in any
case a request will be deemed to have
been received no later than 10 days after
the request is first received by a FOIA
RSC.
List of Subjects
39 CFR Part 261
Archives and records.
39 CFR Part 262
Archives and records.
39 CFR Part 265
Administrative practice and
procedure, Courts, Freedom of
information, Government employees.
For the reasons stated in the
preamble, the Postal Service amends 39
CFR chapter I, subchapter D as follows:
PART 261—[AMENDED]
1. The authority citation for 39 CFR
part 261 continues to read as follows:
■
PO 00000
Frm 00015
Fmt 4700
Sfmt 4700
45065
Authority: 39 U.S.C. 401.
■
2. Revise § 261.1 to read as follows:
§ 261.1
Purpose and scope.
Under 39 U.S.C. 410, as enacted by
the Postal Reorganization Act, the U.S.
Postal Service is not subject to the
provisions of the Federal Records Act of
1950, or any of its supporting
regulations which provide for the
conduct of records management in
Federal agencies. The objective of parts
261 through 268 of this chapter are to
provide the basis for an organizationwide records and information
management program affecting all Postal
Service organizational components
having the custody of any form of
information and records.
■ 3. Revise § 261.2 to read as follows:
§ 261.2
Authority.
(a) As provided in 39 U.S.C. 401(5),
the Postal Service has the power to
acquire property it deems necessary or
convenient in the transaction of its
business and to hold, maintain, sell,
lease or otherwise dispose of such
property.
(b) Under § 262.2 of this chapter, the
Postal Service Privacy and Records
Office, located under the Associate
General Counsel and Chief Ethics and
Compliance Officer, is responsible for
the retention, security, and privacy of
Postal Service records and is
empowered to authorize the disclosure
of such records and to order their
disposal by destruction or transfer.
Included is the authority to issue
records management policy and to
delegate or take appropriate action if
that policy is not adhered to or if
questions of interpretation of procedure
arise.
■ 4. Revise § 261.4 to read as follows:
§ 261.4
Responsibility.
(a) The Chief Freedom of Information
Act (FOIA) Officer, whose duties are
performed by the Associate General
Counsel and Chief Ethics and
Compliance Officer, is responsible for:
(1) Overseeing Postal Service
compliance with the FOIA.
(2) Making recommendations to the
Postmaster General regarding the Postal
Service’s FOIA program.
(3) Monitoring and reporting on FOIA
implementation and performance for the
Postal Service.
(b) The Chief Privacy Officer, under
the Associate General Counsel and Chief
Ethics and Compliance Officer, is
responsible for administering records
and information management policies,
and the privacy of information
programs, and for the compliance of all
E:\FR\FM\29JYR1.SGM
29JYR1
]]>Agencies
[Federal Register Volume 80, Number 145 (Wednesday, July 29, 2015)]
[Rules and Regulations]
[Pages 45057-45065]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-18552]
=======================================================================
-----------------------------------------------------------------------
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: Final rule.
-----------------------------------------------------------------------
SUMMARY: In a Notice of Finding (NOF) published in the Federal Register
on July 22, 2014, the Director of FinCEN found that reasonable grounds
exist for concluding that FBME Bank Ltd. (FBME), formerly known as the
Federal Bank of the Middle East, Ltd., is a financial institution of
primary money laundering concern pursuant to the United States Code
(U.S.C.). On the same date, FinCEN also published in the Federal
Register a Notice of Proposed Rulemaking (NPRM) to propose the
imposition of a special measure authorized by the U.S.C. against FBME.
FinCEN is issuing this final rule imposing the fifth special measure
against FBME.
DATES: This final rule is effective August 28, 2015.
FOR FURTHER INFORMATION CONTACT: The FinCEN Resource Center at (800)
767-2825.
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 (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 (the Secretary) to
administer the BSA and its implementing regulations has been delegated
to the Director of FinCEN.
Section 311 of the USA PATRIOT Act (Section 311), codified at 31
U.S.C. 5318A, grants the Director of FinCEN the authority, upon finding
that reasonable grounds exist for concluding that a foreign
jurisdiction, financial 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'' to address the primary money laundering concern. This
rulemaking imposes the fifth special measure, codified at 31 U.S.C.
5318A(b)(5), against FBME. The fifth special measure allows the
Director to prohibit or impose conditions on the opening or maintaining
of
[[Page 45058]]
correspondent or payable-through accounts for the identified
institution by U.S. financial institutions.
B. FBME
FBME was established in 1982 in Cyprus as the Federal Bank of the
Middle East, Ltd., a subsidiary of the private Lebanese bank, the
Federal Bank of Lebanon. Both FBME and the Federal Bank of Lebanon are
owned by Ayoub-Farid M. Saab and Fadi M. Saab. In 1986, FBME changed
its country of incorporation to the Cayman Islands, and its banking
presence in Cyprus was re-registered as a branch of the Cayman Islands
entity. In 2003, FBME left the Cayman Islands and incorporated and
established its headquarters in Tanzania. At the same time, FBME's
Cypriot operations became a branch of FBME Tanzania Ltd. In 2005, FBME
changed its name from the Federal Bank of the Middle East, Ltd. to FBME
Bank Ltd.
FBME's headquarters in Tanzania is widely regarded as the largest
bank in Tanzania based on its $2 billion asset size, but it has only
four Tanzania-based branches. While FBME is presently headquartered in
Tanzania, FBME transacts over 90 percent of its global banking business
and holds over 90 percent of its assets in its Cyprus branch. FBME has
always maintained a significant presence in Cyprus. FBME has stated,
however, that it is not in direct competition with local retail banks
in Cyprus for several reasons, including that it does not issue checks,
it has no retail counters there, and its Cypriot customers are limited
mainly to staff, contractors, and professionals providing services to
FBME.
II. The 2014 Finding and Subsequent Developments
A. The 2014 Finding
In a NOF published in the Federal Register on July 22, 2014, the
Director of FinCEN explained her finding that reasonable grounds exist
for concluding that FBME is a financial institution of primary money
laundering concern pursuant to 31 U.S.C. 5318A.\1\ FinCEN's NOF
identified two main areas of concern: (1) 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 (2) FBME's
weak anti-money laundering (AML) controls, which allow its customers to
perform a significant volume of obscured transactions and activities
through the U.S. financial system. In particular, the Director found
that FBME is used to facilitate money laundering, terrorist financing,
transnational organized crime, fraud, sanctions evasion, and other
illicit activity internationally and through the U.S. financial system
and has systemic failures in its AML controls that attract high-risk
shell companies (i.e., companies formed for the sole purpose of holding
property or funds and that do not engage in any legitimate business
activity). FBME performs a significant volume of transactions and
activities that have little or no transparency and often no apparent
legitimate business purpose.
---------------------------------------------------------------------------
\1\ See 79 FR 42639 (July 22, 2014).
---------------------------------------------------------------------------
As detailed in the NOF, these activities have included (1) an FBME
customer receiving a deposit of hundreds of thousands of dollars from a
financier for Lebanese Hezbollah; (2) providing financial services to a
financial advisor for a major transnational organized crime figure; (3)
FBME's facilitation of the transfers to an FBME account involved in
fraud against a U.S. person, with the FBME customer operating the
alleged fraud scheme later being indicted in the United States District
Court for the Northern District of Ohio; and (4) FBME's facilitation of
U.S. sanctions evasion through its extensive customer base of shell
companies, including at least one FBME customer that was a front
company for a U.S.-sanctioned Syrian entity, the Scientific Studies and
Research Center (SSRC) and which used its FBME account to process
transactions through the U.S. financial system.
On the same date it published the NOF, FinCEN also published in the
Federal Register a related NPRM to propose the imposition of the fifth
special measure against FBME and to seek comment.\2\
---------------------------------------------------------------------------
\2\ See 79 FR 42486 (July 22, 2014) (RIN 1506-AB27).
---------------------------------------------------------------------------
B. FBME Subsequent Developments
On July 21, 2014, the Central Bank of Cyprus (CBC) issued a decree
announcing that it would formally place FBME's Cyprus branch ``under
resolution,'' allowing the CBC to take numerous unilateral measures to
protect FBME's depositors. On July 24, 2014, the Bank of Tanzania took
over management of FBME's headquarters in Tanzania because of the
potential effects of the CBC's actions on the Tanzanian banking system.
After considering all relevant comments and other information
available to the agency, including both public and non-public
reporting, FinCEN is issuing this final rule imposing the fifth special
measure against FBME, which prohibits the opening or maintaining of
correspondent or payable-through accounts for FBME by U.S. financial
institutions. This information continues to provide reason to believe
that FBME's AML compliance efforts are not adequate to address the
risks faced by FBME, and that FBME facilitates illicit financial
activity. As described below, audits performed by third parties in 2013
and 2014 that were provided to FinCEN by FBME to demonstrate the
effectiveness of its AML compliance program instead identified
significant, recurring weaknesses in FBME's compliance program. Several
deficiencies were identified by one of the third party auditors as
being of ``high or medium significance.'' These deficiencies, which
FinCEN has reason to believe continue to exist following the issuance
of the NOF, facilitate the illicit financial activities of FBME's
customers.
III. FBME's September 22, 2014 Comment and Other Comments
FBME, through outside counsel, submitted comments, dated September
22, 2014, during the comment period. FBME made six additional
submissions of information related to comments made during the comment
period after the close of the comment period. FBME's September 22,
2014, comments were received during the comment period and accordingly
made a part of the public record. The six additional submissions were
not made a part of the public record, based in part on FBME's claim
that these additional submissions contained sensitive commercial and
business information and FBME's corresponding request that the
additional submissions be afforded confidential treatment. However,
FinCEN reviewed and considered each of these submissions in drafting
this final rule.
FBME's September 22, 2014 comment consists of an introduction
followed by two major sections. In its introduction, FBME makes six key
points. First, FBME states that its AML compliance program policies are
in line with applicable requirements, including the requirements of the
European Union's Third Money Laundering Directive and the CBC's Fourth
Directive. FBME contends that this alignment has been the case since at
least 2013, according to third party audits. Second, FBME states that,
in response to recommendations made as a result of audits conducted by
Ernst & Young (EY) in 2011 and KPMG in 2013, FBME has
[[Page 45059]]
substantially strengthened its compliance program over the last two
years. Third, FBME states that FBME and its officers and directors do
not condone the use of FBME for illicit purposes and strive to prevent
such misuse. Fourth, FBME contends that some of the statements made in
the NOF are incorrect or are based on incomplete information, which
FBME also describes in the second section of its comment. Fifth, FBME
states that, in some cases, FBME filed Suspicious Transaction Reports
(STRs) with the Cypriot Financial Intelligence Unit (MOKAS) on activity
described in the NOF and NPRM. Sixth, FBME claims that the NOF and NPRM
have had a significant adverse impact on FBME and its customers.
The first section of FBME's September 22, 2014 comment then
describes aspects of its AML compliance program, and the second section
responds to statements made in the NOF that FBME asserts are inaccurate
or based on incomplete information.
In this final rule, FinCEN is focusing its response on the six
points in the introduction, which summarize FBME's concerns with the
NOF and the NPRM. In responding to the first three points of FBME's
introduction, FinCEN also refutes the first section of FBME's comment
because the first three points of FBME's introduction and the first
section of FBME's comment all refer to FBME's AML compliance program,
its policies, audits conducted by third parties, and FBME's management.
In responding to the fourth point of FBME's introduction, FinCEN is
also addressing the second section of FBME's comment because both the
fourth point of the introduction and the second section of the comment
refer to the same statements in the NOF that FBME asserts are
inaccurate or based on incomplete information.
With regard to FBME's first and second points, the information
provided by FBME on the audits conducted by KPMG and EY in 2013 and
2014, respectively, show a pattern of recurring AML deficiencies at the
bank. These included failures to maintain adequate customer
identification files, along with other customer due diligence
weaknesses, failure to ensure that third parties the bank relied on to
establish new customer relationships employed appropriate AML controls
with regard to such persons, and issues with sanctions-related
screening.
According to FBME's comment, EY conducted an audit in 2011 (the
2011 EY Audit). During that audit, according to FBME, EY found that
FBME's due diligence procedures with respect to obtaining information
from new clients met the requirements of the CBC Directive at the time,
but also noted that some customer information requirements of the
Directive had not been fully met by FBME in previous iterations of its
AML procedures and policies. According to FBME's comment, EY
subsequently conducted another audit in 2014 (the 2014 EY Audit), which
found that, although FBME had an AML compliance program in place that
incorporated the requirements of both the CBC Fourth Directive and the
European Union Third Directive, FBME nevertheless had deficiencies in
its customer due diligence, automated alerts system, and AML training
areas.
According to FBME's September 22, 2014 comment, KPMG also conducted
an audit in 2013 (the 2013 KPMG Audit) which found that FBME
``basically fulfills'' its AML regulatory requirements set forth by the
CBC and the European Union, but also identified issues of ``high or
medium'' significance with FBME's use of Approved Third Parties and
FBME's sanction screening procedures. As FBME stated in its September
22, 2014 comment, FBME uses its relationships with Approved Third
Parties, some of which are in foreign jurisdictions, to develop
potential new customer relationships. According to the KPMG 2013 Audit,
FBME had never attempted to ensure the adequacy of its Approved Third
Parties' AML measures. In addition, the 2013 KPMG Audit found that FBME
only screened the related parties of its Approved Third Parties when
the customers were initially onboarded.
The 2013 KPMG Audit also found FBME's customer due diligence
deficient. As FBME disclosed in its September 22, 2014 comment, in its
2013 audit, KPMG ``recommended better presentation of ownership
information to demonstrate links between group entities for older
customers, in line with a new structure that had been introduced for
new customers. KPMG also found that certain customer files reviewed did
not have sufficient information to gain a complete understanding of the
customers' activities or business rationale.'' In its 2013 audit, KPMG
further found that FBME's use of hold-mail accounts and post office
boxes managed by Approved Third Parties should be reconsidered by FBME
in order to ``avoid potential anonymisation.''
The 2014 EY Audit identified numerous deficiencies in FBME's
compliance program. Specifically, the 2014 EY Audit found that the
following recommendations were necessary for FBME's compliance program:
Consistently documenting the efforts taken to verify the sources of
funds and business purpose of accounts from prospective customers; more
thoroughly investigating relationships among FBME customers, especially
when inordinate volumes of internal transfers are identified; modifying
FBME's periodic customer due diligence process to align with industry
practices (e.g., moving to a rolling 12 or 36-month review cycle,
depending on the customer's risk); implementing an automated case
management system to record the alerts generated, stage of
investigation, and ultimate disposition of the alerts generated by
FBME's screening software, as opposed to the current process of
manually entering the alerts/outcome on several different spreadsheets;
and more thoroughly documenting the AML/sanctions training given for
new hires and providing general awareness training to all employees on
an annual basis.
The numerous AML compliance program deficiencies described in the
2013 KPMG Audit and the 2014 EY Audit in particular are similar to AML
deficiencies FinCEN identified in the NOF. All of these findings follow
action against FBME by the CBC for similar issues. As FBME acknowledged
in its September 22, 2014 comment, in 2010, the CBC fined FBME 80,000
euros for customer identification, due diligence, and automated
monitoring deficiencies. According to the 2013 KPMG Audit, FBME also
undertook an extensive Know Your Customer (KYC) remediation project
from 2009 through 2011 that was ordered by the CBC and resulted in the
closure of thousands of FBME accounts.
Finally, FBME's argument that its AML compliance program is now
adequate is weakened by the list of illicit actors identified in the
NOF that have continued to make use of FBME as recently as 2014,
including narcotics traffickers, terrorist financiers, and organized
crime figures.
With regard to FBME's third point, information available to FinCEN
makes it reasonable to conclude that FBME's management facilitated,
either actively or passively, the illicit activities of its customers,
as FinCEN set forth in the NOF.
With regard to FBME's fourth point, in which FBME has argued that
portions of the eight statements in the NOF were incorrect or based on
incomplete information, FinCEN believes that it is appropriate in two
cases to amend the NOF based on these comments. In the first case, FBME
stated that it was not
[[Page 45060]]
fined by the CBC in 2008, but that the CBC imposed an administrative
fine on FBME in 2010. FinCEN agrees that the fine in question was
imposed in 2010, not in 2008.
In the second case, FBME argued that the report that FBME may be
subject to a fine of up to 240 million euros is from a November 2013
article in the Cypriot press that relied on anonymous sources at the
CBC. FinCEN agrees that the source of this statement was an article
that appeared in the Cypriot press that referenced statements by a CBC
official speaking anonymously. Neither these two cases nor any of
FBME's remaining claims of incompleteness and factual inaccuracy
presents any new information or in any way cause FinCEN to doubt the
accuracy of the information presented in the NOF.
With regard to FBME's fifth point, FinCEN notes that the filing of
STRs on suspicious activities or transactions by a financial
institution is not, taken in isolation, an adequate indicator of the
robustness and comprehensiveness of a compliance program. Although the
filing of STRs is a critical component of any financial institution's
AML compliance program, if STRs are filed in an incomplete, inaccurate,
or untimely manner, their usefulness to authorities responsible for
investigating money laundering and other illicit activities is greatly
diminished. Moreover, filing STRs does not excuse a financial
institution's failure to adequately implement other areas of its AML
program, such as, for example, customer due diligence procedures.
With regard to FBME's sixth point, as part of FinCEN's
consideration of the statutory factors supporting its selection of the
fifth special measure, FinCEN has considered ``the extent to which the
action or the timing of the action would have a significant adverse
systemic impact on . . . legitimate business activities involving''
FBME. This is discussed in Part IV, section A below.\3\
---------------------------------------------------------------------------
\3\ 31 U.S.C. 5318A(a)(4)(B)(iii).
---------------------------------------------------------------------------
In addition to its public comment, FBME has submitted a substantial
volume of supplemental information regarding FBME's policies and
procedures, and reports of the audits conducted by KPMG in 2013 and EY
in 2014. FinCEN has carefully considered these materials, which outline
some of the steps that FBME has taken to strengthen its compliance
program. However, after a thorough review of these materials, FinCEN
believes that, except as acknowledged above, the statements made in the
NOF remain true and accurate, and that FBME is of ``primary money
laundering concern.''
FinCEN continues to have serious concerns regarding FBME's
potential to be used wittingly or unwittingly for illicit purposes. As
FinCEN explained in its NOF, FBME customers continue to exhibit shell
company attributes and many are located in high-risk jurisdictions.
FinCEN continues to have concerns with FBME's AML compliance program,
in particular with the aforementioned customer due diligence
deficiencies, which were identified over a number of years and which
enable FBME customers to conduct financial activity in relative
obscurity.
FinCEN also considered a comment received from the American
Bankers' Association (ABA), dated September 22, 2014; a joint comment
received from the Securities Industry and Financial Markets Association
(SIFMA) and The Clearing House (TCH), dated September 22, 2014; and a
separate comment received from SIFMA, dated September 22, 2014. FinCEN
notes that these comments were procedural in nature and did not address
the underlying conclusion surrounding the risk of money laundering
through FBME.
FinCEN appreciates the thoughtful comments that were submitted and
has addressed these comments, as appropriate, in the section-by-section
analysis below.
IV. Imposition of Special Measure Against FBME as a Financial
Institution of Primary Money Laundering Concern
As described in the NOF and this final rule, the Director of FinCEN
found that reasonable grounds exist for concluding that FBME is a
financial institution of primary money laundering concern. Based upon
that finding, the Director of FinCEN is authorized to impose one or
more special measures. Following the required consultations and the
consideration of all relevant factors discussed in the NOF, the
Secretary, through the Director of FinCEN, proposed the imposition of
the fifth special measure in an NPRM published on July 22, 2014. The
fifth special measure authorizes a prohibition against the opening or
maintaining of correspondent accounts by any domestic financial
institution or agency for, or on behalf of, a financial institution
found to be a primary money laundering concern.
Consistent with the finding that FBME is a financial institution of
primary money laundering concern and in consideration of additional
relevant factors, this final rule imposes the fifth special measure
with regard to FBME. The prohibition on the maintenance of
correspondent accounts imposed by the fifth special measure will help
to guard against the money laundering risks that FBME presents to the
U.S. financial system as identified in the NOF, NPRM, and this final
rule.
A. Discussion of Section 311 Factors
In determining which special measure to implement to address the
primary money laundering concern posed by FBME, FinCEN has considered
the following factors.
1. Whether Similar Actions Have Been or Will Be Taken by Other Nations
or Multilateral Groups Against FBME
Other countries or multilateral groups have not yet taken action
similar to those proposed in this rulemaking that would prohibit
domestic financial institutions and agencies from opening or
maintaining a correspondent account for, or on behalf of, FBME and that
would require those domestic financial institutions and agencies to
screen their correspondents in a manner that is reasonably designed to
guard against indirect use by FBME, including access through the use of
nested correspondent accounts held by FBME.
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 imposed by this rulemaking prohibits
covered financial institutions from opening and maintaining
correspondent accounts for, or on behalf of, FBME. As a corollary to
this measure, covered financial institutions also are 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 FBME. FinCEN does not
expect the burden associated with these requirements to be significant.
Additionally, there is only a minimal burden involved in transmitting a
one-time notice to correspondent account holders concerning the
prohibition on indirectly providing services to FBME. U.S. financial
institutions generally apply some level of transaction and account
screening, often through the use of commercially available software. 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 support compliance with this
final rule. Thus, the prohibition on the maintenance of correspondent
accounts that would be required by this
[[Page 45061]]
rulemaking is not expected to impose a significant additional burden
upon U.S. financial institutions.
3. The Extent to Which the 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
Involving FBME
FBME 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 FBME will not have a significant adverse
systemic impact on the international payment, clearance, and settlement
system. In light of the underlying money laundering risks posed by
FBME, FinCEN does not believe that the rule will impose an undue burden
on legitimate business activities involving FBME. There are other banks
in both Cyprus and Tanzania that could alleviate potential impact on
legitimate business activities within those jurisdictions.\4\ On July
21, 2014, the CBC, under the authority of the Cyprus Resolution Act,
issued a decree announcing that it would formally place FBME's Cyprus
branch ``under resolution,'' allowing the CBC to take numerous
unilateral measures regarding FBME, including selling off Cyprus-based
FBME branch locations, to protect FBME's depositors. On July 24, 2014,
the Bank of Tanzania took over management of FBME's headquarters in
Tanzania because of the potential effects of the CBC's actions on the
Tanzanian banking system. The control of FBME branches by state
authorities in both jurisdictions also offers a means to support
legitimate business activity involving FBME. Finally, FinCEN
anticipates that its identification of the money laundering risks
associated with FBME will assist banks in appropriately policing
legitimate business involving FBME to guard against the use of their
institutions for financial crime.
---------------------------------------------------------------------------
\4\ See Central Bank of Cyprus (Web site: https://www.centralbank.gov.cy/) and Bank of Tanzania (Web site: https://www.bot-tz.org/) for lists of banks in Cyprus and Tanzania,
respectively.
---------------------------------------------------------------------------
4. The Effect of the Action on United States National Security and
Foreign Policy
The exclusion from the U.S. financial system of banks that, like
FBME, serve as conduits for money laundering activity and other
financial crimes will enhance U.S. national security by making it more
difficult for terrorists, sanctions evaders, and money launderers to
access the substantial resources of the U.S. financial system. More
generally, the imposition of the fifth special measure will complement
the U.S. Government's worldwide foreign policy efforts to expose and
disrupt international money laundering, and to encourage other nations
to do the same. The United States has played a leadership role in
combating money laundering and terrorist financing not only through
action with regard to specific institutions but also through
participation in international operational and standard-setting bodies
such as the Egmont Group and the Financial Action Task Force.
V. Section-by-Section Analysis for Imposition of the Fifth Special
Measure
A. 1010.658(a)--Definitions
1. FBME
Section 1010.658(a)(1) of the rule defines FBME to include all
branches, offices, and subsidiaries of FBME operating in any
jurisdiction, including Tanzania and Cyprus. Financial institutions
should take commercially reasonable measures to determine whether a
customer is a branch, office, or subsidiary of FBME. Currently, FBME's
bank branches are located in Tanzania and Cyprus, with a representative
office in Moscow, Russian Federation.
SIFMA, TCH, and the ABA noted that it would be useful for FinCEN to
provide a list of FBME's subsidiaries; however, because subsidiary
relationships can change frequently, covered financial institutions
should use commercially-reasonable tools to determine the current
subsidiaries of FBME.
2. Correspondent Account
Section 1010.658(a)(2) of the rule defines the term ``correspondent
account'' by reference to the definition contained in 31 CFR
1010.605(c)(1)(ii). Section 1010.605(c)(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
to handle other financial transactions related to the foreign bank.
Under this definition, ``payable through accounts'' are a type of
correspondent account.
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. FinCEN is using the
same definition of ``account'' for purposes of this rule as was
established for depository institutions in the final rule implementing
the provisions of section 312 of the USA PATRIOT Act requiring enhanced
due diligence for correspondent accounts maintained for certain foreign
banks.\5\
---------------------------------------------------------------------------
\5\ See 31 CFR 1010.605(c)(2)(i).
---------------------------------------------------------------------------
In the case of securities broker-dealers, futures commission
merchants, introducing brokers-commodities, and investment companies
that are open-end companies (mutual funds), FinCEN is also using the
same definition of ``account'' for purposes of this rule as was
established for these entities in the final rule implementing the
provisions of section 312 of the USA PATRIOT Act requiring enhanced due
diligence for correspondent accounts maintained for certain foreign
banks.\6\
---------------------------------------------------------------------------
\6\ See 31 CFR 1010.605(c)(2)(ii)-(iv).
---------------------------------------------------------------------------
3. Covered Financial Institution
Section 1010.658(a)(3) of the rule defines ``covered financial
institution'' with the same definition used in the final rule
implementing section 312 of the USA PATRIOT Act,\7\ which, in general,
includes the following:
---------------------------------------------------------------------------
\7\ See 31 CFR 1010.605(e)(1).
---------------------------------------------------------------------------
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-
commodities; and
A mutual fund.
4. Subsidiary
Section 1010.658(a)(4) of the rule defines ``subsidiary'' as a
company of which more than 50 percent of the voting stock or analogous
equity interest is owned by another company.
B. 1010.658(b)--Requirements for Covered Financial Institutions With
Regard to the Fifth Special Measure
For purposes of complying with the final rule's prohibition on the
opening or maintaining in the United States of correspondent accounts
for, or on behalf of, FBME, covered financial institutions
[[Page 45062]]
should take such steps as a reasonable and prudent financial
institution would take to protect itself from loan or other fraud or
loss based on misidentification of a person's status.
1. Prohibition on Opening or Maintaining Correspondent Accounts
Section 1010.658(b)(1) of the rule imposing the fifth special
measure prohibits all covered financial institutions from establishing,
maintaining, administering, or managing a correspondent account in the
United States for, or on behalf of, FBME. The prohibition requires all
covered financial institutions to review their account records to
ensure that they maintain no accounts directly for, or on behalf of,
FBME.
2. Special Due Diligence of Correspondent Accounts To Prohibit Indirect
Use
As a corollary to the prohibition on maintaining correspondent
accounts directly for FBME, Sec. 1010.658(b)(2) of the rule imposing
the fifth special measure requires a covered financial institution to
apply special due diligence to its correspondent accounts that is
reasonably designed to guard against processing transactions involving
FBME. As part of that special due diligence, covered financial
institutions must notify those foreign correspondent account holders
that covered financial institutions know or have reason to know provide
services to FBME that such correspondents may not provide FBME with
access to the correspondent account maintained at the covered financial
institution. Covered financial institutions should implement
appropriate risk-based procedures to identify transactions involving
FBME.
A covered financial institution may satisfy the notification
requirement by transmitting the following notice to its foreign
correspondent account holders that it knows or has reason to know
provide services to FBME:
Notice: Pursuant to U.S. regulations issued under Section 311 of
the USA PATRIOT Act, see 31 CFR 1010.658, we are prohibited from
establishing, maintaining, administering, or managing a
correspondent account for, or on behalf of, FBME Bank, Ltd., or any
of its branches, offices or subsidiaries. The regulations also
require us to notify you that you may not provide FBME Bank, Ltd.,
or any of its branches, offices or subsidiaries with access to the
correspondent account you hold at our financial institution. If we
become aware that the correspondent account you hold at our
financial institution has processed any transactions involving FBME
Bank, Ltd., or any of its branches, offices or subsidiaries, we will
be required to take appropriate steps to prevent such access,
including terminating your account.
A covered financial institution may, for example, have knowledge
through transaction screening software that a correspondent account
processes transactions for FBME. The purpose of the notice requirement
is to aid cooperation with correspondent account holders in preventing
transactions involving FBME from accessing the U.S. financial system.
However, FinCEN would not require or expect a covered financial
institution to obtain a certification from any of its correspondent
account holders that access will not be provided 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 email to appropriate correspondent account holders of
the covered financial institution, informing them that they may not
provide FBME 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.
In its comment to the NPRM, SIFMA requested reconsideration of the
notice provision, specifically regarding the meaning of ``one-time
notice,'' and further objected to the requirement to send such a notice
as overly burdensome and possibly duplicative. SIFMA also requested
further clarification with regard to the timing of the required notice.
FinCEN emphasizes that the scope of notice requirement is targeted
toward those correspondent account holders that the covered financial
institution knows or has reason to know provide services to FBME, not
to all correspondent account holders. The term ``one-time notice''
means that a financial institution should provide notice to all
existing correspondent account holders who the covered financial
institution knows or has reason to know provide services to FBME,
within a reasonably short time after this final rule is published, and
to new correspondent account holders during the account opening process
who the covered financial institution knows or has reason to know
provide services to FBME. It is not necessary for the notice to be
provided in any particular form. It may be provided electronically,
orally (with documentation), or as part of the standard paperwork
involved in opening or maintaining a correspondent account. Given the
limited nature of FBME's correspondent relationships, FinCEN does not
expect this requirement to be burdensome.
A covered financial institution is also required to take reasonable
steps to identify any indirect use of its correspondent accounts by
FBME, 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. Covered financial institutions are
expected to apply an appropriate screening mechanism to be able to
identify a funds transfer order that on its face lists FBME as the
financial institution of the originator or beneficiary, or otherwise
references FBME. 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 the Office of Foreign Assets Control (OFAC).
Notifying certain correspondent account holders and taking
reasonable steps to identify any indirect use of its correspondent
accounts by FBME in the manner discussed above are the minimum due
diligence requirements under the rule imposing the fifth special
measure. Beyond these minimum steps, a covered financial institution
must adopt a risk-based approach for determining what, if any,
additional due diligence measures are appropriate to guard against the
risk of indirect use of its correspondent accounts by FBME, based on
risk factors such as the type of services it offers and the geographic
locations of its correspondent account holders.
Under this rule imposing the fifth special measure, a covered
financial institution that obtains knowledge that a correspondent
account is being used by a foreign bank to provide indirect access to
FBME must take all appropriate steps to prevent such indirect access,
including the notification of its correspondent account holder per
Sec. 1010.658(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
FBME, the covered financial institution must terminate the account
within a commercially reasonable time. This means that the covered
financial
[[Page 45063]]
institution may 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 rule if it determines that
the account will not be used to provide banking services indirectly to
FBME.
3. Reporting Not Required
Section 1010.658(b)(3) of the rule imposing the fifth special
measure clarifies that the rule does not 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
FBME, that such correspondents may not process any transaction
involving FBME through the correspondent account maintained at the
covered financial institution.
VI. Regulatory Flexibility Act
When an agency issues a final rule, 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 Final 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 final rule is not expected to
have a significant economic impact on a substantial number of small
entities.
A. Proposal To Prohibit Covered Financial Institutions From Opening or
Maintaining Correspondent Accounts With Certain Foreign Banks Under the
Fifth Special Measure
1. Estimate of the Number of Small Entities to Whom the Proposed Fifth
Special Measure Will 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.\8\ Of the estimated 7,000 banks, 80 percent have less than
$500,000,000 in assets and are considered small entities.\9\ Of the
estimated 7,000 credit unions, 94 percent have less than $500,000,000
in assets.\10\
---------------------------------------------------------------------------
\8\ 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''].
\9\ Federal Deposit Insurance Corporation, Find an Institution,
https://www2.fdic.gov/idasp/main.asp; select Size or Performance:
Total Assets, type Equal or less than $: ``500000'' and select Find.
\10\ National Credit Union Administration, Credit Union Data,
https://webapps.ncua.gov/customquery/ 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: (1) 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 (2) 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.\11\ Based on SEC estimates, 17
percent of broker-dealers are classified as small entities for purposes
of the RFA.\12\
---------------------------------------------------------------------------
\11\ 17 CFR 240.0-10(c).
\12\ 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.\13\ The CFTC's determination in this regard was
based, in part, upon the obligation of registered FCMs to meet the
capital requirements established by the CFTC.
---------------------------------------------------------------------------
\13\ 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.\14\ 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.
---------------------------------------------------------------------------
\14\ 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.'' \15\ Based on SEC
estimates, seven percent of mutual funds are classified as ``small
entities'' for purposes of the RFA under this definition.\16\
---------------------------------------------------------------------------
\15\ 17 CFR 270.0-10.
\16\ 78 FR 23637, 23658 (April 19, 2013).
---------------------------------------------------------------------------
As noted above, 80 percent of banks, 94 percent of credit unions,
17 percent of broker-dealers, 95 percent of introducing brokers-
commodities, no FCMs, and seven 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
prohibition on maintaining correspondent accounts for foreign banking
institutions that engage in transactions involving FBME under the fifth
special measure would not impact a substantial number of small
entities.
2. Description of the Projected Reporting and Recordkeeping
Requirements of the Fifth Special Measure
The fifth special measure would require covered financial
institutions to provide a notification intended to aid cooperation from
foreign correspondent account holders in preventing transactions
involving FBME from accessing the U.S. financial system.
[[Page 45064]]
FinCEN estimates that the time it takes institutions to provide this
notice is one hour. Covered financial institutions would also be
required to take reasonable measures to detect use of their
correspondent accounts to process transactions involving FBME. All U.S.
persons, including U.S. financial institutions, currently must exercise
some degree of due diligence to comply with OFAC sanctions and
suspicious activity reporting 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 identify correspondent accounts with foreign banks that
involve FBME. Thus, the special due diligence that would be required by
the imposition of the fifth special measure--i.e., the one-time
transmittal of notice to certain correspondent account holders, the
screening of transactions to identify any use of correspondent
accounts, and the implementation of risk-based measures to detect use
of correspondent accounts--would not impose a significant additional
economic burden upon small U.S. financial institutions.
B. Certification
For these reasons, FinCEN certifies that this final rulemaking
would not have a significant impact on a substantial number of small
businesses.
VII. Paperwork Reduction Act
The collection of information contained in the final rule has been
approved by the Office of Management and Budget (OMB) in accordance
with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), and has
been assigned OMB Control Number 1506- AB19. An agency may not conduct
or sponsor, and a person is not required to respond to, a collection of
information unless it displays a valid control number assigned by OMB.
Description of Affected Financial Institutions: Banks, broker-
dealers in securities, futures commission merchants and introducing
brokers-commodities, and mutual funds.
Estimated Number of Affected Financial Institutions: 5,000.
Estimated Average Annual Burden in Hours per Affected Financial
Institution: The estimated average burden associated with the
collection of information in this rule is one hour per affected
financial institution.
Estimated Total Annual Burden: 5,000 hours.
VIII. Executive Order 12866
Executive Orders 12866 and 13563 direct agencies to assess costs
and benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity). Executive Order 13563
emphasizes the importance of quantifying both costs and benefits, of
reducing costs, of harmonizing rules, and of promoting flexibility. It
has been determined that the Final Rule is not a ``significant
regulatory action'' for purposes of Executive Order 12866.
List of Subjects in 31 CFR Part 1010
Administrative practice and procedure, Banks and banking, Brokers,
Counter-money laundering, Counter-terrorism, Foreign banking.
Authority and Issuance
For the reasons set forth in the preamble, chapter X of title 31 of
the Code of Federal Regulations is amended as follows:
PART 1010--GENERAL PROVISIONS
0
1. The authority citation for part 1010 is revised 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.
0
2. Subpart F of chapter X is amended by adding Sec. 1010.658 to read
as follows:
Sec. 1010.658 Special measures against FBME Bank, Ltd.
(a) Definitions. For purposes of this section:
(1) FBME Bank, Ltd. means all branches, offices, and subsidiaries
of FBME Bank, Ltd. operating in any jurisdiction.
(2) Correspondent account has the same meaning as provided in Sec.
1010.605(c)(1)(ii).
(3) Covered financial institution has the same meaning as provided
in Sec. 1010.605(e)(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) Prohibition on accounts and due diligence requirements for
covered financial institutions--(1) Prohibition on 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, FBME Bank, Ltd.
(2) Special due diligence of correspondent accounts to prohibit
use--(i) A covered financial institution shall apply special due
diligence to its foreign correspondent accounts that is reasonably
designed to guard against their use to process transactions involving
FBME Bank, Ltd. 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
FBME Bank, Ltd., that such correspondents may not provide FBME Bank,
Ltd. with access to the correspondent account maintained at the covered
financial institution; and
(B) Taking reasonable steps to identify any use of its foreign
correspondent accounts by FBME Bank, Ltd., to the extent that such 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
reasonably must adopt to guard against the use of its foreign
correspondent accounts to process transactions involving FBME Bank,
Ltd.
(iii) A covered financial institution that obtains knowledge that a
foreign correspondent account may be being used to process transactions
involving FBME Bank, Ltd. shall take all appropriate steps to further
investigate and prevent such access, including the notification of its
correspondent account holder under paragraph (b)(2)(i)(A) of this
section and, where necessary, termination of the correspondent account.
(iv) A covered financial institution required to terminate a
correspondent account pursuant to paragraph (b)(2)(iii) of this
section:
(A) Should do so within a commercially reasonable time, and should
not permit the foreign bank to establish any new positions or execute
any transaction through such correspondent account, other than those
necessary to close the correspondent account; and
(B) May reestablish a correspondent account closed pursuant to this
paragraph if it determines that the correspondent account will not be
used to provide banking services indirectly to FBME Bank Ltd.
(3) Recordkeeping and reporting. (i) A covered financial
institution is required to document its compliance with the
[[Page 45065]]
notice requirement set forth in paragraph (b)(2)(i)(A) of this section.
(ii) Nothing in this paragraph (b) shall require a covered
financial institution to report any information not otherwise required
to be reported by law or regulation.
Dated: July 23, 2015.
Jennifer Shasky Calvery,
Director, Financial Crimes Enforcement Network.
[FR Doc. 2015-18552 Filed 7-28-15; 8:45 am]
BILLING CODE 4810-2P-P
