Proposal of Special Measure Against ABLV Bank, AS as a Financial Institution of Primary Money Laundering Concern, 6986-6994 [2018-03214]

Agencies

• DEPARTMENT OF THE TREASURY
• Financial Crimes Enforcement Network

[Federal Register Volume 83, Number 33 (Friday, February 16, 2018)]
[Proposed Rules]
[Pages 6986-6994]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-03214]


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DEPARTMENT OF THE TREASURY

Financial Crimes Enforcement Network

31 CFR Part 1010

RIN 1506-AB39


Proposal of Special Measure Against ABLV Bank, AS as a Financial 
Institution of Primary Money Laundering Concern

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

ACTION: Notice of proposed rulemaking.

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SUMMARY: FinCEN is issuing a notice of proposed rulemaking (NPRM), 
pursuant to Section 311 of the USA PATRIOT Act, to prohibit the opening 
or maintaining of a correspondent account in the United States for, or 
on behalf of, ABLV Bank, AS.

DATES: Written comments on the notice of proposed rulemaking must be 
submitted on or before April 17, 2018.

ADDRESSES: You may submit comments, identified by RIN-1506-AB39, by any 
of the following methods:
     Federal E-rulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments. Include Docket Number 
FinCEN-2017-0013 and RIN-1506-AB39 in the submission.
     Mail: The Financial Crimes Enforcement Network, P.O. Box 
39, Vienna, VA 22183. Include RIN-1506-AB39 in the body of the text. 
Any comments submitted by mail must be postmarked by the due date for 
comments indicated above. Please submit comments by one method only.
     Comments submitted in response to this NPRM will become a 
matter of public record. Therefore, you should submit only information 
that you wish to make publicly available.
     Inspection of comments: FinCEN uses the electronic, 
internet-accessible dockets at Regulations.gov as its complete docket; 
all hard copies of materials that should be in the docket, including 
public comments, are electronically scanned and placed there. Federal 
Register notices published by FinCEN are searchable by docket number, 
RIN, or document title, among other things, and the docket number, RIN, 
and title may be found at the beginning of such notices. In general, 
FinCEN will make all comments publicly available by posting them on 
https://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: The FinCEN Resource Center at (800) 
949-2732.

SUPPLEMENTARY INFORMATION:

I. 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 (AML) 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 FinCEN.
    Section 311 of the USA PATRIOT Act (Section 311), codified at 31 
U.S.C. 5318A, grants FinCEN the authority, upon finding that reasonable 
grounds exist for concluding that a jurisdiction outside of the United 
States, one or more financial institutions operating outside of the 
United States, one or more classes of transactions within or involving 
a jurisdiction outside of the United States, or one or more types of 
accounts is of primary money laundering concern, to require domestic 
financial institutions and domestic financial agencies to take certain 
``special measures.'' The five special measures enumerated in Section 
311 are prophylactic safeguards that defend the U.S. financial system 
from money laundering and terrorist financing. FinCEN may impose one or 
more of these special measures in order to protect the U.S. financial 
system from these threats. Special measures one through four, codified 
at 31 U.S.C. 5318A(b)(1)-(b)(4), impose additional recordkeeping, 
information collection, and reporting requirements on covered U.S. 
financial institutions. The fifth special measure, codified at 31 
U.S.C. 5318A(b)(5), allows FinCEN to prohibit,

[[Page 6987]]

or impose conditions on, the opening or maintaining in the United 
States of correspondent or payable-through accounts for, or on behalf 
of, a foreign banking institution, if such correspondent account or 
payable-through account involves the foreign financial institution 
found to be of primary money laundering concern.
    Before making a finding that reasonable grounds exist for 
concluding that a foreign financial institution is of primary money 
laundering concern, the Secretary is required to consult with both the 
Secretary of State and the Attorney General.\1\ The Secretary shall 
also consider such information as the Secretary determines to be 
relevant, including the following potentially relevant factors:
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    \1\ 31 U.S.C. 5318A(c)(1).
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     The extent to which such a financial institution is used 
to facilitate or promote money laundering in or through the 
jurisdiction, including any money laundering activity by organized 
criminal groups, international terrorists, or entities involved in the 
proliferation of weapons of mass destruction (WMD) or missiles;
     The extent to which such a financial institution is used 
for legitimate business purposes in the jurisdiction; and
     The extent to which such action is sufficient to ensure 
that the purposes of Section 311 are fulfilled, and to guard against 
international money laundering and other financial crimes.\2\
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    \2\ 31 U.S.C. 5318A(c)(2)(B).
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    Upon finding that a foreign financial institution is of primary 
money laundering concern, the Secretary may require covered financial 
institutions to take one or more special measures. In selecting which 
special measure(s) to take, the Secretary ``shall consult with the 
Chairman of the Board of Governors of the Federal Reserve System, any 
other appropriate Federal banking agency (as defined in Section 3 of 
the Federal Deposit Insurance Act), the Secretary of State, the 
Securities and Exchange Commission, the Commodity Futures Trading 
Commission, the National Credit Union Administration Board, and in the 
sole discretion of the Secretary, such other agencies and interested 
parties as the Secretary [of the Treasury] may find appropriate.'' \3\ 
In imposing the fifth special measure, the Secretary must do so ``in 
consultation with the Secretary of State, the Attorney General, and the 
Chairman of the Board of Governors of the Federal Reserve System.'' \4\
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    \3\ 31 U.S.C. 5318A(a)(4)(A).
    \4\ 31 U.S.C. 5318A(b)(5).
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    In addition, in selecting which special measure(s) to take, the 
Secretary shall consider the following factors:
     Whether similar action has been or is being taken by other 
nations or multilateral groups;
     Whether the imposition of any particular special measure 
would create a significant competitive disadvantage, including any 
undue cost or burden associated with compliance, for financial 
institutions organized or licensed in the United States;
     The extent to which the action or the timing of the action 
would have a significant adverse systemic impact on the international 
payment, clearance, and settlement system, or on legitimate business 
activities involving the particular jurisdiction, institution, class of 
transactions, or type of account; and
     The effect of the action on United States national 
security and foreign policy.\5\
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    \5\ 31 U.S.C. 5318A(a)(4)(B).
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II. Summary of Notice of Proposed Rulemaking

    This NPRM sets forth (i) FinCEN's finding that ABLV Bank, AS 
(ABLV), a commercial bank located in Riga, Latvia, is a foreign 
financial institution of primary money laundering concern pursuant to 
Section 311, and (ii) FinCEN's proposal of a prohibition under the 
fifth special measure on the opening or maintaining in the United 
States of a correspondent account for, or on behalf of, ABLV. As 
described more fully below,\6\ FinCEN has reasonable grounds to believe 
that ABLV executives, shareholders, and employees have 
institutionalized money laundering as a pillar of the bank's business 
practices. As described in further detail below, ABLV management 
permits the bank and its employees to orchestrate and engage in money 
laundering schemes; solicits the high-risk shell company activity that 
enables the bank and its customers to launder funds; maintains 
inadequate controls over high-risk shell company accounts; and seeks to 
obstruct enforcement of Latvian anti-money laundering and combating the 
financing of terrorism (AML/CFT) rules in order to protect these 
business practices. In addition, illicit financial activity at the bank 
has included transactions for parties connected to U.S. and UN-
designated entities, some of which are involved in North Korea's 
procurement or export of ballistic missiles.
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    \6\ FinCEN has relied on a variety of sources including 
nonpublic information in preparing this proposed rule. When a 
statement is sourced in publicly available information, FinCEN will 
post an exhibit containing the public source. These exhibits will be 
posted with this proposed rule at https://www.regulations.gov.
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III. Background on Latvia's Non-Resident Deposit Sector and ABLV Bank

1. Latvia's Non-Resident Deposit Banking Sector

    Due to geography, linguistic profile, and a stable and developed 
banking system, Latvia serves as a financial bridge between the 
Commonwealth of Independent States (CIS),\7\ European Union (EU) and 
U.S. financial systems. While it lacks a legal framework that formally 
separates domestic banking business and non-resident banking, most 
Latvian banks conduct the majority of their business in either domestic 
retail/commercial banking or non-resident banking services, not both. 
Non-resident banking in Latvia allows offshore companies, including 
shell companies, to hold accounts and transact through Latvian banks. 
CIS-based actors often transfer their capital via Latvia, frequently 
through complex and interconnected legal structures, to various banking 
locales in order to reduce scrutiny of transactions and lower the 
transactions' risk rating.
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    \7\ The Commonwealth of Independent States (CIS) is a loose 
confederation of states making up most of the former Soviet Union. 
See https://www.cisstat.com/eng/cis.htm. For the purposes of this 
notice, the CIS region encompasses all members, associate members, 
and former members of the CIS.
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    According to Latvia's Financial Capital and Market Commission 
(FCMC), the primary banking regulator, non-resident banking services 
contribute between 0.8 and 1.5 percent to Latvia's gross domestic 
product (GDP). Non-resident deposits (NRDs) in Latvia are equal to 
roughly $13 billion. Latvian NRD banking activity transiting the U.S. 
financial system is estimated in recent years to have reached billions 
of dollars annually.
    The Latvian banking system's reliance on NRD funds for capital 
exposes it to increased illicit finance risk. A 2014 report by the 
European Commission's Directorate General for Economic and Financial 
Affairs (ECFIN) singled out Latvia's reliance on NRD banking as a risk 
to Latvia's private sector, for a variety of reasons, including the 
fact that ensuring compliance with anti-money laundering rules may be 
more challenging for non-resident banks as verifying clients' 
background and business activities could prove difficult. Criminal 
groups and corrupt officials may use elaborate offshore services to 
hide true beneficiaries or create fraudulent business transactions.

[[Page 6988]]

    In a positive development, since 2015, the FCMC has led significant 
efforts to reform Latvia's AML/CFT regulations and enforcement regime. 
However, as noted in the aforementioned 2014 ECFIN report, positive 
changes need to be consistently implemented jointly with the banks. The 
need to improve the institutional capacity remains a long-term 
challenge due to the complexities of investigating and prosecuting 
money laundering.

2. ABLV Bank

    Established in 1993, ABLV Bank, AS (ABLV) is headquartered in Riga, 
Latvia. According to data provided by the Association of Latvian 
Commercial Banks, ABLV is the second largest bank in Latvia by assets, 
with the equivalent of roughly $4.6 billion as of March 31, 2017. ABLV 
is Latvia's largest NRD bank by assets. As further described below, the 
majority of ABLV's customers are high-risk shell companies registered 
outside of Latvia.
    ABLV offers banking, investment, and advisory services. ABLV 
currently does not maintain correspondent accounts directly with U.S. 
banks, but instead accesses the U.S. financial system through nested 
U.S. dollar correspondent relationships with other foreign financial 
institutions. Those foreign financial institutions, in turn, hold 
direct U.S. correspondent accounts.
    ABLV holds several subsidiary entities, including a subsidiary 
bank, ABLV Bank, Luxembourg, S.A., located in Luxembourg. The 
beneficial owners of ABLV are Ernests Bernis and Oleg Fils. Bernis 
holds 4.93 percent of shares in the bank directly, and 43.12 percent of 
shares indirectly via Cassandra Holding Company, SIA. Fils holds 43.13 
percent of shares in ABLV indirectly through SIA ``OF Holding.'' 
Unspecified ``other shareholders'' own the remaining equity.

IV. Finding ABLV To Be a Foreign Financial Institution of Primary Money 
Laundering Concern

    Based on information available to the agency, including both public 
and nonpublic reporting, and after performing the requisite interagency 
consultations and considering each of the factors discussed below, 
FinCEN finds that reasonable grounds exist for concluding that ABLV is 
a financial institution operating outside the United States of primary 
money laundering concern.

1. The Extent to Which ABLV Has Been Used To Facilitate or Promote 
Money Laundering, Including by Entities Involved in the Proliferation 
of Weapons of Mass Destruction or Missiles

    According to information available to FinCEN, ABLV executives, 
shareholders, and employees have institutionalized money laundering as 
a pillar of the bank's business practices. ABLV management 
orchestrates, and permits the bank and its employees to engage in, 
money laundering schemes. Management solicits the high-risk shell 
company activity that enables the bank and its customers to launder 
funds, maintains inadequate controls over high-risk shell company 
accounts, and is complicit in the circumvention of AML/CFT controls at 
the bank. As a result, multiple actors have exploited the bank in 
furtherance of illicit financial activity, including transactions for 
parties connected to U.S. and UN-designated entities, some of which are 
involved in North Korea's procurement or export of ballistic missiles. 
In addition, ABLV management seeks to obstruct enforcement of Latvian 
AML/CFT rules. Through 2017, ABLV executives and management have used 
bribery to influence Latvian officials when challenging enforcement 
actions and perceived threats to their high-risk business.
    ABLV's business practices enable the provision of financial 
services to clients seeking to evade financial regulatory requirements. 
Bank executives and employees are complicit in their clients' illicit 
financial activities, including money laundering and the use of shell 
companies to conceal the true nature of illicit transactions and the 
identities of those responsible. ABLV is considered innovative and 
forward leaning in its approaches to circumventing financial 
regulations. The bank proactively pushes money laundering and 
regulatory circumvention schemes to its client base and ensures that 
fraudulent documentation produced to support financial schemes, some of 
which is produced by bank employees themselves, is of the highest 
quality.
    In 2014, ABLV was involved in the theft of over $1 billion in 
assets from three Moldovan banks, BC Unibank S.A., Banca Sociala S.A., 
and Banca de Economii S.A., in which criminals took over the three 
Moldovan banks using a non-transparent ownership structure, partly 
financed by loans from offshore entities banking at ABLV. Separately, 
ABLV previously developed a scheme to assist customers in circumventing 
foreign currency controls, in which the bank disguised illegal currency 
trades as international trade transactions using fraudulent 
documentation and shell company accounts.
    As referenced in Section III of this notice, Latvian NRD banks 
cater to offshore shell companies, and ABLV is Latvia's largest NRD 
bank. Offshore shell company business poses inherent money laundering 
risks because of its lack of transparency, and financial institutions 
must manage the risks associated with providing financial services to 
shell companies. As described in detail below, ABLV's continuing 
failure to implement adequate AML controls commensurate with this high 
risk has caused the bank to facilitate transactions for shell companies 
owned or controlled by illicit actors engaged in transnational 
organized criminal activity, corruption, and sanctions evasion. 
Oftentimes, these actors take advantage of ABLV's propensity to 
facilitate high-risk shell company business, using shell company 
accounts to obscure the transparency of their illicit activities.
    ABLV does not mitigate these risks effectively. ABLV does not 
adequately conduct know-your-customer (KYC) checks or customer due 
diligence (CDD) on a number of its customers, does not collect or 
update supporting documentation from its customers to justify 
transactional activity, and uses fraudulent documentation in some of 
its CDD files. Furthermore, the bank has had deficiencies in its 
internal control system, including insufficient customer due diligence 
and monitoring of transactions.
    In an example demonstrative of ABLV's failures to mitigate these 
risks, ABLV received a substantial amount of funds from a Russia-based 
bank in a manner consistent with an illicit transfer of assets. FinCEN 
assesses that ABLV should have known that the shell companies receiving 
the Russian bank-sourced funds in their ABLV accounts were related to 
the ultimate beneficial owners of the Russia-based bank. Such a pattern 
is a hallmark of asset-stripping. In addition, ABLV has facilitated 
public corruption through the provision of shell company accounts for 
corrupt CIS-based politically exposed persons (PEPs) and other corrupt 
actors. Through 2014, for example, Ukrainian tycoon Serhiy Kurchenko 
funneled billions of dollars through his ABLV shell company accounts. 
Treasury's Office of Foreign Assets Control (OFAC) designated Kurchenko 
in 2015, finding that he was responsible for, complicit in, or had 
engaged in, directly or indirectly, the misappropriation of state 
assets of Ukraine or of an economically significant entity in Ukraine. 
ABLV

[[Page 6989]]

maintained at least nine shell company accounts linked to Kurchenko. In 
another example, an Azerbaijani PEP engaged in large-scale corruption 
and money laundering used a shell company account at ABLV to make a 
payment.
    ABLV's business practice of banking high-risk shell companies 
without appropriate risk mitigation policies and procedures has also 
caused the bank to facilitate transactions for parties connected to 
U.S.- and UN-designated Democratic People's Republic of Korea (DPRK or 
North Korea) entities. These designated entities include Foreign Trade 
Bank (FTB), Koryo Bank, Koryo Credit Development Bank, Korea Mining and 
Development Trading Corporation (KOMID), and Ocean Maritime Management 
Company (OMM), some of which are involved in North Korea's procurement 
or export of ballistic missiles. ABLV facilitated transactions related 
to North Korea after the bank's summer 2017 announcement of a North 
Korea ``No Tolerance'' policy.
    Widely available public documents describe North Korean sanctioned 
entities' use of front and shell companies and financial 
representatives to evade international sanctions. As early as 2014, the 
UN Panel of Experts (UN POE) noted in its report that sanctioned North 
Korean entities used front companies to evade international sanctions 
by hiding the sources of funds. Subsequent UN POE reports expanded on 
these findings, highlighting specific examples and methodologies used 
by North Korea-related entities to evade sanctions. Since 2011, the 
Financial Action Task Force (FATF) has called upon its members and 
urged all countries to apply effective countermeasures to protect their 
financial systems from the money laundering, terrorist financing, and 
proliferation financing threat emanating from the DPRK. More recently, 
the FATF has highlighted the DPRK's frequent use of front companies, 
shell companies, and opaque ownership structures for the purpose of 
evading international sanctions.
    FinCEN has found that the DPRK is a foreign jurisdiction of 
``primary money laundering concern.'' \8\ In its finding, FinCEN 
highlighted North Korea's propensity to use front companies and agents 
to evade U.S. and international sanctions. Finally, nongovernmental 
research organizations have provided in-depth case studies of DPRK-
linked entities' use of front companies and representatives to evade 
international sanctions.
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    \8\ 81 FR 78715; November 9, 2016.
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    FinCEN assesses that the public nature of these reports, 
advisories, and actions should have provided ABLV the necessary 
guidance to apply appropriate due diligence to accounts and 
transactions that fit the typologies described in these public 
documents. However, ABLV's pursuit of high-risk shell company business 
and its failure to heed these public warnings and implement an 
appropriate risk-mitigating CDD and KYC program enabled certain 
customers to exploit ABLV's weaknesses to conduct transactions with 
parties connected to designated entities. Certain customers' 
counterparties have also been designated by OFAC, further demonstrating 
their links to the DPRK.
    Ninety percent of ABLV's customers are high-risk per ABLV's own 
risk rating methodology and are primarily high-risk shell companies 
registered in secrecy jurisdictions. FinCEN assesses that, beginning in 
2012 and continuing into 2017, ABLV conducted a high volume of 
transactions for shell companies registered outside of Latvia in 
offshore secrecy jurisdictions totaling tens of billions of dollars. 
FinCEN is aware that ABLV frequently fails to respond to other 
financial institutions' questions concerning the nature of the 
transactions that ABLV is processing. Multiple U.S. financial 
institutions have proactively closed ABLV's U.S. correspondent 
accounts. Nonetheless, ABLV's indirect correspondent activity with the 
U.S. financial system and its business model of facilitating non-
transparent transactions for shell companies both continue.
    While publicly stating that it is implementing plans to reform its 
AML/CFT compliance program, ABLV owners and executives have privately 
expressed an unwillingness to meaningfully alter ABLV's high-risk 
business practices. This fact, combined with ABLV's AML/CFT compliance 
issues to date raise serious concerns about the entity's commitment to 
implementing these plans. These concerns are further supported by the 
fact that ABLV management seeks to obstruct enforcement of Latvian AML/
CFT rules and has used bribery to influence Latvian officials. Any 
institution that undermines enforcement actions through such corrupt 
acts presents a significant risk that it will continue practices which 
facilitate illicit activity.

2. The Extent to Which ABLV Is Used for Legitimate Business Purposes

    As an NRD bank catering to non-Latvian customers, the majority of 
ABLV's customers are not based in Latvia and do not conduct business in 
Latvia outside of holding a bank account at ABLV. As described above, 
Latvia's NRD banking sector is a financial bridge between the CIS 
region's financial systems and the West. ABLV provides entities, 
typically controlled by CIS region-based actors, access to U.S. dollar, 
euro, pound sterling, and Swiss franc accounts, and ABLV's 
correspondent relationships enable its customers to transact with 
counterparties holding accounts at banks across the globe, including 
U.S. and EU financial institutions. Oftentimes, NRD customers are shell 
companies registered in corporate secrecy jurisdictions that are owned 
or controlled by parties in third jurisdictions, typically in the CIS 
region.
    ABLV may be used for some legitimate purposes. However, the high 
number of shell company customers banking at ABLV, some of which are 
themselves engaged in money laundering or illicit activity, as 
described above, indicates that ABLV is extensively used for illicit 
purposes.
    While it may carry certain risks or an additional AML/CFT 
compliance burden, non-resident banking is not inherently suspicious or 
illicit. For example, any non-Latvian entity banking in Latvia would 
maintain a ``non-resident'' account. Such non-Latvian clients may 
include lower-risk entities, such as publicly traded companies in the 
United States or other well-regulated jurisdictions. While such 
entities may be engaged in non-proximate banking, the customers' lines 
of business, ownership, and activity would be transparent, and the 
customers may be considered low-risk pursuant to the bank's internal 
policies and procedures and the relevant regulatory framework.
    However, 90 percent of ABLV's customers are high-risk per ABLV's 
own risk rating methodology, and are primarily high-risk shell 
companies registered in secrecy jurisdictions, as discussed previously. 
FinCEN assesses that ABLV's shell company customers' involvement in a 
wide range of illicit and suspicious activity through ABLV indicates 
that ABLV does not properly control NRD accounts to ensure they are 
used primarily to conduct legitimate business
    As noted above, FinCEN does not believe that ABLV, or its 
shareholders and executives, plan to meaningfully implement AML/CFT 
reforms. While publicly stating that it is implementing plans to reform 
its AML/CFT compliance program, ABLV owners and executives have 
privately expressed an unwillingness to meaningfully alter ABLV's high-
risk business practices.

[[Page 6990]]

ABLV's ineffective reform measures are exemplified by its facilitation 
of transactions related to North Korea after the bank's summer 2017 
announcement of a North Korea ``No Tolerance'' policy, as previously 
mentioned. Another illustration of ineffective reform measures is the 
facilitation of the aforementioned illicit transfers from a Russian 
bank, which occurred while ABLV was under an AML/CFT compliance audit.

2. The Extent to Which This Action Is Sufficient To Guard Against 
International Money Laundering and Other Financial Crimes

    FinCEN assesses that ABLV is used to facilitate money laundering, 
illicit financial schemes and other illicit activity conducted by its 
customers and other illicit actors, including actors associated with 
transnational organized crime, North Korea's procurement or export of 
ballistic missiles, sanctions evasion, and large-scale corruption. 
Given the national security threat posed by such activity, FinCEN 
believes that imposing a prohibition under the fifth special measure 
would be sufficient and necessary to prevent ABLV from continuing to 
access the U.S. financial system. This action would guard against 
international money laundering activity and other financial crimes 
involving ABLV.
    Although U.S. financial institutions have proactively closed direct 
U.S. correspondent relationships with ABLV, many U.S. financial 
institutions continue to process transactions for or on behalf of ABLV 
through indirect correspondent banking relationships. This action, if 
finalized, would sever ABLV's access to U.S. correspondent accounts, 
direct or otherwise.

V. Proposed Prohibition on Covered Financial Institutions From Opening 
or Maintaining Correspondent Accounts in the United States for ABLV

    After performing the requisite interagency consultations, 
considering the relevant factors, and making a finding that ABLV is a 
foreign financial institution of primary money laundering concern, 
FinCEN proposes a prohibition under the fifth special measure. A 
prohibition under the fifth special measure is the most effective and 
practical measure to safeguard the U.S. financial system from the 
illicit finance risks posed by ABLV.

1. Factors Considered in Proposing a Prohibition Under the Fifth 
Special Measure

    Below is a discussion of the relevant factors FinCEN considered in 
proposing a prohibition under the fifth special measure with respect to 
ABLV.
A. Whether Similar Action Has Been or Will Be Taken by Other Nations or 
Multilateral Groups Against ABLV
    FinCEN is not aware of an action by another nation or multilateral 
group that would prohibit or place conditions on ABLV's correspondent 
banking relationships. However, according to press reports, the 
National Bank of Ukraine issued an advisory on August 28, 2016 to 
Ukrainian banks warning that ABLV, among other foreign banks, was 
suspected of being related to risky financial operations, including 
laundering the revenues of criminal activities. In addition, the FCMC 
has conducted examinations of ABLV and issued a fine and reprimand of a 
board member in May of 2016. None of these actions, however, 
sufficiently protect the U.S. financial system from the illicit finance 
risk posed by ABLV.
B. 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
    While ABLV is a large bank among Latvian financial institutions, it 
is not large by international standards and is not a major participant 
in the international payment system. Therefore, FinCEN does not believe 
that imposing a prohibition under the fifth special measure would cause 
a significant competitive disadvantage or place an undue burden or cost 
on U.S. financial institutions.
    The special due diligence obligations proposed in this rulemaking 
would not create undue costs or burden on U.S. financial institutions. 
U.S. financial institutions already generally have systems in place to 
screen transactions in order to identify and report suspicious activity 
and comply with the sanctions programs administered by OFAC. 
Institutions can modify these systems to detect transactions involving 
ABLV. ABLV does not currently hold U.S. correspondent bank accounts. 
While there may be some additional burden on U.S. financial 
institutions in conducting due diligence on foreign correspondent 
account holders and notifying them of the prohibition, FinCEN believes 
that any such burden will likely be minimal, and certainly not undue, 
given the threats posed by ABLV's facilitation of money laundering.
C. The Extent to Which the Proposed Action or Timing of the Action Will 
Have a Significant Adverse Systemic Impact on the International 
Payment, Clearance, and Settlement System, or on Legitimate Business 
Activities of ABLV
    As noted previously, although ABLV is a large bank among Latvian 
financial institutions, it is not large by international standards, 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 a prohibition under the 
fifth special measure against ABLV will not have an adverse systemic 
impact on the international payment, clearance, and settlement system. 
FinCEN also considered the extent to which this action could have an 
impact on the legitimate business activities of ABLV and concludes that 
the need to protect the U.S. financial system from ABLV, a bank that 
facilitates illicit financial activity, strongly outweighs any such 
impact.
    FinCEN notes that ABLV as of July 2017 maintained euro, Japanese 
yen, Hong Kong dollar, pound sterling, and Australian dollar 
correspondent accounts, according to a commercial database, and thus is 
not necessarily limited to U.S. dollar transactions in its 
international wire transfer activity. A prohibition on the opening or 
maintaining of U.S. correspondent accounts under the fifth special 
measure would not prevent ABLV from conducting legitimate business 
activities in foreign currencies as long as such activity does not 
involve a correspondent account maintained in the United States.
D. The Effect of the Proposed Action on United States National Security 
and Foreign Policy
    As described in detail above, financial activity that ABLV has 
conducted through the U.S. financial system has consisted largely of 
international funds transfers between shell entities registered in 
offshore secrecy jurisdictions. FinCEN assesses that this financial 
activity includes money laundering and other transactions conducted by 
a range of illicit actors that threaten the national security of the 
United States. Furthermore, ABLV's business practice of banking high-
risk shell companies without adequate risk mitigation policies and 
procedures has caused the bank to facilitate transactions for entities 
linked to North Korea. Ensuring the effectiveness of the North Korea 
sanctions program is a top

[[Page 6991]]

national security and foreign policy priority of the United States.
    Prohibiting covered financial institutions from maintaining a 
correspondent account for ABLV, and preventing ABLV's indirect access 
to a U.S. correspondent account, will enhance national security. The 
proposed action serves as a measure to prevent illicit actors from 
accessing the U.S. financial system. It will further the U.S. national 
security and foreign policy goals of thwarting sanctions evasion and 
preventing other illicit financial activity from transiting the U.S. 
financial system. The imposition of a prohibition under the fifth 
special measure would also complement the U.S. government's worldwide 
efforts to expose and disrupt international money laundering.

2. Consideration of Alternative Special Measures

    Under Section 311, special measures one through four enable FinCEN 
to impose additional recordkeeping, information collection, and 
information reporting requirements on covered financial institutions. 
The fifth special measure also enables FinCEN to impose conditions as 
an alternative to a prohibition on the opening or maintaining of 
correspondent accounts. FinCEN considered alternatives to a prohibition 
under the fifth special measure, including the imposition of one or 
more of the first four special measures, as well as imposing conditions 
on the opening or maintaining of correspondent accounts under the fifth 
special measure. For the reasons explained below, FinCEN believes that 
a prohibition under the fifth special measure would most effectively 
safeguard the U.S. financial system from the illicit finance risks 
posed by ABLV.
    Given ABLV's apparent disregard of regulatory reform and 
enforcement measures, FinCEN does not believe that any condition, 
additional recordkeeping requirement, or reporting requirement would be 
an effective measure to safeguard the U.S. financial system. Such 
measures would not prevent ABLV from accessing directly or indirectly 
the correspondent accounts of U.S. financial institutions, thus leaving 
the U.S. financial system vulnerable to processing the types of illicit 
transfers that pose a national security and money laundering risk. In 
addition, no recordkeeping requirement or conditions on correspondent 
accounts would be sufficient to guard against the risks posed by a bank 
that processes transactions that are designed to obscure the 
transactions' true nature and are ultimately for the benefit of illicit 
actors or activity. Therefore, a prohibition under the fifth special 
measure is the only special measure that can adequately protect the 
U.S. financial system from the illicit financial risk posed by ABLV.

VI. Section-by-Section Analysis for the Proposal of a Prohibition Under 
the Fifth Special Measure

1010.661(a)--Definitions

1. ABLV Bank, AS
    The proposed rule defines ``ABLV'' to mean all subsidiaries, 
branches, and offices of ABLV Bank, AS operating as a bank in any 
jurisdiction. As noted above, FinCEN is aware of one subsidiary bank, 
ABLV Bank, Luxembourg, S.A., located in Luxembourg.
2. Correspondent Account
    The proposed rule defines ``Correspondent account'' to have the 
same meaning as the definition contained in 31 CFR 1010.605(c)(l)(ii). 
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 proposed 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.\9\ Under this definition, ``payable through 
accounts'' are a type of correspondent account.
---------------------------------------------------------------------------

    \9\ 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 proposed 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.\10\
---------------------------------------------------------------------------

    \10\ See 31 CFR 1010.605(c)(2)(ii)-(iv).
---------------------------------------------------------------------------

3. Covered Financial Institution
    The proposed rule defines ``covered financial institution'' with 
the same definition used in the final rule implementing the provisions 
of Section 312 of the USA PATRIOT Act, which in general includes the 
following:
    [ssquf] An insured bank (as defined in section 3(h) of the Federal 
Deposit Insurance Act (12 U.S.C. 1813(h));
    [ssquf] a commercial bank;
    [ssquf] an agency or branch of a foreign bank in the United States;
    [ssquf] a Federally insured credit union;
    [ssquf] a savings association;
    [ssquf] a corporation acting under section 25A of the Federal 
Reserve Act (12 U.S.C. 611);
    [ssquf] a trust bank or trust company;
    [ssquf] a broker or dealer in securities;
    [ssquf] a futures commission merchant or an introducing broker-
commodities; and
    [ssquf] a mutual fund.
4. Foreign Banking Institution
    The proposed rule defines ``foreign banking institution'' to mean a 
bank organized under foreign law, or an agency, branch, or office 
located outside the United States of a bank. The term does not include 
an agent, agency, branch, or office within the United States of a bank 
organized under foreign law. This is consistent with the definition of 
``foreign bank'' under 31 CFR 1010.100.
5. Subsidiary
    The proposed rule defines ``subsidiary'' to mean a company of which 
more than 50 percent of the voting stock or analogous equity interest 
is owned by another company.

1010.661(b)--Prohibition on Accounts and Due Diligence Requirements for 
Covered Financial Institutions

1. Prohibition on Opening or Maintaining Correspondent Accounts
    Section 1010.661(b)(1) and (2) of this proposed rule would prohibit 
covered financial institutions from opening or maintaining in the 
United States a correspondent account for, or on behalf of, ABLV. It 
would also require covered financial institutions to take reasonable 
steps to not process a transaction for the correspondent account of a 
foreign banking institution in the United States if such a transaction 
involves ABLV. Such reasonable steps are described in 1010.661(b)(3), 
which sets forth the special due diligence requirements a covered 
financial institution would be required to take when it knows or has 
reason to believe that a transaction involves ABLV.
2. Special Due Diligence for Correspondent Accounts
    As a corollary to the prohibition set forth in section 
1010.661(b)(1) and (2),

[[Page 6992]]

section 1010.661(b)(3) of the proposed rule would require covered 
financial institutions to apply special due diligence to all of their 
foreign correspondent accounts that is reasonably designed to guard 
against such accounts being used to process transactions involving 
ABLV. As part of that special due diligence, covered financial 
institutions would be required to notify those foreign correspondent 
account holders that the covered financial institutions know or have 
reason to believe provide services to ABLV that such correspondents may 
not provide ABLV with access to the correspondent account maintained at 
the covered financial institution. A covered financial institution may 
satisfy this notification requirement using the following notice:

    Notice: Pursuant to U.S. regulations issued under Section 311 of 
the USA PATRIOT Act, see 31 CFR 1010.661, we are prohibited from 
opening or maintaining in the United States a correspondent account 
for, or on behalf of, ABLV. The regulations also require us to 
notify you that you may not provide ABLV, including any of its 
subsidiaries, branches, and offices 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 ABLV, including any of its 
subsidiaries, branches, and offices we will be required to take 
appropriate steps to prevent such access, including terminating your 
account.

    The purpose of the notice requirement is to aid cooperation with 
correspondent account holders in preventing transactions involving ABLV 
from accessing the U.S. financial system. FinCEN does 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.
    Methods of compliance with the notice requirement could include, 
for example, transmitting a notice by mail, fax, or email. The notice 
should be transmitted whenever a covered financial institution knows or 
has reason to believe that a foreign correspondent account holder 
provides services to ABLV.
    Special due diligence also includes implementing risk-based 
procedures designed to identify any use of correspondent accounts to 
process transactions involving ABLV. A covered financial institution 
would be expected to apply an appropriate screening mechanism to 
identify a funds transfer order that on its face listed ABLV as the 
financial institution of the originator or beneficiary, or otherwise 
referenced ABLV in a manner detectable under the financial 
institution's normal screening mechanisms. An appropriate screening 
mechanism could be the mechanisms used by a covered financial 
institution to comply with various legal requirements, such as the 
commercially available software programs used to comply with the 
economic sanctions programs administered by OFAC.
3. Recordkeeping and Reporting
    Section 1010.661(b)(4) of the proposed rule would clarify that the 
proposed 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 notification requirement 
described above.

VII. Request for Comments

    FinCEN invites comments on all aspects of the proposed rule, 
including the following specific matters:
    1. FinCEN's proposal of a prohibition under the fifth special 
measure under 31 U.S.C. 5318A(b), as opposed to special measures one 
through four or imposing conditions under the fifth special measure;
    2. The form and scope of the notice to certain correspondent 
account holders that would be required under the rule; and
    3. The appropriate scope of the due diligence requirements in this 
proposed rule.

VIII. Regulatory Flexibility Act

    When an agency issues a rulemaking proposal, the Regulatory 
Flexibility Act (RFA) requires the agency to ``prepare and make 
available for public comment an initial regulatory flexibility 
analysis'' that will ``describe the impact of the proposed rule on 
small entities.'' (5 U.S.C. 603(a)). Section 605 of the RFA allows an 
agency to certify a rule, in lieu of preparing an analysis, if the 
proposed rulemaking is not expected to have a significant economic 
impact on a substantial number of small entities.

1. Proposal to Prohibit Covered Financial Institutions From Opening or 
Maintaining Correspondent Accounts With Certain Foreign Banks Under the 
Fifth Special Measure

A. 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 $550,000,000 in 
assets.\11\ Of the estimated 6,192 banks, 80 percent have less than 
$550,000,000 in assets and are considered small entities.\12\ Of the 
estimated 6,021 credit unions, 92.5 percent have less than $550,000,000 
in assets.\13\
---------------------------------------------------------------------------

    \11\ Table of Small Business Size Standards Matched to North 
American Industry Classification System Codes, Small Business 
Administration Size Standards (SBA Oct. 1, 2017) [hereinafter ``SBA 
Size Standards'']. .) (https://www.sba.gov/sites/default/files/files/Size_Standards_Table_2017.pdf)
    \12\ 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 $: ``550000'' and select Find.
    \13\ 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: 
``550000000'' 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). 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.\14\ Based on SEC estimates, 17 
percent of broker-dealers are classified as small entities for purposes 
of the RFA.\15\
---------------------------------------------------------------------------

    \14\ 17 CFR 240.0-10(c).
    \15\ 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 
CFR1010.100(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

[[Page 6993]]

`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.\16\ 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.
---------------------------------------------------------------------------

    \16\ 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 $38,500,000 in gross receipts 
annually.\17\ Based on information provided by the National Futures 
Association (NFA), 95 percent of introducing brokers-commodities 
dealers have less than $38.5 million in adjusted net capital and are 
considered to be small entities.
---------------------------------------------------------------------------

    \17\ SBA, Size Standards to Define Small Business Concerns, 13 
CFR 121.201 (2016), 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. 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.'' \18\ Based on SEC estimates, 
seven percent of mutual funds are classified as ``small entities'' for 
purposes of the RFA under this definition.\19\
---------------------------------------------------------------------------

    \18\ 17 CFR 270.0-10.
    \19\ 78 FR 23637, 23658 (April 19, 2013).
---------------------------------------------------------------------------

    As noted above, 80 percent of banks, 92.5 percent of credit unions, 
17 percent of broker-dealers, 95 percent of introducing broker-
commodities dealers, no FCMs, and seven percent of mutual funds are 
small entities.
B. Description of the Projected Reporting and Recordkeeping 
Requirements of a Prohibition Under the Fifth Special Measure
    The proposed prohibition under 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 ABLV from being processed by the 
U.S. financial system. FinCEN estimates that the burden on institutions 
providing 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 ABLV. All U.S. persons, including U.S. 
financial institutions, currently must comply with OFAC sanctions, and 
U.S. financial institutions have suspicious activity reporting 
requirements. The systems that U.S. financial institutions have in 
place to comply with these requirements can easily be modified to adapt 
to this proposed rule. Thus, the special due diligence that would be 
required under the proposed rule--i.e., preventing the processing of 
transactions involving ABLV and the transmittal of notice to certain 
correspondent account holders--would not impose a significant 
additional economic burden upon small U.S. financial institutions.

2. Certification

    For these reasons, FinCEN certifies that the proposals contained in 
this rulemaking would not have a significant impact on a substantial 
number of small businesses.
    FinCEN invites comments from members of the public who believe 
there would be a significant economic impact on small entities from the 
imposition of a prohibition under the fifth special measure regarding 
ABLV.

IX. Paperwork Reduction Act

    The collection of information contained in this proposed rule is 
being submitted to the Office of Management and Budget for review in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)). Comments on the collection of information should be sent to 
the Desk Officer for the Department of the Treasury, Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
Paperwork Reduction Project (1506), Washington, DC 20503 (or by email 
to [email protected]) with a copy to FinCEN by mail or email 
at the addresses previously specified. Comments should be submitted by 
one method only. Comments on the collection of information should be 
received by April 17, 2018. In accordance with the requirements of the 
Paperwork Reduction Act and its implementing regulations, 5 CFR 1320, 
the following information concerning the collection of information as 
required by 31 CFR 1010.661 is presented to assist those persons 
wishing to comment on the information collection.
    The notification requirement in section 1010.661(b)(3)(i)(A) is 
intended to aid cooperation from correspondent account holders in 
denying ABLV access to the U.S. financial system. The information 
required to be maintained by that section would be used by federal 
agencies and certain self-regulatory organizations to verify compliance 
by covered financial institutions with the provisions of 31 CFR 
1010.661. The collection of information would be mandatory.
    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: 5,787.
    Estimated Average Annual Burden in Hours per Affected Financial 
Institution: The estimated average burden associated with the 
collection of information in this proposed rule is one hour per 
affected financial institution.
    Estimated Total Annual Burden: 5,787 hours.
    FinCEN specifically invites comments on: (a) Whether the proposed 
collection of information is necessary for the proper performance of 
the mission of FinCEN, including whether the information would have 
practical utility; (b) the accuracy of FinCEN's estimate of the burden 
of the proposed collection of information; (c) ways to enhance the 
quality, utility, and clarity of the information required to be 
maintained; (d) ways to minimize the burden of the required collection 
of information, including through the use of automated collection 
techniques or other forms of information technology; and (e) estimates 
of capital or start-up costs and costs of operation, maintenance, and 
purchase of services to report the information.
    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 
OMB control number.

X. 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 proposed rule is not a ``significant 
regulatory action'' for purposes of Executive Order 12866.

[[Page 6994]]

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, part 1010, chapter X of 
title 31 of the Code of Federal Regulations, is proposed to be amended 
as follows:

PART 1010--GENERAL PROVISIONS

0
1. The authority citation for part 1010 continues to read as follows:

    Authority:  2 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314, 
5316- 5332; Title III, sec. 314 Pub. L. 107-56, 115 Stat. 307; sec. 
701 Pub. L. 114-74, 129 Stat. 599.

0
2. Add Sec.  1010.661 to read as follows:


Sec.  1010.661  Special measures against ABLV

    (a) Definitions. For purposes of this section:
    (1) ABLV means all subsidiaries, branches, and offices of ABLV 
Bank, AS operating as a bank in any jurisdiction.
    (2) Correspondent account has the same meaning as provided in Sec.  
1010.605(c)(l)(ii).
    (3) Covered financial institution has the same meaning as provided 
in Sec.  1010.605(e)(l).
    (4) Foreign banking institution means a bank organized under 
foreign law, or an agency, branch, or office located outside the United 
States of a bank. The term does not include an agent, agency, branch, 
or office within the United States of a bank organized under foreign 
law.
    (5) 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) Opening or maintaining correspondent accounts for ABLV. A 
covered financial institution shall not open or maintain in the United 
States a correspondent account for, or on behalf of, ABLV.
    (2) Prohibition on use of correspondent accounts involving ABLV. A 
covered financial institution shall take reasonable steps not to 
process a transaction for the correspondent account in the United 
States of a foreign banking institution if such a transaction involves 
ABLV.
    (3) 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 
ABLV. At a minimum, that special due diligence must include:
    (A) Notifying those foreign correspondent account holders that the 
covered financial institution knows or has reason to believe provide 
services to ABLV that such correspondents may not provide ABLV 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 ABLV, 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 ABLV.
    (iii) A covered financial institution that knows or has reason to 
believe that a foreign bank's correspondent account has been or is 
being used to process transactions involving ABLV shall take all 
appropriate steps to further investigate and prevent such access, 
including the notification of its correspondent account holder under 
paragraph (b)(3)(i)(A) of this section and, where necessary, 
termination of the correspondent account.
    (4) Recordkeeping and reporting. (i) A covered financial 
institution is required to document its compliance with the notice 
requirement set forth in this section.
    (ii) Nothing in paragraph (b) of this section shall require a 
covered financial institution to report any information not otherwise 
required to be reported by law or regulation.

    Dated: February 12, 2018.
Jamal El-Hindi,
Deputy Director, Financial Crimes Enforcement Network.
[FR Doc. 2018-03214 Filed 2-15-18; 8:45 am]
BILLING CODE 4810-2P-P