Proposal of Special Measure Regarding Al-Huda Bank, as a Foreign Financial Institution of Primary Money Laundering Concern, 6074-6082 [2024-02004]
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Federal Register / Vol. 89, No. 21 / Wednesday, January 31, 2024 / Proposed Rules
one-half of the aircraft’s maximum
authorized load of agricultural material
within 45 seconds. If the aircraft is
equipped with a device for releasing the
tank or hopper as a unit, there must be
a means to prevent inadvertent release
by the pilot or other crewmember.
PART 145—REPAIR STATIONS
15. The authority citation for part 145
continues to read as follows:
■
Authority: 49 U.S.C. 106(g), 40113, 44701–
44702, 44707, 44709, 44717.
16. Amend § 145.109 by revising
paragraph (d) to read as follows:
■
§ 145.109 Equipment, materials, and data
requirements.
Contract maintenance.
(a) A certificated repair station may
approve an article for return to service
following the maintenance, preventive
maintenance, or alterations performed
on an article by an outside source under
contract or other arrangement, in
accordance with § 145.201(a)(2),
provided all the following conditions
are met:
*
*
*
*
*
(3) The certificated repair station
verifies, by test and/or inspection, that
the work has been performed
satisfactorily by the other person and
that the article is airworthy before
approving it for return to service.
*
*
*
*
*
*
*
*
*
(d) A certificated repair station must
maintain, in a format acceptable to the
FAA, the documents and data required
for the performance of maintenance,
preventive maintenance, and alterations
under its repair station certificate and
operations specifications in accordance
with part 43 of this chapter. These
documents and data must be accessible
when the relevant work is being done.
■ 17. Amend § 145.201 by revising
paragraph (a)(2) to read as follows:
Issued under authority provided by 49
U.S.C. 106(f), 44701(a), and 44707 in
Washington, DC.
Robert M. Ruiz,
Deputy Executive Director, Flight Standards
Service.
§ 145.201 Privileges and limitations of
certificate.
31 CFR Part 1010
*
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§ 145.217
(a) * * *
(2) Arrange for another person to
perform the maintenance, preventive
maintenance, or alterations of any
article. The certificated repair station
may approve an article for return to
service following the maintenance,
preventive maintenance, or alterations
performed on the article by the other
person if—
(i) The certificated repair station is
rated to perform maintenance,
preventive maintenance, or alterations
on the article; and
(ii) The requirements for contract
maintenance in § 145.217 have been
met.
*
*
*
*
*
■ 18. Amend § 145.217 by:
■ a. Revising paragraph (a) introductory
text;
■ b. Removing ‘‘; and’’ at the end of
paragraph (a)(1) and adding a period in
its place;
■ c. Adding paragraph (a)(3);
■ d. Adding the word ‘‘and’’ at the end
of paragraph (b)(1);
■ e. Removing ‘‘; and’’ at the end of
paragraph (b)(2) and adding a period in
its place; and
■ f. Removing paragraph (b)(3).
The revision and addition read as
follows:
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[FR Doc. 2024–00763 Filed 1–30–24; 8:45 am]
BILLING CODE 4910–13–P
DEPARTMENT OF THE TREASURY
Financial Crimes Enforcement Network
RIN 1506–AB65
Proposal of Special Measure
Regarding Al-Huda Bank, as a Foreign
Financial Institution of Primary Money
Laundering Concern
Financial Crimes Enforcement
Network (FinCEN), Treasury.
ACTION: Notice of proposed rulemaking.
AGENCY:
FinCEN is issuing a notice of
proposed rulemaking (NPRM), pursuant
to section 311 of the USA PATRIOT Act,
that proposes prohibiting the opening or
maintaining of a correspondent account
in the United States for, or on behalf of,
Al-Huda Bank, a foreign financial
institution based in Iraq found to be of
primary money laundering concern.
DATES: Written comments on the notice
of proposed rulemaking must be
submitted on or before March 1, 2024.
ADDRESSES: Comments must be
submitted by one of the following
methods:
• Federal E-rulemaking Portal:
https://www.regulations.gov. Follow the
instructions for submitting comments.
Refer to Docket Number FINCEN–2024–
0001 in the submission.
• Mail: Financial Crimes Enforcement
Network, P.O. Box 39, Vienna, VA
22183. Refer to Docket Number
FINCEN–2024–0001 in the submission.
SUMMARY:
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Please submit comments by one
method only and note that comments
submitted in response to this NPRM
will become a matter of public record.
FOR FURTHER INFORMATION CONTACT: The
FinCEN Regulatory Support Section at
1–800–767–2825 or electronically at
frc@fincen.gov.
SUPPLEMENTARY INFORMATION:
I. Statutory Provisions
Section 311 of the USA PATRIOT Act
(section 311), codified at 31 U.S.C.
5318A, grants the Secretary of the
Treasury (Secretary) authority, upon
finding that reasonable grounds exist for
concluding that one or more financial
institutions operating outside of the
United States is of primary money
laundering concern, to require domestic
financial institutions and domestic
financial agencies to take certain
‘‘special measures.’’ 1 The authority of
the Secretary to administer the Bank
Secrecy Act (BSA) and its implementing
regulations has been delegated to
FinCEN.2
The five special measures set out in
section 311 are safeguards that may be
employed to defend the U.S. financial
system from money laundering and
terrorist financing risks. The Secretary
may impose one or more of these special
measures in order to protect the U.S.
financial system from such threats.
Through special measures one through
four, the Secretary may impose
additional recordkeeping, information
collection, and reporting requirements
on covered domestic financial
institutions and domestic financial
agencies—collectively, ‘‘covered
financial institutions.’’ 3 Through
special measure five, the Secretary may
prohibit, or impose conditions on, the
opening or maintaining in the United
States of correspondent or payable1 On October 26, 2001, the President signed into
law the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism Act of 2001, Public Law
107–56 (USA PATRIOT Act). Title III of the USA
PATRIOT Act amended the anti-money laundering
(AML) provisions of the Bank Secrecy Act (BSA) to
promote the prevention, detection, and prosecution
of international money laundering and the
financing of terrorism. The BSA, as amended, is the
popular name for a collection of statutory
authorities that FinCEN administers that is codified
at 12 U.S.C. 1829b, 1951–1960 and 31 U.S.C. 5311–
5314, 5316–5336, and includes other authorities
reflected in notes thereto. Regulations
implementing the BSA appear at 31 CFR Chapter
X.
2 Pursuant to Treasury Order 180–01 (Jan. 14,
2020), the authority of the Secretary to administer
the BSA, including, but not limited to, 31 U.S.C.
5318A, has been delegated to the Director of
FinCEN.
3 31 U.S.C. 5318A(b)(1)–(b)(4). For definition of
‘‘covered financial institutions,’’ see 31 CFR
1010.100(t) and section V.A.3 of this notice.
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Federal Register / Vol. 89, No. 21 / Wednesday, January 31, 2024 / Proposed Rules
through accounts for or on behalf of a
foreign banking institution, if such
correspondent account or payablethrough account involves the foreign
financial institution found to be of
primary money laundering concern.4
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.5 The Secretary is also
required to consider such information as
the Secretary determines to be relevant,
including the following potentially
relevant factors:
• The extent to which such a
financial institution is used to facilitate
or promote money laundering in or
through a jurisdiction outside the
United States, 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 foreign
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.6
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 one or more special measures,
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 may find
appropriate.’’ 7 When imposing special
measure five, 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.’’ 8
4 31
U.S.C. 5318A(b)(5).
U.S.C. 5318A(c)(1).
6 31 U.S.C. 5318A(c)(2)(B).
7 31 U.S.C. 5318A(a)(4)(A).
8 31 U.S.C. 5318A(b)(5).
5 31
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In addition, the Secretary is required
to consider the following factors when
selecting special measures:
• 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.9
II. Summary of NPRM
For years, Al-Huda Bank has
exploited its access to U.S. dollars
(USD) to support designated foreign
terrorist organizations (FTOs), including
Iran’s Islamic Revolutionary Guard
Corps (IRGC) and IRGC-Quds Force
(IRGC–QF) as well as Iran-aligned Iraqi
militias Kata’ib Hizballah (KH) and
Asa’ib Ahl al-Haq (AAH).10 Since its
establishment, Al-Huda Bank has been
controlled and operated by the IRGC
and IRGC–QF. Moreover, the chairman
of Al-Huda Bank is complicit in AlHuda Bank’s illicit financial activities,
including money laundering through
front companies that conceal the true
nature of and parties involved in illicit
transactions, ultimately enabling the
financing of terrorism.
Given the nature of Iraq’s economy
and trade relationships, Iraqi businesses
that import goods into Iraq rely on wire
transfers of USD from the account of the
Central Bank of Iraq (CBI) at the Federal
Reserve Bank of New York (FRBNY), a
process known as the wire auction, or
more generally the ‘‘CBI dollar
auction.’’ 11 Many Iraqi businesses and
financial institutions use the CBI dollar
9 31
U.S.C. 5318A(a)(4)(B).
Department of State has authority to
designate organizations as FTOs. The U.S.
Department of the Treasury’s Office of Foreign
Assets Control (OFAC) has also designated the
IRGC, IRGC–QF, KH, and AAH pursuant to multiple
sanctions authorities.
11 The CBI dollar auction comprises both (1) the
wire auction and (2) bulk USD banknote shipments
to Iraq which the CBI sells to exchange houses and
banks in return for IQD. The latter is known as the
‘‘cash auction’’ and is a separate process from the
wire auction. Al-Huda Bank’s illicit finance
activities described herein are related to the wire
auction. See Section III.A.2.
10 The
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auction for legitimate purposes.
However, FinCEN assesses that Al-Huda
Bank has deliberately embarked on a
strategy that relies on exploiting the CBI
dollar auction to support designated
FTOs, including the IRGC, IRGC–QF,
KH, and AAH, with the support of the
Iranian government. Al-Huda Bank has
actively supported terrorist groups and
abused the CBI dollar auction through
numerous money laundering typologies,
including use of fraudulent
documentation to obscure the ultimate
beneficiaries of the transactions. Given
these facts, FinCEN assesses that there
is a high risk of Al-Huda Bank
exploiting USD correspondent
relationships to support its money
laundering and terrorist financing
activity.
This NPRM (1) sets forth FinCEN’s
finding that Al-Huda Bank is a foreign
financial institution of primary money
laundering concern; and (2) proposes
that, under special measure five,
covered financial institutions be
prohibited from opening or maintaining
a correspondent account for, or on
behalf of, Al-Huda Bank.
III. Finding That Al-Huda Bank Is a
Foreign Financial Institution of
Primary Money Laundering Concern
Pursuant to 31 U.S.C. 5318A(a)(1),
FinCEN finds that reasonable grounds
exist for concluding that Al-Huda Bank
is a foreign financial institution of
primary money laundering concern.
Below is a discussion of the relevant
statutory factors FinCEN considered in
making this finding related to this Iraqbased financial institution.
A. The Extent to Which Al-Huda Bank
Is Used To Facilitate or Promote Money
Laundering Outside the United States,
Including Any Money Laundering
Activity by Organized Criminal Groups,
International Terrorists, or Entities
Involved in the Proliferation of WMD or
Missiles
FinCEN assesses that Al-Huda Bank is
used to facilitate or promote money
laundering outside the United States,
particularly money laundering activity
to support designated FTOs. FinCEN
based this assessment on information
available through both public and nonpublic reporting, and after thorough
consideration of each of the following
factors: (1) that Al-Huda Bank is a
foreign financial institution; and (2) that
Al-Huda Bank exploits its access to USD
through the dollar auction; and (3) that
through the exploitation of the dollar
auction, Al-Huda Bank provides support
to designated FTOs, in particular the
IRGC and IRGC–QF, as well as Iranaligned Iraqi militias KH and AAH.
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1. Al-Huda Bank Is a Foreign Financial
Institution
Al-Huda Bank is a private commercial
bank registered and headquartered in
Baghdad, Iraq, with five domestic
branch locations. These domestic
branches are in Baghdad, Karbala, and
Nasiriyah. Al-Huda Bank has no
subsidiaries or branches outside of Iraq,
and is regulated by the CBI.
Al-Huda Bank has no direct U.S.
correspondent banking relationships but
interacts with the U.S. financial system
indirectly through USD correspondent
accounts at six foreign financial
institutions. In other words, Al-Huda
Bank interacts with foreign banks that
themselves have correspondent
accounts with U.S. banks. Al-Huda
Bank also accesses USD through the CBI
dollar auction.
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2. Al-Huda Bank Exploits Its Access to
USD Through the CBI Dollar Auction
Individual Iraqi businesses that
import goods into Iraq rely on wire
transfers of USD from CBI’s account at
the FRBNY. The CBI wire auction is the
mechanism by which the CBI provides
USD to facilitate the purchase of
imports. When Iraq sells oil in the
international petroleum markets, the
revenues are credited in USD to the
CBI’s account at the FRBNY. Iraqi
companies with accounts at Iraqi banks
can then access the CBI dollar auction
to purchase USD with Iraqi dinar (IQD)
to pay for imports. USD are transferred
from the CBI’s FRBNY account to an
Iraqi bank, and onward to a thirdcountry bank on behalf of a thirdcountry exporter.
Many Iraqi businesses and their banks
use the CBI dollar auction for its
intended, legitimate purpose of
facilitating imports of goods. However,
as discussed in section III.A.3, FinCEN
assesses that Al-Huda Bank has
deliberately embarked on a strategy that
relies on illegitimate exploitation of the
dollar auction to support designated
FTOs, including the IRGC, IRGC–QF,
KH, and AAH, with the support of the
Iranian government.
With the knowledge of Al-Huda
Bank’s chairman, Al-Huda Bank’s abuse
of the dollar auction is obfuscated
through the application of numerous
money laundering typologies, including
the use of fraudulent documentation,
fake deposits, identity documents of the
deceased, fake companies, and
counterfeit IQD, which are used to
purchase USD and support terrorist
groups and militias. For years, Al-Huda
Bank has been involved in these
deceptive money laundering activities.
Examples of three of these money
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laundering typologies are discussed
below: (1) fraudulent documentation; (2)
stolen identities; and (3) counterfeit
IQD. Al-Huda Bank’s use of these
money laundering typologies also risks
exposing covered financial institutions
to Al-Huda Bank’s exploitation of USD
correspondent banking relationships to
support its terrorist financing activities,
discussed in section III.A.3.
Since at least 2012, Al-Huda Bank has
used fraudulent documentation to
purchase foreign currency—including
USD—from the CBI at dollar auctions.
Based on media reporting, during 2012
to 2014, Al-Huda Bank filed false
documentation to justify international
transfers of over $6 billion to banks and
companies.12 On at least one occasion,
government authorities detected AlHuda Bank’s filing of fraudulent
documentation, which resulted in
freezing of a transfer of a significant
amount of money. In another scheme,
Al-Huda Bank would deposit fake
checks to make the balance seem higher
on the account Al-Huda Bank used in
dollar auctions. The fake check deposits
would allow Al-Huda Bank to purchase
USD using that false higher balance
before the fake check bounced, which
Al-Huda Bank would then write off.
Al-Huda Bank, with its chairman’s
knowledge, has also abused the dollar
auction by utilizing stolen identities. In
one scheme, the Al-Huda Bank
chairman and other Al-Huda Bank
officials would use the identification
documents of deceased individuals to
purchase USD in dollar auctions. AlHuda Bank officials would also pay
living people for use of their
identification documents. The illicit use
of identification documents allowed AlHuda Bank to circumvent limits on
currency purchases.
With the knowledge of Al-Huda
Bank’s chairman, Al-Huda Bank has
also been involved in funneling of
counterfeit IQD through fake businesses
in Iraq. The counterfeit IQD would be
printed in Iran, funneled through Iraqi
businesses, and then exchanged for
USD. The use of counterfeit IQD greatly
increases the amount of illicit profit
gained from exchanging IQD for USD at
the CBI dollar auction, and the
funneling of counterfeit IQD through
Iraqi businesses disguises the
counterfeit IQD’s source in Iran.
12 Al-Arabiya, ‘‘Billions of Dollars’’ Smuggled Out
of Iraq During Maliki’s Rule, November 9, 2015,
available at https://english.alarabiya.net/News/
middle-east/2015/11/09/Iraq-smuggled-billions-ofdollars-during-Maliki-s-rule.
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3. Through the Exploitation of the CBI
Dollar Auction, Al-Huda Bank Provides
Support to Designated FTOs
Iran has exploited its relationship
with Iraq-based, Iran-backed militias to
influence Iraqi businesses and officials
to generate illicit revenue for the
militias’ operations. As part of this
effort, Iran has developed a network of
commercial platforms, including
financial institutions, to move funds
and misrepresent trade-based financial
transactions that obscure the ultimate
beneficiary, namely Iran-backed terrorist
groups and militias.
Since its establishment, Al-Huda
Bank has been controlled and operated
by the IRGC and IRGC–QF. In 2008, the
chairman of Al-Huda Bank established
the bank specifically for the benefit of
KH and has met with and taken orders
from IRGC–QF leadership in Tehran,
Iran. After establishing the bank, the AlHuda Bank chairman began money
laundering operations on behalf of the
IRGC–QF and KH.
Al-Huda Bank has funded Iranaligned militias through a scheme in
which Al-Huda Bank and other Iraqi
banks have falsely claimed imports that
did not exist into Iraq worth billions of
dollars to justify the purchase of USD in
the CBI dollar auction. Al-Huda Bank
would purchase the USD with
counterfeit IQD printed in Iran. Al-Huda
Bank was not allowed to conduct
financial transactions without the Iranaligned militias’ involvement and AlHuda Bank would provide part of AlHuda Bank’s revenue from this scheme
to those Iran-aligned militias.
This fraudulent scheme has been a
substantial source of funding for Iranaligned militias’ operations. The Iranaligned Iraqi militia AAH has used
companies based across Iraq to generate
revenue, launder illicit profits, and
convert IQD to USD. AAH has used AlHuda Bank to maintain accounts for
some of these companies, as well as to
access the currency auction. The use of
false imports, counterfeit currency, and
front companies are essential
components of exploitation of the CBI
dollar auction by obscuring the source
of funds and the purpose and ultimate
beneficiaries of the transactions that
support Iran-aligned Iraqi militias.
Overall, IRGC and IRGC–QF use of AlHuda Bank and several other Iraqi banks
to access the dollar auction resulted in
approximately $70 billion USD in profit
from 2019 through 2020.
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B. The Extent to Which Al-Huda Bank
Is Used for Legitimate Business
Purposes
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Al-Huda Bank is the 30th largest bank
in Iraq and approximately the 11,000th
largest in the world, with 416 billion
IQD ($285 million USD) in total assets
in 2020, which is approximately 0.2
percent of total Iraqi banking system
assets.13 Records collected by FinCEN
show Al-Huda Bank engaged in
approximately $4.7 billion USD in USDcleared international transactions
through U.S. correspondent bank
accounts between July 2017 and
December 2022, the vast majority being
CBI dollar auction-related transactions.
In 2020, Al-Huda Bank’s self-reported
total revenues were 8,937,678,000 IQD
($6,115,456 USD) with a gross profit of
2,753,653,000 IQD ($1,884,140 USD). As
of December 31, 2020, Al-Huda Bank
held 55,057,239,000 IQD ($37,671,991
USD) in customer account deposits,
approximately 1,110,270,000 IQD
($760,000 USD) of which were current
accounts belonging to private
individuals.14
The assets noted above, based on AlHuda Bank financial statements, are
indicative of at least a portion of
legitimate business transiting the
financial institution. However, FinCEN
assesses that Al-Huda Bank’s legitimate
business activities do not outweigh the
money laundering risks posed by the
bank, as the variety and type of the
illicit finance risks presented by AlHuda Bank are such that even a higher
volume of legitimate activity would not
allay FinCEN’s significant money
laundering concern.15 As demonstrated
above, Al-Huda Bank facilitates the
financing of a wide variety of terrorists
and terrorist groups, many of whom
have attacked citizens and partners of
the United States. Further, there is
significant information indicating that
the owner and chairman of Al-Huda
Bank is a witting and active participant
13 Al-Huda Bank, Consolidated Financial
Statements, December 31, 2020, available at
www.alhudabank.iq.
14 Id.
15 Relatedly, there is limited publicly available
information about Al-Huda Bank’s existing AML
policies and procedures to enable a current,
fulsome assessment. Al-Huda Bank’s 2020 End-ofYear report stated that its internal compliance
monitor reviewed Al-Huda Bank’s procedures when
opening checking accounts for customers and found
that Al-Huda Bank met the instructions and
directives of Iraqi AML, terrorist financing, and risk
management law, and it confirmed that current
account holders were not included in banned lists,
domestically or internationally. Id. at 11–12. Given
the totality of the circumstances, however, this selfassessment lacks credibility and does not alter
FinCEN’s overall assessment of concern.
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in the illicit finance involving and
perpetrated by Al-Huda Bank.
C. The Extent to Which Action Proposed
by FinCEN Would Guard Against
International Money Laundering and
Other Financial Crimes
As noted by the U.S. Department of
State in 2023, corruption is a significant
impediment to conducting business in
Iraq, and Iran-aligned militias threaten
U.S. citizens and companies throughout
Iraq.16 Al-Huda Bank has engaged in
transactions that facilitate the financing
of FTOs, including the IRGC, IRGC–QF,
and Iran-aligned militias KH and AAH,
with the support of the Iranian
government. A finding that Al-Huda
Bank is of primary money laundering
concern would make clear to foreign
correspondents Al-Huda Bank’s illicit
finance risk, and this awareness may
cause those financial institutions or
their regulators to take their own action
to address the risk. Moreover, such a
finding and subsequent imposition of
one or more special measures would
guard against money laundering and
other financial crimes by severing AlHuda Bank’s access to the U.S. financial
system.
IV. Proposed Special Measure
Having found that Al-Huda Bank is a
financial institution of primary money
laundering concern, particularly with
regard to its misuse of the dollar auction
to finance designated terrorist
organizations, FinCEN proposes
imposing a prohibition on covered
financial institutions under special
measure five. Special measure five
authorizes the Secretary to impose
conditions upon the opening or
maintaining in the United States of a
correspondent account or payablethrough account, if such account
‘‘involves’’ a financial institution of
primary money laundering concern.
Although Al-Huda Bank does not have
correspondent accounts with U.S.
financial institutions, it has accounts
with foreign financial institutions that
maintain U.S. correspondent accounts.
Those U.S. correspondent accounts
involve Al-Huda Bank when
transactions involving the bank are
processed through those accounts. Thus,
FinCEN has determined that special
measure five will most effectively
mitigate the risks posed by Al-Huda
Bank.
FinCEN considered the other special
measures available under section 311.
As discussed further in Section IV.E.
16 U.S. Department of State, 2021 Investment
Climate Statements: Iraq, 2021, available at https://
www.state.gov/reports/2021-investment-climatestatements/iraq/.
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below, it determined that none of them
would appropriately address the risks
posed by Al-Huda Bank.
In proposing this special measure,
FinCEN consulted with the Board of
Governors of the Federal Reserve
System, the Office of the Comptroller of
the Currency, the Secretary of State, the
staff of the Securities and Exchange
Commission, the Commodity Futures
Trading Commission, staff of the
National Credit Union Administration,
the Federal Deposit Insurance
Corporation, and the Attorney General.
These consultations involved obtaining
interagency views on the imposition of
special measure five and the effects that
such a prohibition would have on the
U.S. domestic and international
financial systems.
Below is a discussion of the relevant
statutory factors FinCEN considered in
proposing the prohibition under special
measure five.
A. Whether Similar Action Has Been or
Is Being Taken by Other Nations or
Multilateral Groups Regarding Al-Huda
Bank
FinCEN is not aware of any other
nation or multilateral group that has
imposed, or is currently imposing,
similar action against Al-Huda Bank.
B. 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
While FinCEN assesses that the
prohibition proposed in this NPRM
would place some cost and burden on
covered financial institutions, these
burdens are neither undue nor
inappropriate in view of the threat
posed by the illicit activity facilitated by
Al-Huda Bank. As described above, AlHuda Bank has had access to USD
through the CBI dollar auction, which
does not require Iraqi banks to have
direct USD correspondent relationships.
Also as described above, Al-Huda Bank
has no direct USD correspondent
relationships with U.S. financial
institutions. Rather, it accesses USD
through its nested correspondent
relationships, including but not limited
to six USD accounts outside the United
States. These accounts may be used for
commercial payments, as well as foreign
exchange and money markets. Covered
financial institutions and transaction
partners have ample opportunity to
arrange for alternative payment
mechanisms in the absence of
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correspondent banking relationships
with Al-Huda Bank.
As such, a prohibition on
correspondent banking with Al-Huda
Bank would impose minimal additional
compliance costs for covered financial
institutions, which would most
commonly involve merely involve
adding Al-Huda Bank to existing
sanctions and money laundering
screening tools. FinCEN assesses that
given the risks posed by Al-Huda Bank’s
facilitation of money laundering, the
additional burden on covered financial
institutions in preventing the opening of
correspondent accounts with Al-Huda
Bank, as well as conducting due
diligence on foreign correspondent
account holders and notifying them of
the prohibition, will be minimal and not
undue.
C. 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 of Al-Huda Bank
FinCEN assesses that imposing the
proposed special measure would have
minimal impact upon the international
payment, clearance, and settlement
system. As a comparatively small bank,
responsible for a nominal amount of
transaction volume in the region, AlHuda Bank is not a systemically
important financial institution in Iraq,
regionally, or globally. FinCEN views
that prohibiting Al-Huda Bank’s access
to U.S.-Iraq correspondent banking
channels would not affect overall crossborder transaction volumes.
Further, a prohibition under special
measure five would not prevent AlHuda Bank from conducting legitimate
business activities in other foreign
currencies. In addition to the six
correspondent accounts used to access
USD noted above, Al-Huda Bank
currently holds two Euro accounts and
two United Arab Emirates (UAE) dirham
(AED) accounts as well.17 Provided that
its legitimate activities do not involve a
correspondent account maintained in
the United States, the bank could
continue to engage in them.
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D. The Effect of the Proposed Action on
United States National Security and
Foreign Policy
As described above, evidence
available to FinCEN has demonstrated
that Al-Huda Bank served as a
significant conduit for the financing of
FTOs in violation of U.S. and
17 BankCheck, Al-Huda Bank—Iraq, accessed
December 13, 2023, available at https://
bankcheck.app.
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international sanctions. Imposing
special measure five will: (1) close AlHuda Bank’s access to USD; (2) remove
Al-Huda Bank as an illicit finance
facilitator within an international
network of front companies and
sanctions evasion infrastructure
supporting these FTOs; and (3) raise
awareness of the way illicit actors
exploit weaknesses in vulnerable
jurisdictions to circumvent sanctions
and finance terrorism.
E. Consideration of Alternative Special
Measures
In assessing the appropriate special
measure to impose, FinCEN considered
alternatives to a prohibition on the
opening or maintaining in the United
States of correspondent accounts or
payable-through accounts, including the
imposition of one or more of the first
four special measures, or imposing
conditions on the opening or
maintaining of correspondent accounts
under special measure five. Having
considered these alternatives and for the
reasons set out below, FinCEN assesses
that none of the other special measures
available under section 311 would
appropriately address the risks posed by
Al-Huda Bank and the urgent need to
prevent it from accessing USD through
correspondent banking entirely.
With the knowledge of Al-Huda
Bank’s chairman, Al-Huda Bank’s abuse
of the dollar auction is obfuscated
through the application of numerous
money laundering typologies, including
the use of fraudulent documentation,
fake deposits, identity documents of the
deceased, fake companies, and
counterfeit IQD, which are used to
purchase USD and support terrorist
groups and militias. Taken as a whole,
Al-Huda Bank’s illicit activities present
a heightened risk of obscured
transaction counterparty identification
that would be undetectable by covered
financial institutions. Indeed, a key
feature of the facilitation of funding for
Iranian and Iran-aligned FTOs through
Al-Huda Bank is the use of fake
companies to obscure the true beneficial
owners and ultimate destinations of
funds involved in the transactions.
Moreover, this behavior provides
opportunities for obscuring the
identities of transaction counterparties
to correspondent banking relationship
providers.
Because of the nature, extent, and
purpose of the obfuscation engaged in
by Al-Huda Bank, any special measure
intended to mandate additional
information collection would likely be
ineffective and insufficient to determine
the true identity of illicit finance actors.
For example, the provision under
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special measure one, that ‘‘the identity
and address of the participants in a
transaction or relationship, including
the identity of the originator of any
funds transfer’’ be collected in records
and reports, could be circumvented by
the operations of shell companies,
wherein the reported identity of the
originator serves to obscure the true
beneficial owner or originator. This
would accordingly be ineffective in
preventing illicit transactions. Al-Huda
Bank’s record of such circumvention
suggests special measure one would not
adequately protect the U.S. financial
system from the threats posed by the
bank.
Further, the requirements under
special measures three and four, that
domestic financial institutions obtain
‘‘with respect to each customer (and
each such representative), information
that is substantially comparable to that
which the depository institution obtains
in the ordinary course of business with
respect to its customers residing in the
United States’’, are also likely to be
ineffective. First, Al-Huda Bank’s use of
nested correspondent account access
through layers of payment systems
would render these alternative measures
ineffective. Only significant effort and
expense by U.S. institutions could fill
this gap, which would impose a
disproportionate compliance burden
and with no guarantee that the money
laundering threat would be addressed
through customer due diligence
research.
FinCEN also considered special
measure two, which may require
domestic financial institutions to
‘‘obtain and retain information
concerning the beneficial ownership of
any account opened or maintained in
the United States by a foreign person.’’
The agency determined this special
measure to be largely irrelevant since
the concerns involving Al-Huda Bank
do not involve the opening or
maintaining of accounts in the U.S. by
foreign persons.
FinCEN similarly assesses that merely
imposing conditions under special
measure five would be inadequate to
address the risks posed by Al-Huda
Bank’s activities. Special measure five
also enables FinCEN to impose
conditions as an alternative to a
prohibition on the opening or
maintaining of correspondent accounts.
Given Al-Huda Bank’s consistent and
longstanding ties to terrorist financing
organizations since its inception, and its
track record of obfuscating transactions
and account holders, FinCEN
determined that imposing any condition
would not be an effective measure to
safeguard the U.S. financial system.
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FinCEN assesses that the billions of
dollars supplied to terrorist groups
through Al-Huda Bank’s exploitation of
its access to USD, and the exposure of
U.S. financial institutions to Al-Huda
Bank’s illicit activity outweigh the value
in providing conditioned access to the
U.S. financial system for any
purportedly legitimate business activity.
Conditions on the opening or
maintaining of correspondent accounts
would likely be insufficient to prevent
illicit financial flows through the U.S.
financial system, given Al-Huda Bank’s
use of fraudulent documentation and
front companies to obscure its financing
of terrorist groups in order to access
USD. Given Al-Huda Bank’s deliberate
use of money laundering typologies,
FinCEN cannot craft sufficient
conditions to enable covered financial
institutions to open or maintain
correspondent accounts for Al-Huda
Bank without introducing severe risk to
those financial institutions in
processing transactions that ultimately
finance terrorism.
FinCEN, thus, assesses that any
condition or additional recordkeeping
or reporting requirement would be an
ineffective measure to safeguard the
U.S. financial system. Such measures
would not prevent Al-Huda Bank from
accessing the correspondent accounts of
U.S. financial institutions, thus leaving
the U.S. financial system vulnerable to
processing illicit transfers that are likely
to finance terrorist groups, posing a
significant national security and money
laundering risk. In addition, no
recordkeeping or reporting requirements
or conditions 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 terrorist groups. Therefore,
FinCEN has determined that a
prohibition on opening or maintaining
correspondent banking relationships is
the only special measure out of the
special measures available under
section 311 that can adequately protect
the U.S. financial system from the illicit
finance risk posed by Al-Huda Bank.
For these reasons, and after thorough
consideration of alternate measures,
FinCEN assesses that no measures short
of full prohibition on correspondent or
payable-through banking access would
be sufficient to address the money
laundering risks posed by Al-Huda
Bank.
V. Section-by-Section Analysis
The goal of this proposed rule is to
combat and deter money laundering in
facilitation of terrorist financing
associated with Al-Huda Bank and
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prevent Al-Huda Bank from using the
U.S. financial system to enable its illicit
finance behavior.
A. 1010.663(a)—Definitions
1. Definition of Al-Huda Bank
The term ‘‘Al-Huda Bank’’ means all
subsidiaries, branches, and offices of AlHuda Bank operating as a bank in any
jurisdiction. FinCEN is not currently
aware of any subsidiary banks or
branches outside of Iraq.
2. Definition of Correspondent Account
The term ‘‘correspondent account’’
has the same meaning as the definition
contained in 31 CFR 1010.605(c)(1)(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 is 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.18 Under this
definition, ‘‘payable-through accounts’’
are a type of correspondent account.
In the case of securities brokerdealers, futures commission merchants,
introducing brokers in 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
due diligence for correspondent
accounts maintained for certain foreign
banks.19
3. Definition of Covered Financial
Institution
The term ‘‘covered financial
institution’’ is defined 31 CFR
1010.100(t), which in general includes
the following:
• A bank (except bank credit card
systems);
• A broker or dealer in securities;
• A money services business, as
defined in 31 CFR 1010.100(ff);
• A telegraph company;
18 See
19 See
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31 CFR 1010.605(c)(2)(ii)–(iv).
Frm 00055
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6079
• A casino;
• A card club;
• A person subject to supervision by
any state or Federal bank supervisory
authority;
• A futures commission merchant or
an introducing broker-commodities; and
• A mutual fund.
4. Definition of Foreign Banking
Institution
The term ‘‘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. This is
consistent with the definition of
‘‘foreign bank’’ under 31 CFR 1010.100.
This proposed rule interprets Al-Huda
Bank to be a foreign banking institution.
5. Definition of Subsidiary
The term ‘‘subsidiary’’ means a
company of which more than 50 percent
of the voting stock or analogous equity
interest is owned by another company.
B. 1010.663(b)—Prohibition on
Accounts and Due Diligence
Requirements for Covered Financial
Institutions
1. Prohibition on Opening or
Maintaining Correspondent Accounts
Section 1010.663(b)(1) of the
proposed rule would prohibit covered
financial institutions from opening or
maintaining in the United States a
correspondent account for, or on behalf
of, Al-Huda Bank.
2. Prohibition on Use of Correspondent
Accounts Involving Al-Huda Bank
Section 1010.663(b)(2) of the
proposed rule would 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 Al-Huda
Bank. Such reasonable steps are
described in 1010.663(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 Al-Huda
Bank.
3. Special Due Diligence for
Correspondent Accounts
As a corollary to the prohibition set
forth in section 1010.663(b)(1) and (2),
section 1010.663(b)(3) of the proposed
rule would require covered financial
institutions to apply special due
diligence to all of their foreign
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correspondent accounts that is
reasonably designed to guard against
such accounts being used to process
transactions involving Al-Huda Bank.
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 Al-Huda Bank, that such
correspondents may not provide AlHuda Bank 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:
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Notice: Pursuant to U.S. regulations issued
under Section 311 of the USA PATRIOT Act,
see 31 CFR 1010.663, we are prohibited from
opening or maintaining in the United States
a correspondent account for, or on behalf of,
Al-Huda Bank. The regulations also require
us to notify you that you may not provide AlHuda Bank, including any of its subsidiaries,
branches, and offices 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 Al-Huda Bank,
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 Al-Huda Bank
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 Al-Huda Bank.
Special due diligence also includes
implementing risk-based procedures
designed to identify any use of
correspondent accounts to process
transactions involving Al-Huda Bank. A
covered financial institution would be
expected to apply an appropriate
screening mechanism to identify a funds
transfer order that on its face listed AlHuda Bank as the financial institution of
the originator or beneficiary, or
otherwise referenced Al-Huda Bank in a
manner detectable under the financial
institution’s normal screening
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mechanisms. An appropriate screening
mechanism could be the mechanisms
used by a covered financial institution
to comply with various legal
requirements, such as commercially
available software programs used to
comply with the economic sanctions
programs administered by the U.S.
Department of the Treasury’s Office of
Foreign Assets Control (OFAC).
4. Recordkeeping and Reporting
Section 1010.663(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 in section
1010.663(b)(3).
VI. Request for Comments
FinCEN is requesting comments for 30
days after the publication of this NPRM.
Given Al-Huda Bank’s consistent and
longstanding ties to terrorist financing
and its track record of obfuscating
transactions, FinCEN assesses that a 30day comment period for this NPRM
strikes an appropriate balance between
ensuring sufficient time for notice to the
public and opportunity for comment on
the proposed rule, while minimizing
undue risk posed to the U.S. financial
system in processing illicit transfers that
are likely to finance terrorist groups.
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
imposing 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.
VII. Regulatory Impact Analysis
FinCEN has analyzed this proposed
rule under Executive Orders 12866,
13563, and 14094, the Regulatory
Flexibility Act,20 the Unfunded
Mandates Reform Act,21 and the
Paperwork Reduction Act.22
As discussed above, the intended
effects of the imposition of special
20 5
U.S.C. 603.
U.S.C. 1532, Public Law 104–4 (Mar. 22,
measure five to Al-Huda Bank are
twofold. The rule is expected to (1)
combat and deter money laundering in
facilitation of terrorist financing
associated with Al-Huda Bank, and (2)
prevent Al-Huda Bank from using the
U.S. financial system to enable its illicit
finance behavior. In the analysis below,
FinCEN discusses the economic effects
that are expected to accompany
adoption of the rule as proposed and
assess such expectations in more
granular detail. This discussion
includes detailed explanation of certain
ways FinCEN’s conclusions may be
sensitive to methodological choices and
underlying assumptions made in
drawing inferences from available data.
Throughout, these have been outlined
so that the public may review and
provide comment.23
A. Executive Orders
Executive Orders 12866, 13563, and
14094 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 this
proposed rule is not a significant
regulatory action under section 3(f) of
Executive Order 12866, as amended by
Executive Order 14094. Accordingly, a
regulatory impact analysis is not
required.
B. 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’’
(IRFA) that will ‘‘describe the impact of
the proposed rule on small entities.’’ 24
However, 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.
This proposed rule would apply to all
covered financial institutions and
would affect a substantial number of
small entities. However, for the reasons
described below, FinCEN assesses that
these changes would be unlikely to have
21 12
1995).
22 44 U.S.C. 3507(a)(1)(D).
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23 See
24 5
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a significant economic impact on such
entities.
Covered financial institutions would
also be required to take reasonable
measures to detect use of their
correspondent accounts to process
transactions involving Al-Huda Bank.
All U.S. persons, including U.S.
financial institutions, currently must
comply with OFAC sanctions, and U.S.
financial institutions generally have
suspicious activity reporting
requirements and systems in place to
screen transactions to comply with
OFAC sanctions and section 311 special
measures administered by FinCEN. 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 Al-Huda Bank
and the transmittal of notification to
certain correspondent account holders—
would not impose a significant
additional economic burden upon small
U.S. financial institutions. 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 Al-Huda
Bank.
C. Unfunded Mandates Reform Act
Section 202 of the Unfunded
Mandates Reform Act of 1995 25
(Unfunded Mandates Reform Act),
requires that an agency prepare a
budgetary impact statement before
promulgating a rule that may result in
expenditure by the state, local, and
tribal governments, in the aggregate, or
by the private sector, of $100 million or
more in any one year, adjusted for
inflation.26 If a budgetary impact
statement is required, section 202 of the
Unfunded Mandates Reform Act also
requires an agency to identify and
consider a reasonable number of
regulatory alternatives before
promulgating a rule.27
FinCEN has determined that this
proposed rule will not result in
expenditures by state, local, and tribal
governments, in the aggregate, or by the
25 12 U.S.C. 1532, Public Law 104–4 (Mar. 22,
1995).
26 Id.
27 Id.
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private sector, of an annual $100 million
or more, adjusted for inflation ($184.7
million).28 Accordingly, FinCEN has not
prepared a budgetary impact statement
or specifically addressed the regulatory
alternatives considered.
D. Paperwork Reduction Act
The recordkeeping and reporting
requirements, referred to by the Office
of Management and Budget (OMB) as a
collection of information, contained in
this proposed rule will be submitted by
FinCEN to the OMB for review in
accordance with the Paperwork
Reduction Act of 1995 (PRA).29 Under
the PRA, 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 the OMB. Written
comments and recommendations for the
proposed prohibition can be submitted
by visiting www.reginfo.gov/public/do/
PRAMain. Find this particular
document by selecting ‘‘Currently under
Review—Open for Public Comments’’ or
by using the search function. Comments
are welcome and must be received by
[30 DAYS AFTER DATE OF
PUBLICATION IN THE FEDERAL
REGISTER]. In accordance with
requirements of the PRA and its
implementing regulations, 5 CFR part
1320, the following information
concerning the collection of information
as required by 31 CFR 1010.663 is
presented to assist those persons
wishing to comment on the information
collections.
The provisions in this proposed rule
pertaining to the collection of
information can be found in section
1010.663(b)(4). The information
required to be maintained by that
section will be used by federal agencies
and certain self-regulatory organizations
to verify compliance by covered
financial institutions with the
notification requirements in 31 CFR
1010.663(b)(3)(i)(A), which are intended
to aid cooperation from correspondent
account holders in denying the Al Huda
Bank access to the U.S. financial system.
28 The Unfunded Mandates Reform Act requires
an assessment of mandates that will result in an
annual expenditure of $100 million or more,
adjusted for inflation. The U.S. Bureau of Economic
Analysis reports the annual value of the gross
domestic product (GDP) deflator in the first quarter
of 1995, the year of the Unfunded Mandates Reform
Act, as 66.452, and as 122.762 in the third quarter
of 2023, the most recent available. See U.S. Bureau
of Economic Analysis, ‘‘Table 1.1.9. Implicit Price
Deflators for Gross Domestic Product’’ (accessed
December 14, 2023) available at https://
www.bea.gov/itable/. Thus, the inflation adjusted
estimate for $100 million is 122.762/66.452 × 100
= $184.7 million.
29 44 U.S.C. 3507(a)(1)(D).
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The collection of information would be
mandatory.
Frequency: As required.
Description of Affected Financial
Institutions: Only those covered
financial institutions defined in section
1010.663(a)(3) engaged in correspondent
banking with, or processing transactions
potentially involving, Al-Huda Bank as
defined in section 1010.663(b)(1) and (2)
would be affected.
Estimated Number of Affected
Financial Institutions: Approximately
15,000.30
TABLE 1—ESTIMATES OF AFFECTED
FINANCIAL INSTITUTIONS BY TYPE
Financial institution type
Banks 31 ......................................
Broker-Dealers in securities 33 ...
Mutual Funds 35 ..........................
Futures Commission Merchants 37 ..................................
Introducing Brokers in Commodities 39 ......................................
Number of
entities
32 9,250
34 3,477
36 1,495
38 62
40 937
Estimated Average Annual Burden in
Hours per Affected Financial
Institution: The estimated average
annual burden associated with the
collection of information in this
30 This estimate is informed by public and nonpublic data sources regarding both an expected
maximum number of entities that may be affected
and the number of active, or currently reporting,
registered financial institutions.
31 See 31 CFR 1010.100(t)(1); see also 31 CFR
1010.100(d).
32 Bank data is as of December 14, 2023, from
Federal Deposit Insurance Corporation BankFind
(https://banks.data.fdic.gov/bankfind-suite/
bankfind). Credit union data is as of September 30,
2023 from the National Credit Union
Administration Quarterly Data Summary Reports
(https://ncua.gov/analysis/credit-union-corporatecall-report-data/quarterly-data-summary-reports).
33 31 CFR 1010.100(t)(2).
34 According to the Securities and Exchange
Commission (SEC), there are 3,477 broker-dealers in
securities as of December 2023 from website
‘‘Company Information About Active BrokerDealers’’ (https://www.sec.gov/help/
foiadocsbdfoia).
35 31 CFR 1010.100(t)(10).
36 According to the SEC, as of the third quarter
of 2023, there are 1,495 open-end registered
investment companies that report on Form N–CEN.
(https://www.sec.gov/dera/data/form-ncen-datasets).
37 31 CFR 1010.100(t)(8).
38 According to the Commodity Futures Trading
Commission (CFTC), there are 62 futures
commission merchants as of October 31, 2023. See
Financial Data for FCMs, available at https://
www.cftc.gov/MarketReports/financialfcmdata/
index.htm.
39 31 CFR 1010.100(t)(9).
40 According to National Futures Association,
there are 937 introducing brokers in commodities
as of November 30, 2023.
E:\FR\FM\31JAP1.SGM
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6082
Federal Register / Vol. 89, No. 21 / Wednesday, January 31, 2024 / Proposed Rules
proposed rule is one hour per affected
financial institution.
Estimated Total Annual Burden:
Approximately 15,000 hours.
FinCEN specifically invites comments
on: (a) whether the proposed collection
of information found in section
1010.663(b)(4) 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.
VIII. Regulatory Text
List of Subjects in 31 CFR Part 1010
Administrative practice and
procedure, Banks, Banking, Brokers,
Crime, Foreign banking, Terrorism.
Authority and Issuance
For the reasons set forth in the
preamble, FinCEN proposes amending
31 CFR part 1010 as follows:
PART 1010—GENERAL PROVISIONS
1. The authority citation for part 1010
continues to read as follows:
■
Authority: 12 U.S.C. 1829b and 1951–1959;
31 U.S.C. 5311–5314, 5316–5336; title III,
sec. 314, Pub. L. 107–56, 115 Stat. 307; sec.
2006, Pub. L. 114–41, 129 Stat. 458–459; sec.
701 Pub. L. 114–74, 129 Stat. 599; sec. 6403,
Pub. L. 116–283, 134 Stat. 3388.
■
2. Add § 1010.663 to read as follows:
lotter on DSK11XQN23PROD with PROPOSALS1
§ 1010.663 Special measures regarding AlHuda Bank.
(a) Definitions. For purposes of this
section, the following terms have the
following meanings.
(1) Al-Huda Bank. The term ‘‘Al-Huda
Bank’’ means all subsidiaries, branches,
and offices of Al-Huda Bank operating
as a bank in any jurisdiction.
(2) Correspondent account. The term
‘‘correspondent account’’ has the same
meaning as provided in
§ 1010.605(c)(l)(ii).
(3) Covered financial institution. The
term ‘‘covered financial institution’’ has
the same meaning as provided in
§ 1010.605(e)(2).
(4) Foreign banking institution. The
term ‘‘foreign banking institution’’
means a bank organized under foreign
VerDate Sep<11>2014
16:27 Jan 30, 2024
Jkt 262001
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. The term ‘‘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 opening or maintaining
correspondent accounts for Al-Huda
Bank. A covered financial institution
shall not open or maintain in the United
States a correspondent account for, or
on behalf of, Al-Huda Bank.
(2) Prohibition on processing
transactions involving Al-Huda Bank. 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 Al-Huda Bank.
(3) Special due diligence of
correspondent accounts to prohibit
transactions. (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 Al-Huda Bank.
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
Al-Huda Bank that such correspondents
may not provide Al-Huda Bank 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 Al-Huda Bank, 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 Al-Huda
Bank.
(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 Al-Huda Bank
shall take all appropriate steps to further
investigate and prevent such access,
PO 00000
Frm 00058
Fmt 4702
Sfmt 4702
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
notification 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: January 29, 2024.
Andrea M. Gacki,
Director, Financial Crimes Enforcement
Network.
[FR Doc. 2024–02004 Filed 1–30–24; 8:45 am]
BILLING CODE 4810–02–P
ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Part 52
[EPA–R01–OAR–2024–0018; FRL–11714–
01–R1]
Air Plan Approval; New Hampshire;
Amendments to Motor Vehicle
Inspection and Maintenance Program
Regulation
Environmental Protection
Agency (EPA).
ACTION: Proposed rule.
AGENCY:
The Environmental Protection
Agency (EPA) is proposing to approve a
State Implementation Plan (SIP)
revision submitted by the State of New
Hampshire. This revision includes an
amended regulation for the Enhanced
Motor Vehicle Inspection and
Maintenance (I/M) program in New
Hampshire. Overall, the submittal
updates and clarifies the
implementation of the New Hampshire
I/M program. The intended effect of this
action is to propose approval of the
updated I/M program regulation into the
New Hampshire SIP. This action is
being taken under the Clean Air Act.
DATES: Written comments must be
received on or before March 1, 2024.
ADDRESSES: Submit your comments,
identified by Docket ID No. EPA–R01–
OAR–2024–0018 at https://
www.regulations.gov, or via email to
martinelli.ayla@epa.gov. For comments
submitted at Regulations.gov, follow the
online instructions for submitting
comments. Once submitted, comments
cannot be edited or removed from
Regulations.gov. For either manner of
submission, the EPA may publish any
SUMMARY:
E:\FR\FM\31JAP1.SGM
31JAP1
]]>Agencies
[Federal Register Volume 89, Number 21 (Wednesday, January 31, 2024)]
[Proposed Rules]
[Pages 6074-6082]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-02004]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Financial Crimes Enforcement Network
31 CFR Part 1010
RIN 1506-AB65
Proposal of Special Measure Regarding Al-Huda Bank, as a Foreign
Financial Institution of Primary Money Laundering Concern
AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: FinCEN is issuing a notice of proposed rulemaking (NPRM),
pursuant to section 311 of the USA PATRIOT Act, that proposes
prohibiting the opening or maintaining of a correspondent account in
the United States for, or on behalf of, Al-Huda Bank, a foreign
financial institution based in Iraq found to be of primary money
laundering concern.
DATES: Written comments on the notice of proposed rulemaking must be
submitted on or before March 1, 2024.
ADDRESSES: Comments must be submitted by one of the following methods:
Federal E-rulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments. Refer to Docket Number
FINCEN-2024-0001 in the submission.
Mail: Financial Crimes Enforcement Network, P.O. Box 39,
Vienna, VA 22183. Refer to Docket Number FINCEN-2024-0001 in the
submission.
Please submit comments by one method only and note that comments
submitted in response to this NPRM will become a matter of public
record.
FOR FURTHER INFORMATION CONTACT: The FinCEN Regulatory Support Section
at 1-800-767-2825 or electronically at [email protected].
SUPPLEMENTARY INFORMATION:
I. Statutory Provisions
Section 311 of the USA PATRIOT Act (section 311), codified at 31
U.S.C. 5318A, grants the Secretary of the Treasury (Secretary)
authority, upon finding that reasonable grounds exist for concluding
that one or more financial institutions operating outside of the United
States is of primary money laundering concern, to require domestic
financial institutions and domestic financial agencies to take certain
``special measures.'' \1\ The authority of the Secretary to administer
the Bank Secrecy Act (BSA) and its implementing regulations has been
delegated to FinCEN.\2\
---------------------------------------------------------------------------
\1\ On October 26, 2001, the President signed into law the
Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001, Public Law
107-56 (USA PATRIOT Act). Title III of the USA PATRIOT Act amended
the anti-money laundering (AML) provisions of the Bank Secrecy Act
(BSA) to promote the prevention, detection, and prosecution of
international money laundering and the financing of terrorism. The
BSA, as amended, is the popular name for a collection of statutory
authorities that FinCEN administers that is codified at 12 U.S.C.
1829b, 1951-1960 and 31 U.S.C. 5311-5314, 5316-5336, and includes
other authorities reflected in notes thereto. Regulations
implementing the BSA appear at 31 CFR Chapter X.
\2\ Pursuant to Treasury Order 180-01 (Jan. 14, 2020), the
authority of the Secretary to administer the BSA, including, but not
limited to, 31 U.S.C. 5318A, has been delegated to the Director of
FinCEN.
---------------------------------------------------------------------------
The five special measures set out in section 311 are safeguards
that may be employed to defend the U.S. financial system from money
laundering and terrorist financing risks. The Secretary may impose one
or more of these special measures in order to protect the U.S.
financial system from such threats. Through special measures one
through four, the Secretary may impose additional recordkeeping,
information collection, and reporting requirements on covered domestic
financial institutions and domestic financial agencies--collectively,
``covered financial institutions.'' \3\ Through special measure five,
the Secretary may prohibit, or impose conditions on, the opening or
maintaining in the United States of correspondent or payable-
[[Page 6075]]
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.\4\
---------------------------------------------------------------------------
\3\ 31 U.S.C. 5318A(b)(1)-(b)(4). For definition of ``covered
financial institutions,'' see 31 CFR 1010.100(t) and section V.A.3
of this notice.
\4\ 31 U.S.C. 5318A(b)(5).
---------------------------------------------------------------------------
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.\5\ The Secretary is also
required to consider such information as the Secretary determines to be
relevant, including the following potentially relevant factors:
---------------------------------------------------------------------------
\5\ 31 U.S.C. 5318A(c)(1).
---------------------------------------------------------------------------
The extent to which such a financial institution is used
to facilitate or promote money laundering in or through a jurisdiction
outside the United States, 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 foreign 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.\6\
---------------------------------------------------------------------------
\6\ 31 U.S.C. 5318A(c)(2)(B).
---------------------------------------------------------------------------
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 one or
more special measures, 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 may find appropriate.'' \7\ When imposing special measure
five, 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.'' \8\
---------------------------------------------------------------------------
\7\ 31 U.S.C. 5318A(a)(4)(A).
\8\ 31 U.S.C. 5318A(b)(5).
---------------------------------------------------------------------------
In addition, the Secretary is required to consider the following
factors when selecting special measures:
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.\9\
---------------------------------------------------------------------------
\9\ 31 U.S.C. 5318A(a)(4)(B).
---------------------------------------------------------------------------
II. Summary of NPRM
For years, Al-Huda Bank has exploited its access to U.S. dollars
(USD) to support designated foreign terrorist organizations (FTOs),
including Iran's Islamic Revolutionary Guard Corps (IRGC) and IRGC-Quds
Force (IRGC-QF) as well as Iran-aligned Iraqi militias Kata'ib
Hizballah (KH) and Asa'ib Ahl al-Haq (AAH).\10\ Since its
establishment, Al-Huda Bank has been controlled and operated by the
IRGC and IRGC-QF. Moreover, the chairman of Al-Huda Bank is complicit
in Al-Huda Bank's illicit financial activities, including money
laundering through front companies that conceal the true nature of and
parties involved in illicit transactions, ultimately enabling the
financing of terrorism.
---------------------------------------------------------------------------
\10\ The Department of State has authority to designate
organizations as FTOs. The U.S. Department of the Treasury's Office
of Foreign Assets Control (OFAC) has also designated the IRGC, IRGC-
QF, KH, and AAH pursuant to multiple sanctions authorities.
---------------------------------------------------------------------------
Given the nature of Iraq's economy and trade relationships, Iraqi
businesses that import goods into Iraq rely on wire transfers of USD
from the account of the Central Bank of Iraq (CBI) at the Federal
Reserve Bank of New York (FRBNY), a process known as the wire auction,
or more generally the ``CBI dollar auction.'' \11\ Many Iraqi
businesses and financial institutions use the CBI dollar auction for
legitimate purposes. However, FinCEN assesses that Al-Huda Bank has
deliberately embarked on a strategy that relies on exploiting the CBI
dollar auction to support designated FTOs, including the IRGC, IRGC-QF,
KH, and AAH, with the support of the Iranian government. Al-Huda Bank
has actively supported terrorist groups and abused the CBI dollar
auction through numerous money laundering typologies, including use of
fraudulent documentation to obscure the ultimate beneficiaries of the
transactions. Given these facts, FinCEN assesses that there is a high
risk of Al-Huda Bank exploiting USD correspondent relationships to
support its money laundering and terrorist financing activity.
---------------------------------------------------------------------------
\11\ The CBI dollar auction comprises both (1) the wire auction
and (2) bulk USD banknote shipments to Iraq which the CBI sells to
exchange houses and banks in return for IQD. The latter is known as
the ``cash auction'' and is a separate process from the wire
auction. Al-Huda Bank's illicit finance activities described herein
are related to the wire auction. See Section III.A.2.
---------------------------------------------------------------------------
This NPRM (1) sets forth FinCEN's finding that Al-Huda Bank is a
foreign financial institution of primary money laundering concern; and
(2) proposes that, under special measure five, covered financial
institutions be prohibited from opening or maintaining a correspondent
account for, or on behalf of, Al-Huda Bank.
III. Finding That Al-Huda Bank Is a Foreign Financial Institution of
Primary Money Laundering Concern
Pursuant to 31 U.S.C. 5318A(a)(1), FinCEN finds that reasonable
grounds exist for concluding that Al-Huda Bank is a foreign financial
institution of primary money laundering concern. Below is a discussion
of the relevant statutory factors FinCEN considered in making this
finding related to this Iraq-based financial institution.
A. The Extent to Which Al-Huda Bank Is Used To Facilitate or Promote
Money Laundering Outside the United States, Including Any Money
Laundering Activity by Organized Criminal Groups, International
Terrorists, or Entities Involved in the Proliferation of WMD or
Missiles
FinCEN assesses that Al-Huda Bank is used to facilitate or promote
money laundering outside the United States, particularly money
laundering activity to support designated FTOs. FinCEN based this
assessment on information available through both public and non-public
reporting, and after thorough consideration of each of the following
factors: (1) that Al-Huda Bank is a foreign financial institution; and
(2) that Al-Huda Bank exploits its access to USD through the dollar
auction; and (3) that through the exploitation of the dollar auction,
Al-Huda Bank provides support to designated FTOs, in particular the
IRGC and IRGC-QF, as well as Iran-aligned Iraqi militias KH and AAH.
[[Page 6076]]
1. Al-Huda Bank Is a Foreign Financial Institution
Al-Huda Bank is a private commercial bank registered and
headquartered in Baghdad, Iraq, with five domestic branch locations.
These domestic branches are in Baghdad, Karbala, and Nasiriyah. Al-Huda
Bank has no subsidiaries or branches outside of Iraq, and is regulated
by the CBI.
Al-Huda Bank has no direct U.S. correspondent banking relationships
but interacts with the U.S. financial system indirectly through USD
correspondent accounts at six foreign financial institutions. In other
words, Al-Huda Bank interacts with foreign banks that themselves have
correspondent accounts with U.S. banks. Al-Huda Bank also accesses USD
through the CBI dollar auction.
2. Al-Huda Bank Exploits Its Access to USD Through the CBI Dollar
Auction
Individual Iraqi businesses that import goods into Iraq rely on
wire transfers of USD from CBI's account at the FRBNY. The CBI wire
auction is the mechanism by which the CBI provides USD to facilitate
the purchase of imports. When Iraq sells oil in the international
petroleum markets, the revenues are credited in USD to the CBI's
account at the FRBNY. Iraqi companies with accounts at Iraqi banks can
then access the CBI dollar auction to purchase USD with Iraqi dinar
(IQD) to pay for imports. USD are transferred from the CBI's FRBNY
account to an Iraqi bank, and onward to a third-country bank on behalf
of a third-country exporter.
Many Iraqi businesses and their banks use the CBI dollar auction
for its intended, legitimate purpose of facilitating imports of goods.
However, as discussed in section III.A.3, FinCEN assesses that Al-Huda
Bank has deliberately embarked on a strategy that relies on
illegitimate exploitation of the dollar auction to support designated
FTOs, including the IRGC, IRGC-QF, KH, and AAH, with the support of the
Iranian government.
With the knowledge of Al-Huda Bank's chairman, Al-Huda Bank's abuse
of the dollar auction is obfuscated through the application of numerous
money laundering typologies, including the use of fraudulent
documentation, fake deposits, identity documents of the deceased, fake
companies, and counterfeit IQD, which are used to purchase USD and
support terrorist groups and militias. For years, Al-Huda Bank has been
involved in these deceptive money laundering activities. Examples of
three of these money laundering typologies are discussed below: (1)
fraudulent documentation; (2) stolen identities; and (3) counterfeit
IQD. Al-Huda Bank's use of these money laundering typologies also risks
exposing covered financial institutions to Al-Huda Bank's exploitation
of USD correspondent banking relationships to support its terrorist
financing activities, discussed in section III.A.3.
Since at least 2012, Al-Huda Bank has used fraudulent documentation
to purchase foreign currency--including USD--from the CBI at dollar
auctions. Based on media reporting, during 2012 to 2014, Al-Huda Bank
filed false documentation to justify international transfers of over $6
billion to banks and companies.\12\ On at least one occasion,
government authorities detected Al-Huda Bank's filing of fraudulent
documentation, which resulted in freezing of a transfer of a
significant amount of money. In another scheme, Al-Huda Bank would
deposit fake checks to make the balance seem higher on the account Al-
Huda Bank used in dollar auctions. The fake check deposits would allow
Al-Huda Bank to purchase USD using that false higher balance before the
fake check bounced, which Al-Huda Bank would then write off.
---------------------------------------------------------------------------
\12\ Al-Arabiya, ``Billions of Dollars'' Smuggled Out of Iraq
During Maliki's Rule, November 9, 2015, available at https://english.alarabiya.net/News/middle-east/2015/11/09/Iraq-smuggled-billions-of-dollars-during-Maliki-s-rule.
---------------------------------------------------------------------------
Al-Huda Bank, with its chairman's knowledge, has also abused the
dollar auction by utilizing stolen identities. In one scheme, the Al-
Huda Bank chairman and other Al-Huda Bank officials would use the
identification documents of deceased individuals to purchase USD in
dollar auctions. Al-Huda Bank officials would also pay living people
for use of their identification documents. The illicit use of
identification documents allowed Al-Huda Bank to circumvent limits on
currency purchases.
With the knowledge of Al-Huda Bank's chairman, Al-Huda Bank has
also been involved in funneling of counterfeit IQD through fake
businesses in Iraq. The counterfeit IQD would be printed in Iran,
funneled through Iraqi businesses, and then exchanged for USD. The use
of counterfeit IQD greatly increases the amount of illicit profit
gained from exchanging IQD for USD at the CBI dollar auction, and the
funneling of counterfeit IQD through Iraqi businesses disguises the
counterfeit IQD's source in Iran.
3. Through the Exploitation of the CBI Dollar Auction, Al-Huda Bank
Provides Support to Designated FTOs
Iran has exploited its relationship with Iraq-based, Iran-backed
militias to influence Iraqi businesses and officials to generate
illicit revenue for the militias' operations. As part of this effort,
Iran has developed a network of commercial platforms, including
financial institutions, to move funds and misrepresent trade-based
financial transactions that obscure the ultimate beneficiary, namely
Iran-backed terrorist groups and militias.
Since its establishment, Al-Huda Bank has been controlled and
operated by the IRGC and IRGC-QF. In 2008, the chairman of Al-Huda Bank
established the bank specifically for the benefit of KH and has met
with and taken orders from IRGC-QF leadership in Tehran, Iran. After
establishing the bank, the Al-Huda Bank chairman began money laundering
operations on behalf of the IRGC-QF and KH.
Al-Huda Bank has funded Iran-aligned militias through a scheme in
which Al-Huda Bank and other Iraqi banks have falsely claimed imports
that did not exist into Iraq worth billions of dollars to justify the
purchase of USD in the CBI dollar auction. Al-Huda Bank would purchase
the USD with counterfeit IQD printed in Iran. Al-Huda Bank was not
allowed to conduct financial transactions without the Iran-aligned
militias' involvement and Al-Huda Bank would provide part of Al-Huda
Bank's revenue from this scheme to those Iran-aligned militias.
This fraudulent scheme has been a substantial source of funding for
Iran-aligned militias' operations. The Iran-aligned Iraqi militia AAH
has used companies based across Iraq to generate revenue, launder
illicit profits, and convert IQD to USD. AAH has used Al-Huda Bank to
maintain accounts for some of these companies, as well as to access the
currency auction. The use of false imports, counterfeit currency, and
front companies are essential components of exploitation of the CBI
dollar auction by obscuring the source of funds and the purpose and
ultimate beneficiaries of the transactions that support Iran-aligned
Iraqi militias. Overall, IRGC and IRGC-QF use of Al-Huda Bank and
several other Iraqi banks to access the dollar auction resulted in
approximately $70 billion USD in profit from 2019 through 2020.
[[Page 6077]]
B. The Extent to Which Al-Huda Bank Is Used for Legitimate Business
Purposes
Al-Huda Bank is the 30th largest bank in Iraq and approximately the
11,000th largest in the world, with 416 billion IQD ($285 million USD)
in total assets in 2020, which is approximately 0.2 percent of total
Iraqi banking system assets.\13\ Records collected by FinCEN show Al-
Huda Bank engaged in approximately $4.7 billion USD in USD-cleared
international transactions through U.S. correspondent bank accounts
between July 2017 and December 2022, the vast majority being CBI dollar
auction-related transactions.
---------------------------------------------------------------------------
\13\ Al-Huda Bank, Consolidated Financial Statements, December
31, 2020, available at www.alhudabank.iq.
---------------------------------------------------------------------------
In 2020, Al-Huda Bank's self-reported total revenues were
8,937,678,000 IQD ($6,115,456 USD) with a gross profit of 2,753,653,000
IQD ($1,884,140 USD). As of December 31, 2020, Al-Huda Bank held
55,057,239,000 IQD ($37,671,991 USD) in customer account deposits,
approximately 1,110,270,000 IQD ($760,000 USD) of which were current
accounts belonging to private individuals.\14\
---------------------------------------------------------------------------
\14\ Id.
---------------------------------------------------------------------------
The assets noted above, based on Al-Huda Bank financial statements,
are indicative of at least a portion of legitimate business transiting
the financial institution. However, FinCEN assesses that Al-Huda Bank's
legitimate business activities do not outweigh the money laundering
risks posed by the bank, as the variety and type of the illicit finance
risks presented by Al-Huda Bank are such that even a higher volume of
legitimate activity would not allay FinCEN's significant money
laundering concern.\15\ As demonstrated above, Al-Huda Bank facilitates
the financing of a wide variety of terrorists and terrorist groups,
many of whom have attacked citizens and partners of the United States.
Further, there is significant information indicating that the owner and
chairman of Al-Huda Bank is a witting and active participant in the
illicit finance involving and perpetrated by Al-Huda Bank.
---------------------------------------------------------------------------
\15\ Relatedly, there is limited publicly available information
about Al-Huda Bank's existing AML policies and procedures to enable
a current, fulsome assessment. Al-Huda Bank's 2020 End-of-Year
report stated that its internal compliance monitor reviewed Al-Huda
Bank's procedures when opening checking accounts for customers and
found that Al-Huda Bank met the instructions and directives of Iraqi
AML, terrorist financing, and risk management law, and it confirmed
that current account holders were not included in banned lists,
domestically or internationally. Id. at 11-12. Given the totality of
the circumstances, however, this self-assessment lacks credibility
and does not alter FinCEN's overall assessment of concern.
---------------------------------------------------------------------------
C. The Extent to Which Action Proposed by FinCEN Would Guard Against
International Money Laundering and Other Financial Crimes
As noted by the U.S. Department of State in 2023, corruption is a
significant impediment to conducting business in Iraq, and Iran-aligned
militias threaten U.S. citizens and companies throughout Iraq.\16\ Al-
Huda Bank has engaged in transactions that facilitate the financing of
FTOs, including the IRGC, IRGC-QF, and Iran-aligned militias KH and
AAH, with the support of the Iranian government. A finding that Al-Huda
Bank is of primary money laundering concern would make clear to foreign
correspondents Al-Huda Bank's illicit finance risk, and this awareness
may cause those financial institutions or their regulators to take
their own action to address the risk. Moreover, such a finding and
subsequent imposition of one or more special measures would guard
against money laundering and other financial crimes by severing Al-Huda
Bank's access to the U.S. financial system.
---------------------------------------------------------------------------
\16\ U.S. Department of State, 2021 Investment Climate
Statements: Iraq, 2021, available at https://www.state.gov/reports/2021-investment-climate-statements/iraq/.
---------------------------------------------------------------------------
IV. Proposed Special Measure
Having found that Al-Huda Bank is a financial institution of
primary money laundering concern, particularly with regard to its
misuse of the dollar auction to finance designated terrorist
organizations, FinCEN proposes imposing a prohibition on covered
financial institutions under special measure five. Special measure five
authorizes the Secretary to impose conditions upon the opening or
maintaining in the United States of a correspondent account or payable-
through account, if such account ``involves'' a financial institution
of primary money laundering concern. Although Al-Huda Bank does not
have correspondent accounts with U.S. financial institutions, it has
accounts with foreign financial institutions that maintain U.S.
correspondent accounts. Those U.S. correspondent accounts involve Al-
Huda Bank when transactions involving the bank are processed through
those accounts. Thus, FinCEN has determined that special measure five
will most effectively mitigate the risks posed by Al-Huda Bank.
FinCEN considered the other special measures available under
section 311. As discussed further in Section IV.E. below, it determined
that none of them would appropriately address the risks posed by Al-
Huda Bank.
In proposing this special measure, FinCEN consulted with the Board
of Governors of the Federal Reserve System, the Office of the
Comptroller of the Currency, the Secretary of State, the staff of the
Securities and Exchange Commission, the Commodity Futures Trading
Commission, staff of the National Credit Union Administration, the
Federal Deposit Insurance Corporation, and the Attorney General. These
consultations involved obtaining interagency views on the imposition of
special measure five and the effects that such a prohibition would have
on the U.S. domestic and international financial systems.
Below is a discussion of the relevant statutory factors FinCEN
considered in proposing the prohibition under special measure five.
A. Whether Similar Action Has Been or Is Being Taken by Other Nations
or Multilateral Groups Regarding Al-Huda Bank
FinCEN is not aware of any other nation or multilateral group that
has imposed, or is currently imposing, similar action against Al-Huda
Bank.
B. 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
While FinCEN assesses that the prohibition proposed in this NPRM
would place some cost and burden on covered financial institutions,
these burdens are neither undue nor inappropriate in view of the threat
posed by the illicit activity facilitated by Al-Huda Bank. As described
above, Al-Huda Bank has had access to USD through the CBI dollar
auction, which does not require Iraqi banks to have direct USD
correspondent relationships. Also as described above, Al-Huda Bank has
no direct USD correspondent relationships with U.S. financial
institutions. Rather, it accesses USD through its nested correspondent
relationships, including but not limited to six USD accounts outside
the United States. These accounts may be used for commercial payments,
as well as foreign exchange and money markets. Covered financial
institutions and transaction partners have ample opportunity to arrange
for alternative payment mechanisms in the absence of
[[Page 6078]]
correspondent banking relationships with Al-Huda Bank.
As such, a prohibition on correspondent banking with Al-Huda Bank
would impose minimal additional compliance costs for covered financial
institutions, which would most commonly involve merely involve adding
Al-Huda Bank to existing sanctions and money laundering screening
tools. FinCEN assesses that given the risks posed by Al-Huda Bank's
facilitation of money laundering, the additional burden on covered
financial institutions in preventing the opening of correspondent
accounts with Al-Huda Bank, as well as conducting due diligence on
foreign correspondent account holders and notifying them of the
prohibition, will be minimal and not undue.
C. 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 of Al-Huda Bank
FinCEN assesses that imposing the proposed special measure would
have minimal impact upon the international payment, clearance, and
settlement system. As a comparatively small bank, responsible for a
nominal amount of transaction volume in the region, Al-Huda Bank is not
a systemically important financial institution in Iraq, regionally, or
globally. FinCEN views that prohibiting Al-Huda Bank's access to U.S.-
Iraq correspondent banking channels would not affect overall cross-
border transaction volumes.
Further, a prohibition under special measure five would not prevent
Al-Huda Bank from conducting legitimate business activities in other
foreign currencies. In addition to the six correspondent accounts used
to access USD noted above, Al-Huda Bank currently holds two Euro
accounts and two United Arab Emirates (UAE) dirham (AED) accounts as
well.\17\ Provided that its legitimate activities do not involve a
correspondent account maintained in the United States, the bank could
continue to engage in them.
---------------------------------------------------------------------------
\17\ BankCheck, Al-Huda Bank--Iraq, accessed December 13, 2023,
available at https://bankcheck.app.
---------------------------------------------------------------------------
D. The Effect of the Proposed Action on United States National Security
and Foreign Policy
As described above, evidence available to FinCEN has demonstrated
that Al-Huda Bank served as a significant conduit for the financing of
FTOs in violation of U.S. and international sanctions. Imposing special
measure five will: (1) close Al-Huda Bank's access to USD; (2) remove
Al-Huda Bank as an illicit finance facilitator within an international
network of front companies and sanctions evasion infrastructure
supporting these FTOs; and (3) raise awareness of the way illicit
actors exploit weaknesses in vulnerable jurisdictions to circumvent
sanctions and finance terrorism.
E. Consideration of Alternative Special Measures
In assessing the appropriate special measure to impose, FinCEN
considered alternatives to a prohibition on the opening or maintaining
in the United States of correspondent accounts or payable-through
accounts, including the imposition of one or more of the first four
special measures, or imposing conditions on the opening or maintaining
of correspondent accounts under special measure five. Having considered
these alternatives and for the reasons set out below, FinCEN assesses
that none of the other special measures available under section 311
would appropriately address the risks posed by Al-Huda Bank and the
urgent need to prevent it from accessing USD through correspondent
banking entirely.
With the knowledge of Al-Huda Bank's chairman, Al-Huda Bank's abuse
of the dollar auction is obfuscated through the application of numerous
money laundering typologies, including the use of fraudulent
documentation, fake deposits, identity documents of the deceased, fake
companies, and counterfeit IQD, which are used to purchase USD and
support terrorist groups and militias. Taken as a whole, Al-Huda Bank's
illicit activities present a heightened risk of obscured transaction
counterparty identification that would be undetectable by covered
financial institutions. Indeed, a key feature of the facilitation of
funding for Iranian and Iran-aligned FTOs through Al-Huda Bank is the
use of fake companies to obscure the true beneficial owners and
ultimate destinations of funds involved in the transactions. Moreover,
this behavior provides opportunities for obscuring the identities of
transaction counterparties to correspondent banking relationship
providers.
Because of the nature, extent, and purpose of the obfuscation
engaged in by Al-Huda Bank, any special measure intended to mandate
additional information collection would likely be ineffective and
insufficient to determine the true identity of illicit finance actors.
For example, the provision under special measure one, that ``the
identity and address of the participants in a transaction or
relationship, including the identity of the originator of any funds
transfer'' be collected in records and reports, could be circumvented
by the operations of shell companies, wherein the reported identity of
the originator serves to obscure the true beneficial owner or
originator. This would accordingly be ineffective in preventing illicit
transactions. Al-Huda Bank's record of such circumvention suggests
special measure one would not adequately protect the U.S. financial
system from the threats posed by the bank.
Further, the requirements under special measures three and four,
that domestic financial institutions obtain ``with respect to each
customer (and each such representative), information that is
substantially comparable to that which the depository institution
obtains in the ordinary course of business with respect to its
customers residing in the United States'', are also likely to be
ineffective. First, Al-Huda Bank's use of nested correspondent account
access through layers of payment systems would render these alternative
measures ineffective. Only significant effort and expense by U.S.
institutions could fill this gap, which would impose a disproportionate
compliance burden and with no guarantee that the money laundering
threat would be addressed through customer due diligence research.
FinCEN also considered special measure two, which may require
domestic financial institutions to ``obtain and retain information
concerning the beneficial ownership of any account opened or maintained
in the United States by a foreign person.'' The agency determined this
special measure to be largely irrelevant since the concerns involving
Al-Huda Bank do not involve the opening or maintaining of accounts in
the U.S. by foreign persons.
FinCEN similarly assesses that merely imposing conditions under
special measure five would be inadequate to address the risks posed by
Al-Huda Bank's activities. Special measure five also enables FinCEN to
impose conditions as an alternative to a prohibition on the opening or
maintaining of correspondent accounts. Given Al-Huda Bank's consistent
and longstanding ties to terrorist financing organizations since its
inception, and its track record of obfuscating transactions and account
holders, FinCEN determined that imposing any condition would not be an
effective measure to safeguard the U.S. financial system.
[[Page 6079]]
FinCEN assesses that the billions of dollars supplied to terrorist
groups through Al-Huda Bank's exploitation of its access to USD, and
the exposure of U.S. financial institutions to Al-Huda Bank's illicit
activity outweigh the value in providing conditioned access to the U.S.
financial system for any purportedly legitimate business activity.
Conditions on the opening or maintaining of correspondent accounts
would likely be insufficient to prevent illicit financial flows through
the U.S. financial system, given Al-Huda Bank's use of fraudulent
documentation and front companies to obscure its financing of terrorist
groups in order to access USD. Given Al-Huda Bank's deliberate use of
money laundering typologies, FinCEN cannot craft sufficient conditions
to enable covered financial institutions to open or maintain
correspondent accounts for Al-Huda Bank without introducing severe risk
to those financial institutions in processing transactions that
ultimately finance terrorism.
FinCEN, thus, assesses that any condition or additional
recordkeeping or reporting requirement would be an ineffective measure
to safeguard the U.S. financial system. Such measures would not prevent
Al-Huda Bank from accessing the correspondent accounts of U.S.
financial institutions, thus leaving the U.S. financial system
vulnerable to processing illicit transfers that are likely to finance
terrorist groups, posing a significant national security and money
laundering risk. In addition, no recordkeeping or reporting
requirements or conditions 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 terrorist groups. Therefore, FinCEN has determined that a
prohibition on opening or maintaining correspondent banking
relationships is the only special measure out of the special measures
available under section 311 that can adequately protect the U.S.
financial system from the illicit finance risk posed by Al-Huda Bank.
For these reasons, and after thorough consideration of alternate
measures, FinCEN assesses that no measures short of full prohibition on
correspondent or payable-through banking access would be sufficient to
address the money laundering risks posed by Al-Huda Bank.
V. Section-by-Section Analysis
The goal of this proposed rule is to combat and deter money
laundering in facilitation of terrorist financing associated with Al-
Huda Bank and prevent Al-Huda Bank from using the U.S. financial system
to enable its illicit finance behavior.
A. 1010.663(a)--Definitions
1. Definition of Al-Huda Bank
The term ``Al-Huda Bank'' means all subsidiaries, branches, and
offices of Al-Huda Bank operating as a bank in any jurisdiction. FinCEN
is not currently aware of any subsidiary banks or branches outside of
Iraq.
2. Definition of Correspondent Account
The term ``correspondent account'' has the same meaning as the
definition contained in 31 CFR 1010.605(c)(1)(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 is
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.\18\ Under this definition, ``payable-through
accounts'' are a type of correspondent account.
---------------------------------------------------------------------------
\18\ See 31 CFR 1010.605(c)(2)(i).
---------------------------------------------------------------------------
In the case of securities broker-dealers, futures commission
merchants, introducing brokers in 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 due
diligence for correspondent accounts maintained for certain foreign
banks.\19\
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\19\ See 31 CFR 1010.605(c)(2)(ii)-(iv).
---------------------------------------------------------------------------
3. Definition of Covered Financial Institution
The term ``covered financial institution'' is defined 31 CFR
1010.100(t), which in general includes the following:
A bank (except bank credit card systems);
A broker or dealer in securities;
A money services business, as defined in 31 CFR
1010.100(ff);
A telegraph company;
A casino;
A card club;
A person subject to supervision by any state or Federal
bank supervisory authority;
A futures commission merchant or an introducing broker-
commodities; and
A mutual fund.
4. Definition of Foreign Banking Institution
The term ``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. This is consistent with the definition of ``foreign bank''
under 31 CFR 1010.100. This proposed rule interprets Al-Huda Bank to be
a foreign banking institution.
5. Definition of Subsidiary
The term ``subsidiary'' means a company of which more than 50
percent of the voting stock or analogous equity interest is owned by
another company.
B. 1010.663(b)--Prohibition on Accounts and Due Diligence Requirements
for Covered Financial Institutions
1. Prohibition on Opening or Maintaining Correspondent Accounts
Section 1010.663(b)(1) of the proposed rule would prohibit covered
financial institutions from opening or maintaining in the United States
a correspondent account for, or on behalf of, Al-Huda Bank.
2. Prohibition on Use of Correspondent Accounts Involving Al-Huda Bank
Section 1010.663(b)(2) of the proposed rule would 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 Al-Huda
Bank. Such reasonable steps are described in 1010.663(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 Al-Huda Bank.
3. Special Due Diligence for Correspondent Accounts
As a corollary to the prohibition set forth in section
1010.663(b)(1) and (2), section 1010.663(b)(3) of the proposed rule
would require covered financial institutions to apply special due
diligence to all of their foreign
[[Page 6080]]
correspondent accounts that is reasonably designed to guard against
such accounts being used to process transactions involving Al-Huda
Bank. 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 Al-Huda Bank, that such
correspondents may not provide Al-Huda Bank 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 1010.663, we are prohibited from
opening or maintaining in the United States a correspondent account
for, or on behalf of, Al-Huda Bank. The regulations also require us
to notify you that you may not provide Al-Huda Bank, including any
of its subsidiaries, branches, and offices 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 Al-
Huda Bank, 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 Al-
Huda Bank 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 Al-Huda Bank.
Special due diligence also includes implementing risk-based
procedures designed to identify any use of correspondent accounts to
process transactions involving Al-Huda Bank. A covered financial
institution would be expected to apply an appropriate screening
mechanism to identify a funds transfer order that on its face listed
Al-Huda Bank as the financial institution of the originator or
beneficiary, or otherwise referenced Al-Huda Bank 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 commercially available software programs used to
comply with the economic sanctions programs administered by the U.S.
Department of the Treasury's Office of Foreign Assets Control (OFAC).
4. Recordkeeping and Reporting
Section 1010.663(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 in section 1010.663(b)(3).
VI. Request for Comments
FinCEN is requesting comments for 30 days after the publication of
this NPRM. Given Al-Huda Bank's consistent and longstanding ties to
terrorist financing and its track record of obfuscating transactions,
FinCEN assesses that a 30-day comment period for this NPRM strikes an
appropriate balance between ensuring sufficient time for notice to the
public and opportunity for comment on the proposed rule, while
minimizing undue risk posed to the U.S. financial system in processing
illicit transfers that are likely to finance terrorist groups. 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 imposing 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.
VII. Regulatory Impact Analysis
FinCEN has analyzed this proposed rule under Executive Orders
12866, 13563, and 14094, the Regulatory Flexibility Act,\20\ the
Unfunded Mandates Reform Act,\21\ and the Paperwork Reduction Act.\22\
---------------------------------------------------------------------------
\20\ 5 U.S.C. 603.
\21\ 12 U.S.C. 1532, Public Law 104-4 (Mar. 22, 1995).
\22\ 44 U.S.C. 3507(a)(1)(D).
---------------------------------------------------------------------------
As discussed above, the intended effects of the imposition of
special measure five to Al-Huda Bank are twofold. The rule is expected
to (1) combat and deter money laundering in facilitation of terrorist
financing associated with Al-Huda Bank, and (2) prevent Al-Huda Bank
from using the U.S. financial system to enable its illicit finance
behavior. In the analysis below, FinCEN discusses the economic effects
that are expected to accompany adoption of the rule as proposed and
assess such expectations in more granular detail. This discussion
includes detailed explanation of certain ways FinCEN's conclusions may
be sensitive to methodological choices and underlying assumptions made
in drawing inferences from available data. Throughout, these have been
outlined so that the public may review and provide comment.\23\
---------------------------------------------------------------------------
\23\ See Section VII.
---------------------------------------------------------------------------
A. Executive Orders
Executive Orders 12866, 13563, and 14094 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 this proposed rule is not a significant
regulatory action under section 3(f) of Executive Order 12866, as
amended by Executive Order 14094. Accordingly, a regulatory impact
analysis is not required.
B. 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'' (IRFA) that will ``describe the impact of the proposed rule
on small entities.'' \24\ However, 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. This proposed rule
would apply to all covered financial institutions and would affect a
substantial number of small entities. However, for the reasons
described below, FinCEN assesses that these changes would be unlikely
to have
[[Page 6081]]
a significant economic impact on such entities.
---------------------------------------------------------------------------
\24\ 5 U.S.C. 603(a).
---------------------------------------------------------------------------
Covered financial institutions would also be required to take
reasonable measures to detect use of their correspondent accounts to
process transactions involving Al-Huda Bank. All U.S. persons,
including U.S. financial institutions, currently must comply with OFAC
sanctions, and U.S. financial institutions generally have suspicious
activity reporting requirements and systems in place to screen
transactions to comply with OFAC sanctions and section 311 special
measures administered by FinCEN. 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 Al-Huda Bank and
the transmittal of notification to certain correspondent account
holders--would not impose a significant additional economic burden upon
small U.S. financial institutions. 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
Al-Huda Bank.
C. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 \25\
(Unfunded Mandates Reform Act), requires that an agency prepare a
budgetary impact statement before promulgating a rule that may result
in expenditure by the state, local, and tribal governments, in the
aggregate, or by the private sector, of $100 million or more in any one
year, adjusted for inflation.\26\ If a budgetary impact statement is
required, section 202 of the Unfunded Mandates Reform Act also requires
an agency to identify and consider a reasonable number of regulatory
alternatives before promulgating a rule.\27\
---------------------------------------------------------------------------
\25\ 12 U.S.C. 1532, Public Law 104-4 (Mar. 22, 1995).
\26\ Id.
\27\ Id.
---------------------------------------------------------------------------
FinCEN has determined that this proposed rule will not result in
expenditures by state, local, and tribal governments, in the aggregate,
or by the private sector, of an annual $100 million or more, adjusted
for inflation ($184.7 million).\28\ Accordingly, FinCEN has not
prepared a budgetary impact statement or specifically addressed the
regulatory alternatives considered.
---------------------------------------------------------------------------
\28\ The Unfunded Mandates Reform Act requires an assessment of
mandates that will result in an annual expenditure of $100 million
or more, adjusted for inflation. The U.S. Bureau of Economic
Analysis reports the annual value of the gross domestic product
(GDP) deflator in the first quarter of 1995, the year of the
Unfunded Mandates Reform Act, as 66.452, and as 122.762 in the third
quarter of 2023, the most recent available. See U.S. Bureau of
Economic Analysis, ``Table 1.1.9. Implicit Price Deflators for Gross
Domestic Product'' (accessed December 14, 2023) available at https://www.bea.gov/itable/. Thus, the inflation adjusted estimate for $100
million is 122.762/66.452 x 100 = $184.7 million.
---------------------------------------------------------------------------
D. Paperwork Reduction Act
The recordkeeping and reporting requirements, referred to by the
Office of Management and Budget (OMB) as a collection of information,
contained in this proposed rule will be submitted by FinCEN to the OMB
for review in accordance with the Paperwork Reduction Act of 1995
(PRA).\29\ Under the PRA, 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 the OMB. Written
comments and recommendations for the proposed prohibition can be
submitted by visiting www.reginfo.gov/public/do/PRAMain. Find this
particular document by selecting ``Currently under Review--Open for
Public Comments'' or by using the search function. Comments are welcome
and must be received by [30 DAYS AFTER DATE OF PUBLICATION IN THE
FEDERAL REGISTER]. In accordance with requirements of the PRA and its
implementing regulations, 5 CFR part 1320, the following information
concerning the collection of information as required by 31 CFR 1010.663
is presented to assist those persons wishing to comment on the
information collections.
---------------------------------------------------------------------------
\29\ 44 U.S.C. 3507(a)(1)(D).
---------------------------------------------------------------------------
The provisions in this proposed rule pertaining to the collection
of information can be found in section 1010.663(b)(4). The information
required to be maintained by that section will be used by federal
agencies and certain self-regulatory organizations to verify compliance
by covered financial institutions with the notification requirements in
31 CFR 1010.663(b)(3)(i)(A), which are intended to aid cooperation from
correspondent account holders in denying the Al Huda Bank access to the
U.S. financial system. The collection of information would be
mandatory.
Frequency: As required.
Description of Affected Financial Institutions: Only those covered
financial institutions defined in section 1010.663(a)(3) engaged in
correspondent banking with, or processing transactions potentially
involving, Al-Huda Bank as defined in section 1010.663(b)(1) and (2)
would be affected.
Estimated Number of Affected Financial Institutions: Approximately
15,000.\30\
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\30\ This estimate is informed by public and non-public data
sources regarding both an expected maximum number of entities that
may be affected and the number of active, or currently reporting,
registered financial institutions.
Table 1--Estimates of Affected Financial Institutions by Type
------------------------------------------------------------------------
Number of
Financial institution type entities
------------------------------------------------------------------------
Banks \31\.................................................. \32\ 9,250
Broker-Dealers in securities \33\........................... \34\ 3,477
Mutual Funds \35\........................................... \36\ 1,495
Futures Commission Merchants \37\........................... \38\ 62
Introducing Brokers in Commodities \39\..................... \40\ 937
------------------------------------------------------------------------
Estimated Average Annual Burden in Hours per Affected Financial
Institution: The estimated average annual burden associated with the
collection of information in this
[[Page 6082]]
proposed rule is one hour per affected financial institution.
---------------------------------------------------------------------------
\31\ See 31 CFR 1010.100(t)(1); see also 31 CFR 1010.100(d).
\32\ Bank data is as of December 14, 2023, from Federal Deposit
Insurance Corporation BankFind (https://banks.data.fdic.gov/bankfind-suite/bankfind). Credit union data is as of September 30,
2023 from the National Credit Union Administration Quarterly Data
Summary Reports (https://ncua.gov/analysis/credit-union-corporate-call-report-data/quarterly-data-summary-reports).
\33\ 31 CFR 1010.100(t)(2).
\34\ According to the Securities and Exchange Commission (SEC),
there are 3,477 broker-dealers in securities as of December 2023
from website ``Company Information About Active Broker-Dealers''
(https://www.sec.gov/help/foiadocsbdfoia).
\35\ 31 CFR 1010.100(t)(10).
\36\ According to the SEC, as of the third quarter of 2023,
there are 1,495 open-end registered investment companies that report
on Form N-CEN. (https://www.sec.gov/dera/data/form-ncen-data-sets).
\37\ 31 CFR 1010.100(t)(8).
\38\ According to the Commodity Futures Trading Commission
(CFTC), there are 62 futures commission merchants as of October 31,
2023. See Financial Data for FCMs, available at https://www.cftc.gov/MarketReports/financialfcmdata/index.htm.
\39\ 31 CFR 1010.100(t)(9).
\40\ According to National Futures Association, there are 937
introducing brokers in commodities as of November 30, 2023.
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Estimated Total Annual Burden: Approximately 15,000 hours.
FinCEN specifically invites comments on: (a) whether the proposed
collection of information found in section 1010.663(b)(4) 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.
VIII. Regulatory Text
List of Subjects in 31 CFR Part 1010
Administrative practice and procedure, Banks, Banking, Brokers,
Crime, Foreign banking, Terrorism.
Authority and Issuance
For the reasons set forth in the preamble, FinCEN proposes amending
31 CFR part 1010 as follows:
PART 1010--GENERAL PROVISIONS
0
1. The authority citation for part 1010 continues to read as follows:
Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314,
5316-5336; title III, sec. 314, Pub. L. 107-56, 115 Stat. 307; sec.
2006, Pub. L. 114-41, 129 Stat. 458-459; sec. 701 Pub. L. 114-74,
129 Stat. 599; sec. 6403, Pub. L. 116-283, 134 Stat. 3388.
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2. Add Sec. 1010.663 to read as follows:
Sec. 1010.663 Special measures regarding Al-Huda Bank.
(a) Definitions. For purposes of this section, the following terms
have the following meanings.
(1) Al-Huda Bank. The term ``Al-Huda Bank'' means all subsidiaries,
branches, and offices of Al-Huda Bank operating as a bank in any
jurisdiction.
(2) Correspondent account. The term ``correspondent account'' has
the same meaning as provided in Sec. 1010.605(c)(l)(ii).
(3) Covered financial institution. The term ``covered financial
institution'' has the same meaning as provided in Sec. 1010.605(e)(2).
(4) Foreign banking institution. The term ``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. The term ``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 opening or
maintaining correspondent accounts for Al-Huda Bank. A covered
financial institution shall not open or maintain in the United States a
correspondent account for, or on behalf of, Al-Huda Bank.
(2) Prohibition on processing transactions involving Al-Huda Bank.
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
Al-Huda Bank.
(3) Special due diligence of correspondent accounts to prohibit
transactions. (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
Al-Huda Bank. 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 Al-Huda Bank that such correspondents may not provide Al-
Huda Bank 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 Al-Huda Bank, 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 Al-Huda Bank.
(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 Al-Huda Bank 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
notification 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: January 29, 2024.
Andrea M. Gacki,
Director, Financial Crimes Enforcement Network.
[FR Doc. 2024-02004 Filed 1-30-24; 8:45 am]
BILLING CODE 4810-02-P
