[co-author: Chadwick Welch]
On July 22, 2015, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) published in the Federal Register a final rule pursuant to Section 311 of the Patriot Act against FBME Bank Ltd. (FBME, formerly known as Federal Bank of the Middle East). FBME is based in Tanzania but does most of its global banking business through branches in Cyprus, according to FinCEN. FinCEN’s final rule largely adopted its July 22, 2014 Notice of Finding, in which FinCEN found that FBME was a financial institution of primary money laundering concern under 31 U.S.C. § 5318A. FinCEN’s final rule, which becomes effective on August 21, 2015, imposes requirements on certain U.S. financial institutions. The full text of the final rule can be found here.
Section 311 of the Patriot Act, 31 U.S.C. § 5318A, authorizes FinCEN to require domestic “covered financial institutions” (CFIs) to take “special measures” with respect to certain foreign financial institutions that FinCEN concludes are of “primary money laundering concern.” In FBME’s case, FinCEN found that FBME facilitated “money laundering, terrorist financing, transnational organized crime, fraud, sanctions evasion, and other illicit activity internationally and through the U.S. financial system.”
FinCEN’s final rule imposes two requirements on U.S. CFIs, which are defined in 31 C.F.R. § 1010.605(e)(1). First, CFIs are prohibited from “opening or maintaining . . . correspondent or payable-through accounts for FBME” or its subsidiaries. CFIs must review their account records to insure they maintain no FBME accounts and, if they do, such accounts must be terminated. Second, CFIs must engage in “special due diligence” of their correspondent accounts to reasonably safeguard against processing transactions involving FBME, including indirect use of correspondent accounts through methods used to hide the beneficial owner of the transaction. To comply with FinCEN’s “special due diligence” requirement, CFIs must do the following: (1) provide one-time notification to foreign correspondent account holders that CFIs “know or have reason to know provide services to FBME that such correspondents may not provide FBME with access” to the CFIs’ correspondent accounts and also to foreign correspondent account holders during the account-opening process¹; and (2) “implement risk-based procedures to identify transactions involving FBME” or its subsidiaries, which may include a review of transactional records maintained by CFIs in the ordinary course of business. Compliance with these requirements must be documented, but need not be reported.
¹Although the required notice need not be provided in any particular form or by any particular means, FinCEN’s final rule contains a suggested notification that may be used by CFIs to insure their compliance.
