Winter 2003-03 New anti-terrorism rules issued by U.S. Treasury

Number 50
Winter 2003

New anti-terrorism rules issued by U.S. Treasury

The U.S. Department of the Treasury has promulgated new rules to implement anti-terrorism provisions of the USA Patriot Act (“Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism”). 31 CFR part 103. These are briefly outlined in this article.

Request for information

A financial institution that receives a request for information from the Financial Crimes Enforcement Network:

must designate one person to be its point of contact with FinCEN;

must conduct a prompt search of its records to determine if it maintains (or has maintained) an account or has engaged in a transaction with a person or entity in the request;

must report its findings to FinCEN;

may not disclose to anyone either FinCEN’s request or the information found;

must maintain adequate procedures to protect this confidentiality.

Sharing information

However, a financial institution, or an association of financial institutions, may share with its peers information on individuals, entities and countries for the purpose of identifying and reporting activities that it suspects may involve possible terrorist activity or money laundering. In order to share this information, financial institutions must submit to FinCEN a notice provided in the new rules. The notice is effective for a period of one year.

Safe harbor

Sharing information as stated immunizes the financial institutions from liability in the event of a claim complaining about the sharing of information or the failure to notify its disclosure.

Correspondent accounts

Banks, credit unions and securities brokers may not open correspondent accounts for foreign “shell banks.” A “shell bank” is one that does not have a physical presence in at least one country where it is authorized to conduct business.

Post office boxes do not qualify as physical presence. Moreover, in order not to be considered “shell,” a foreign bank must employ one or more individuals on a full-time basis, must maintain operating records related to its banking activities and must be subject to inspection by a banking authority.

Due diligence

Financial institutions are also required to take reasonable steps to ensure that permissible correspondent accounts are not being used indirectly to provide services to foreign shell banks.

In addition, entities holding valid correspondent accounts must maintain records identifying the owners of the foreign institution (unless its stock is publicly traded), as well as the name and address of the person in the U.S. authorized to receive service of process on behalf of the foreign bank.

Banks and others may comply with their due diligence requirements by obtaining certifications from the foreign banks at least once every three years. A form of the certification forms part of the rule. The form provides for the address of the physical presence, identification of the bank’s regulator, names and addresses of its owners and resident process agent, and a assertion that the foreign bank is not using the correspondent account to provide banking services to a shell bank.

Subpoenas

The United States may subpoena any foreign bank that maintains a correspondent account. Failure to comply with the subpoena will result in the closure of the account.

© 2003 Goldman Antonetti