[Federal Register Volume 76, Number 228 (Monday, November 28, 2011)]
[Proposed Rules]
[Pages 72878-72885]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-30331]
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DEPARTMENT OF THE TREASURY
31 CFR Chapter X
RIN 1506-AB16
Financial Crimes Enforcement Network; Amendment to the Bank
Secrecy Act Regulations--Imposition of Special Measure Against the
Islamic Republic of Iran as a Jurisdiction of Primary Money Laundering
Concern
AGENCY: Financial Crimes Enforcement Network, Treasury (``FinCEN''),
Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: In a notice of finding published elsewhere in this issue of
the Federal Register, the Secretary of the Treasury, through his
delegate, the Director of FinCEN, found that reasonable grounds exist
for concluding that the Islamic Republic of Iran (``Iran'') is a
jurisdiction of primary money laundering concern pursuant to 31 U.S.C.
5318A. FinCEN is issuing this notice of proposed rulemaking to impose a
special measure against Iran.
DATES: Written comments on the notice of proposed rulemaking must be
submitted on or before January 27, 2012.
ADDRESSES: You may submit comments, identified by RIN 1506-AB16, by any
of the following methods:
Federal E-rulemaking Portal: http:/www.regulations.gov.
Follow the instructions for submitting comments. Include 1506-AB16 in
the submission. Refer to Docket Number FINCEN-2011-0008.
Mail: The Financial Crimes Enforcement Network, P.O. Box
39, Vienna, VA 22183. Include RIN 1506-AB16 in the body of the text.
Please submit comments by one method only.
Comments submitted in response to this NPRM will become a matter of
public record. Therefore, you should submit only information that you
wish to make publicly available.
Inspection of comments: Public comments received electronically or
through the U. S. Postal Service sent in response to a notice and
request for comment will be made available for public review as soon as
possible on http://www.regulations.gov. Comments received may be
physically inspected in the FinCEN reading room located in Vienna,
Virginia. Reading room appointments are available weekdays (excluding
holidays) between 10 a.m. and 3 p.m., by calling the Disclosure Officer
at (703) 905-5034 (not a toll-free call).
FOR FUTHER INFORMATION CONTACT: The FinCEN regulatory helpline at (800)
949-2732 and select Option 6.
SUPPLEMENTARY INFORMATION:
I. Background
A. Statutory Provisions
On October 26, 2001, the President signed into law the Uniting and
Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001 (the ``USA PATRIOT Act''),
Public Law 107-56. Title III of the USA PATRIOT Act amends the anti-
money laundering provisions of the Bank Secrecy Act (``BSA''), codified
at 12 U.S.C. 1829b and 1951-1959, and 31 U.S.C. 5311-5314, and 5316-
5332, to promote the prevention, detection, and prosecution of
international money laundering and the financing of terrorism.
Regulations implementing the BSA appear at 31 CFR Chapter X. The
authority of the Secretary of the Treasury (the ``Secretary'') to
administer the BSA and its implementing regulations has been delegated
to the Director of FinCEN.\1\
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\1\ Therefore, references to the authority of the Secretary of
the Treasury under section 311 of the USA PATRIOT Act apply equally
to the Director of FinCEN.
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Section 311 of the USA PATRIOT Act (``section 311'') added section
5318A to the BSA, granting the Secretary the authority, upon finding
that reasonable grounds exist for concluding that a foreign
jurisdiction, institution, class of transaction, or type of account is
of ``primary money laundering concern,'' to require domestic financial
institutions and financial agencies to take certain ``special
measures'' against the primary money laundering concern. Section 311
identifies factors for the Secretary to consider and Federal agencies
to consult before the Secretary may conclude that a jurisdiction,
institution, class of transaction, or type of account is of primary
money laundering concern. The statute also provides similar procedures,
i.e., factors and consultation requirements, for selecting the specific
special measures to be imposed against the primary money laundering
concern.
Taken as a whole, section 311 provides the Secretary with a range
of options that can be adapted to target specific money laundering and
terrorist financing concerns most effectively. These options give the
Secretary the authority to bring additional pressure on those
jurisdictions and institutions that pose money laundering threats.
Through the imposition of various special measures, the Secretary can
gain more information about the jurisdictions, institutions,
transactions, or accounts of concern; can more effectively monitor the
respective jurisdictions, institutions,
[[Page 72879]]
transactions, or accounts; or can protect U.S. financial institutions
from involvement with jurisdictions, institutions, transactions, or
accounts that are of money laundering concern.
Before making a finding that reasonable grounds exist for
concluding that a jurisdiction is of primary money laundering concern,
the Secretary is required to consult with both the Secretary of State
and the Attorney General. The Secretary is also required by section
311, as amended,\2\ to consider ``such information as the Secretary
determines to be relevant, including the following potentially relevant
factors,'' which extend the Secretary's consideration beyond
traditional money laundering concerns to issues involving, inter alia,
terrorist financing and weapons proliferation:
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\2\ 31 U.S.C. 5318A was amended by section 501 of the Iran
Freedom Support Act of 2006, Public Law 109-293.
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Evidence that organized criminal groups, international
terrorists, or entities involved in the proliferation of weapons of
mass destruction or missiles, have transacted business in that
jurisdiction;
The extent to which that jurisdiction or financial
institutions operating in that jurisdiction offer bank secrecy or
special regulatory advantages to nonresidents or nondomiciliaries of
that jurisdiction;
The substance and quality of administration of the bank
supervisory and counter-money laundering laws of that jurisdiction;
The relationship between the volume of financial
transactions occurring in that jurisdiction and the size of the economy
of the jurisdiction;
The extent to which that jurisdiction is characterized as
an offshore banking or secrecy haven by credible international
organizations or multilateral expert groups;
Whether the United States has a mutual legal assistance
treaty with that jurisdiction, and the experience of United States law
enforcement officials and regulatory officials in obtaining information
about transactions originating in or routed through or to such
jurisdiction; and
The extent to which that jurisdiction is characterized by
high levels of official or institutional corruption.
If the Secretary determines that reasonable grounds exist for
concluding that a jurisdiction is of primary money laundering concern,
the Secretary must determine the appropriate special measure(s) to
address the specific money laundering risks. Section 311 provides a
range of special measures that can be imposed individually, jointly, in
any combination, and in any sequence.\3\ The Secretary's imposition of
special measures requires additional consultations to be made and
factors to be considered. The statute requires the Secretary to consult
with appropriate federal agencies and other interested parties \4\ and
to consider the following specific factors:
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\3\ Available special measures include requiring: (1)
Recordkeeping and reporting of certain financial transactions; (2)
collection of information relating to beneficial ownership; (3)
collection of information relating to certain payable-through
accounts; (4) collection of information relating to certain
correspondent accounts; and (5) prohibition or conditions on the
opening or maintaining of correspondent or payable through accounts.
31 U.S.C. 5318A(b)(l)-(5). For a complete discussion of the range of
possible countermeasures, see 68 FR 18917 (April 17, 2003)
(proposing special measures against Nauru).
\4\ Section 5318A(a)(4)(A) requires the Secretary to consult
with the Chairman of the Board of Governors of the Federal Reserve
System, any other appropriate Federal banking agency, the Secretary
of State, the Securities and Exchange Commission (SEC), the
Commodity Futures Trading Commission (CFTC), the National Credit
Union Administration (NCUA), and, in the sole discretion of the
Secretary, ``such other agencies and interested parties as the
Secretary may find to be appropriate.'' The consultation process
must also include the Attorney General, if the Secretary is
considering prohibiting or imposing conditions on domestic financial
institutions opening or maintaining correspondent account
relationships with the designated jurisdiction.
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Whether similar action has been or is being taken by other
nations or multilateral groups;
Whether the imposition of any particular special measures
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; and
The effect of the action on United States national
security and foreign policy.
B. Finding
Today, as detailed elsewhere in this part,\5\ based upon a review
and analysis of the administrative record in this matter, consultations
with relevant Federal agencies and departments, and after consideration
of the factors enumerated in section 311, the Director of FinCEN has
determined that reasonable grounds exist for concluding that the
Islamic Republic of Iran is a jurisdiction of primary money laundering
concern.\6\
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\5\ See the notice of this finding published elsewhere today in
the Federal Register.
\6\ Classified information used in support of a section 311
finding and measure(s) may be submitted by Treasury to a reviewing
court ex parte and in camera. See section 376 of the Intelligence
Authorization Act for fiscal year 2004, Public Law 108-177 (amending
31 U.S.C. 5318A by adding new paragraph (f)).
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II. Imposition of Special Measure Against the Islamic Republic of Iran
as a Jurisdiction of Primary Money Laundering Concern, Including the
Central Bank of Iran Within the Definition of Iranian Banking
Institution
As a result of that finding, and based upon the additional
consultations and the consideration of all relevant factors discussed
in the finding and in this notice of proposed rulemaking, the Director
of FinCEN has determined that reasonable grounds exist for the
imposition of the fifth special measure authorized by section
5318A(b)(5).\7\ That special measure authorizes a prohibition against
the opening or maintaining of correspondent accounts \8\ by any
domestic financial institution or agency for or on behalf of a foreign
banking institution, if the correspondent account involves the targeted
jurisdiction. A discussion of the section 311 factors relevant to
imposing this particular special measure follows.
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\7\ In connection with this action, FinCEN consulted with staffs
of the Federal functional regulators, the Department of Justice, and
the Department of State.
\8\ For purposes of the proposed rule, a correspondent account
is defined as an account established to receive deposits from, or
make payments or other disbursements on behalf of, a foreign bank,
or handle other financial transactions related to the foreign bank.
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1. Whether Similar Actions Have Been or Will Be Taken by Other Nations
or Multilateral Groups Against Iran
The United Nations Security Council has adopted multiple
resolutions imposing sanctions on Iran for its refusal to comply with
international nuclear obligations and proliferation sensitive
activities, including United Nations Security Council resolutions
(``UNSCRs'') 1696,\9\ 1737,\10\ 1747,\11\
[[Page 72880]]
1803,\12\ and 1929.\13\ All resolutions were reaffirmed in 2008, 2009,
and 2010 through UNSCRs 1835,\14\ 1887,\15\ and 1929,\16\ respectively.
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\9\ For a complete discussion of the sanctions adopted by UNSCR
1696, see ``Resolution 1696,'' United Nations Security Council, July
31, 2006 (http://www.un.org/Docs/sc/unsc_resolutions06.htm).
\10\ For a complete discussion of the sanctions adopted by UNSCR
1737, see ``Resolution 1737,'' United Nations Security Council,
December 23, 2006 (http://www.un.org/Docs/sc/unsc_resolutions06.htm).
\11\ For a complete discussion of the sanctions adopted by UNSCR
1747, see ``Resolution 1747,'' United Nations Security Council,
March 24, 2007 (http://www.un.org/Docs/sc/unsc_resolutions07.htm).
\12\ For a complete discussion of the sanctions adopted by UNSCR
1803, see ``Resolution 1803,'' United Nations Security Council,
March 3, 2008 (http://www.un.org/Docs/sc/unsc_resolutions08.htm).
\13\ For a complete discussion of the sanctions adopted by UNSCR
1929, see ``Resolution 1929,'' United Nations Security Council, June
9, 2010 (http://www.un.org/Docs/sc/unsc_resolutions10.htm).
\14\ See ``Resolution 1835,'' United Nations Security Council,
September 27, 2008 (http://www.un.org/Docs/sc/unsc_resolutions08.htm).
\15\ See ``Resolution 1887,'' United Nations Security Council,
September 24, 2009 (http://www.un.org/Docs/sc/unsc_resolutions09.htm).
\16\ See ``Resolution 1929,'' United Nations Security Council,
June 9, 2010 (http://www.un.org/Docs/sc/unsc_resolutions10.htm).
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Iran's serious deficiencies with respect to anti-money laundering/
countering the financing of terrorism (``AML/CFT'') controls have long
been highlighted by numerous international bodies and government
agencies. Starting in October 2007, the Financial Action Task Force
(``FATF'') has issued a series of public statements expressing its
concern that Iran's lack of a comprehensive AML/CFT regime represents a
significant vulnerability within the international financial system.
The statements further called upon Iran to address those deficiencies
with urgency, and called upon FATF-member countries to advise their
institutions to conduct enhanced due diligence with respect to the
risks associated with Iran's deficiencies.\17\
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\17\ In response to concerns raised by these FATF and IMF
reports, FinCEN issued an advisory on October 16, 2007 to financial
institutions regarding the heightened risk of Iranian ``money
laundering, terrorist financing, and weapons of mass destruction
proliferation financing.'' The advisory further cautioned
institutions that there may be an increased effort by Iranian
entities to circumvent international sanctions and related financial
community scrutiny through the use of deceptive practices. See
``Guidance to Financial Institutions on the Increasing Money
Laundering Threat Involving Illicit Iranian Activity,'' FinCEN,
October 16, 2007 (http://www.fincen.gov/statutes_regs/guidance/pdf/guidance_fi_increasing_mlt_iranian.pdf). The FATF simultaneously
published guidance to assist countries with implementation of UNSCRs
1737 and 1747. See ``Guidance Regarding the Implementation of
Activity-Based Financial Prohibitions of United Nations Security
Council Resolution 1737,'' October 12, 2007 (http://www.fatf-gafi.org/dataoecd/43/17/39494050.pdf) and ``Guidance Regarding the
Implementation of Financial Provisions of the United Nations
Security Council Resolutions to Counter the Proliferation of Weapons
of Mass Destruction,'' September 5, 2007 (http://www.fatf-gafi.org/dataoecd/23/16/39318680.pdf).
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The FATF has been particularly concerned with Iran's failure to
address the risk of terrorist financing, and starting in February 2009,
the FATF called upon its members and urged all jurisdictions to apply
effective counter-measures to protect their financial sectors from the
terrorist financing risks emanating from Iran.\18\ In addition, the
FATF advised jurisdictions to protect correspondent relationships from
being used to bypass or evade counter-measures and risk mitigation
practices, and to take into account money laundering and financing of
terrorism risks when considering requests by Iranian financial
institutions to open branches and subsidiaries in their
jurisdictions.\19\ The FATF also called on its members and other
jurisdictions to advise their financial institutions to give special
attention to business relationships and transactions with Iran,
including Iranian companies and financial institutions.\20\ Over the
past three years, the FATF has repeatedly reiterated these concerns and
reaffirmed its call for FATF-member countries and all jurisdictions to
implement countermeasures to protect the international financial system
from the terrorist financing risk emanating from Iran. In response,
numerous countries, including all G7 countries, have issued advisories
to their financial institutions.\21\
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\18\ See ``FATF Statement on Iran,'' The Financial Action Task
Force, February 25, 2009 (http://www.fatf-gafi.org/dataoecd/18/28/42242615.pdf).
\19\ Id.
\20\ Id.
\21\ See ``Circular 13/2008 (GW)--Statement of the FATF of 16
October 2008,'' November 7, 2008 (http://www.bafin.de/cln_171/nn_721228/SharedDocs/Veroeffentlichungen/EN/Service/Circulars/rs_0813_gw.html?_nnn=true); ``February 27, 2009 FINTRAC Advisory,''
February 27, 2009 (http://www.fintrac-canafe.gc.ca/publications/avs/2009-02-27-eng.asp); ``HM Treasury warns businesses of serious
threats posed to the international financial system,'' March 11,
2009 (http://webarchive.nationalarchives.gov.uk/+/http://www.hm-treasury.gov.uk/press_26_09.htm); ``Letter from French Minister of
Economy,'' (http://www2.economie.gouv.fr/directions_services/dgtpe/sanctions/sanctionsiran.php); and ``Bank of Italy Circular,''
(http://www.dt.tesoro.it/it/prevenzione_reati_finanziari/).
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The FATF's most recent statement in October 2011 reiterated, with a
renewed urgency, its concern regarding Iran's failure to address the
risk of terrorist financing and the serious threat this poses to the
integrity to the international financial system.\22\ The FATF
reaffirmed its February 2009 call to apply effective countermeasures to
protect their financial sectors from ML/FT risks emanating from Iran,
and further called upon its members to consider the steps already taken
and possible additional safeguards or strengthen existing ones.\23\ In
addition, the FATF stated that, if Iran fails to take concrete steps to
improve its AML/CFT regime, the FATF will consider calling on its
members and urging all jurisdictions to strengthen countermeasures in
February 2012.\24\ The numerous calls by the FATF for Iran to urgently
address its terrorist financing vulnerability, coupled with the
extensive record of Iranian entities using the financial system to
finance terrorism, proliferation activities, and other illicit
activity,\25\ raises significant concern over the willingness or
ability of Iran to establish adequate controls to counter terrorist
financing.
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\22\ See ``FATF Public Statement,'' The Financial Action Task
Force, October 28, 2011 (http://www.fatf-gafi.org/document/55/0,3746,en_32250379_32236992_48966519_1_1_1_1,00.html).
\23\ Id.
\24\ Id.
\25\ ``Update on the Continuing Illicit Finance Threat Emanating
From Iran,'' FinCEN, June 22, 2010 (http://www.fincen.gov/statutes_regs/guidance/html/fin-2010-a008.html).
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Although none of these actions to sanction Iran prohibit domestic
financial institutions and agencies from opening or maintaining a
correspondent account for or on behalf of any financial institution in
Iran, or require the type of special due diligence outlined in this
proposed rulemaking, FinCEN encourages other countries or multilateral
groups to take similar action based on the findings contained in this
rulemaking.
2. Whether the Imposition of the Fifth Special Measure Would Create a
Significant Competitive Disadvantage, Including Any Undue Cost or
Burden Associated With Compliance, for Financial Institutions Organized
or Licensed in the United States
The fifth special measure sought to be imposed by this rulemaking
would prohibit covered financial institutions from opening and
maintaining correspondent accounts for, or on behalf of, Iranian
banking institutions. As a corollary to this measure, covered financial
institutions also would be required to take reasonable steps to apply
special due diligence, as set forth below, to all of their
correspondent accounts to help ensure that no such account is being
used indirectly to provide services to an Iranian banking institution.
FinCEN does not expect the burden associated with these requirements to
be significant given that U.S. financial institutions have long been
subject to sanctions regulations prohibiting the provision of
correspondent account services for banking institutions in Iran. There
is a minimal burden involved in transmitting a one-time notice to
certain correspondent account holders concerning the prohibition on
indirectly providing services to Iranian banking institutions. In
addition, U.S. financial
[[Page 72881]]
institutions generally apply some degree of due diligence in screening
their transactions and accounts, often through the use of commercially
available software such as that used for compliance with the economic
sanctions programs administered by the Office of Foreign Assets Control
(OFAC) of the Department of the Treasury. As explained in more detail
in the section-by-section analysis below, financial institutions
should, if necessary, be able to easily adapt their current screening
procedures to comply with this special measure. Thus, the special due
diligence that would be required by this rulemaking is not expected to
impose a significant additional burden upon U.S. financial
institutions.
3. The Extent To Which the Proposed Action or Timing of the Action Will
Have a Significant Adverse Systemic Impact on the International
Payment, Clearance, and Settlement System, or on Legitimate Business
Activities of Iran
Banking institutions in Iran generally are not major participants
in the international payment system and are not relied upon by the
international banking community for clearance or settlement services.
Additionally, given the preexisting OFAC and international sanctions on
Iran and certain Iranian banking institutions, it is unlikely that
these new measures or the timing of the new measures will have a
significant impact on the international payment, clearance, and
settlement system. Financial transactions between the United States and
Iran pertaining to licensed agricultural and medical exports to Iran,
as well as other licensed transactions or transactions exempted or not
prohibited from the scope of OFAC sanctions, may continue under the
rule as proposed.\26\ Legitimate pre-existing personal investments held
by Iranian residents in the United States that do not involve Iranian
banking institutions will be unaffected. Consequently, in light of the
reasons for imposing this special measure, FinCEN does not believe that
it will impose an undue burden on legitimate business activities.
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\26\ For a more complete discussion of prohibited and non-
prohibited transactions, see http://www.treas.gov/ofac.
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4. The Effect of the Proposed Action on United States National Security
and Foreign Policy
The exclusion from the U.S. financial system of jurisdictions that
serve as conduits for significant money laundering activity, for the
financing of terrorism or weapons of mass destruction or their delivery
systems, and for other financial crimes enhances U.S. national security
by making it more difficult for terrorists and money launderers to
access the substantial resources of the U.S. financial system. To the
extent that this action serves as an additional tool in preventing Iran
from accessing the U.S. financial system, the proposed action supports
and upholds U.S. national security and foreign policy goals. More
generally, the imposition of the fifth special measure would complement
the U.S. Government's worldwide efforts to expose and disrupt
international money laundering and terrorist financing.
Therefore, pursuant to the finding of the Director of FinCEN that
Iran is a jurisdiction of primary money laundering concern, and after
conducting the required consultations and weighing the relevant
factors, FinCEN has determined that reasonable grounds exist for
imposing the fifth special measure authorized by 31 U.S.C. 5318A(b)(5)
against Iran.
III. Section-by-Section Analysis
The proposed rule would prohibit covered financial institutions
from establishing, maintaining, or managing in the United States any
correspondent account for, or on behalf of, banking institutions in
Iran. As a corollary to this prohibition, covered financial
institutions would be required to apply special due diligence to their
correspondent accounts to guard against their improper indirect use by
Iranian banking institutions. At a minimum, that special due diligence
must include two elements. First, a covered financial institution must
notify those correspondent account holders that the covered financial
institution knows or has reason to know provide services to Iranian
banking institutions, that such correspondents may not provide Iranian
banking institutions with access to the correspondent account
maintained at the covered financial institution. Second, a covered
financial institution must take reasonable steps to identify any
indirect use of its correspondent accounts by Iranian banking
institutions, to the extent that such indirect use can be determined
from transactional records maintained by the covered financial
institution in the normal course of business. A covered financial
institution should take a risk-based approach when deciding what, if
any, additional due diligence measures it should adopt to guard against
the improper indirect use of its correspondent accounts by Iranian
banking institutions, based on risk factors such as the type of
services it offers and the geographic locations of its correspondents.
A. 1010.657(a)--Definitions
1. Correspondent Account
Section 1010.657(a)(1) defines the term ``correspondent account''
by reference to the definition contained in 31 CFR 1010.605(c)(1)(ii).
Section 1010.605(c)(1)(ii) defines a correspondent account to mean:
An account established to receive deposits from, or
make payments or other disbursements on behalf of, a foreign bank,
or handle other financial transactions related to the foreign bank.
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 demand
deposit, savings deposit, or other transaction or asset accounts, and
credit accounts or other extensions of credit.\27\
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\27\ See 31 CFR 1010.605(c)(2)(i)(A)-(B).
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In the case of securities broker-dealers, futures commission
merchants, introducing brokers in commodities, and investment companies
that are open-end companies (mutual funds), we are using the same
definition of ``account'' for purposes of this rule as was established
in the final rule implementing section 312 of the USA PATRIOT Act.\28\
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\28\ See 31 CFR 1010.605(c)(2)(ii)-(iv).
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2. Covered Financial Institution
Section 1010.657(a)(2) of the proposed rule defines ``covered
financial institution'' with the same definition used in the final rule
implementing section 312 of the USA PATRIOT Act,\29\ which in general
includes the following:
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\29\ See 31 CFR 1010.605(f)(1)-(2).
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An insured bank (as defined in section 3(h) of the Federal
Deposit Insurance Act (12 U.S.C. 1813(h));
A commercial bank;
An agency or branch of a foreign bank in the United
States;
A federally insured credit union;
A credit union;
A savings association;
A corporation acting under section 25A of the Federal
Reserve Act (12 U.S.C. 611);
A trust bank or trust company that is federally regulated
and is subject to an anti-money laundering program requirements;
A broker or dealer in securities registered, or required
to be registered,
[[Page 72882]]
with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.), except persons who
register pursuant to section 15(b)(11) of the Securities Exchange Act
of 1934;
A futures commission merchant or an introducing broker
registered, or required to be registered, with the Commodity Futures
Trading Commission under the Commodity Exchange Act (7 U.S.C. 1 et
seq.), except persons who register pursuant to section 4(f)(a)(2) of
the Commodity Exchange Act;
A private banker; and
A mutual fund.
3. Iranian Banking Institution
Section 1010.657(a)(3) of the proposed rule defines a foreign bank
as that term is defined in 1010.100(u). An Iranian banking institution
shall mean any foreign bank chartered by Iran, including any branches,
offices, or subsidiaries of such bank operating in any jurisdiction,
and any branch or office within Iran of any foreign bank licensed by
Iran. In addition, the Central Bank of Iran (Bank Markazi Iran),\30\ as
well as any foreign bank of which more than 50 percent of the voting
stock or analogous interest is owned by two or more foreign banks
chartered by Iran, shall be considered an Iranian banking institution.
For purposes of this rule, a subsidiary shall mean a company of which
more than 50 percent of the voting stock or analogous interest is
directly or indirectly owned by another company.
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\30\ Prior regulations that have applied Section 311 special
measures to jurisdictions of primary money laundering concern have
not included the jurisdiction's central bank within the scope of the
regulation. However, in the case of the Islamic Republic of Iran,
this inclusion is justified due to the deceptive practices the
Central Bank of Iran engages in and encourages among Iranian state-
owned banks. This behavior is discussed in the notice of finding
that the Islamic Republic of Iran is a jurisdiction of primary money
laundering concern published elsewhere today in the Federal
Register. See footnote 5, supra.
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A covered financial institution should take commercially reasonable
measures to determine whether it maintains a correspondent account for
an Iranian banking institution, including a branch, office, or
subsidiary of an Iranian banking institution.
B. 1010.657(b)--Requirements for Covered Financial Institutions
For purposes of complying with the proposed rule's prohibition on
the opening or maintaining of correspondent accounts for, or on behalf
of, Iranian banking institutions, FinCEN expects that a covered
financial institution will take such steps that a reasonable and
prudent financial institution would take to protect itself from loan
fraud or other fraud or loss based on misidentification of a person's
status.
1. Prohibition on Direct Use of Correspondent Accounts
Section 1010.657(b)(1) of the proposed rule requires all covered
financial institutions to terminate any correspondent account that is
established, maintained, administered, or managed in the United States
for, or on behalf of, Iranian banking institutions, provided that the
account is not blocked under any Executive Order issued pursuant to the
International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.)
(IEEPA) or under 31 CFR Chapter V. The prohibition would require all
covered financial institutions to review their account records to
ensure that they maintain no accounts directly for, or on behalf of, an
Iranian banking institution.
2. Special Due Diligence of Correspondent Accounts To Prohibit Improper
Indirect Use
As a corollary to the prohibition on maintaining correspondent
accounts directly for Iranian banking institutions, proposed section
1010.657(b)(2) requires a covered financial institution to apply
special due diligence to its correspondent accounts \31\ that is
reasonably designed to guard against their improper indirect use by
Iranian banking institutions. At a minimum, that special due diligence
must include notifying those correspondent account holders that the
covered financial institution knows or has reason to know provide
services to Iranian banking institutions, that such correspondents
generally may not provide Iranian banking institutions with access to
the correspondent account maintained at the covered financial
institution. A covered financial institution would, for example, have
knowledge that the correspondents provide such access to Iranian
banking institutions through transaction screening software or through
the processing of Iranian transactions under OFAC licenses. A covered
financial institution may satisfy this requirement by transmitting the
following notice to its correspondent account holders that it knows or
has reason to know provide services to Iranian banking institutions:
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\31\ Again, for purposes of the proposed rule, a correspondent
account is defined as an account established to receive deposits
from, or make payments or other disbursements on behalf of, a
foreign bank, or handle other financial transactions related to the
foreign bank.
Notice: Pursuant to U.S. regulations issued under section 311 of
the USA PATRIOT Act, 31 CFR 1010.657, we are prohibited from
establishing, maintaining, administering or managing a correspondent
account for, or on behalf of, an Iranian banking institution or any
of its subsidiaries. The regulations also require us to notify you
that you may not provide an Iranian banking institution or any of
its subsidiaries with access to the correspondent account you hold
at our financial institution other than for the purpose of
processing transactions that are authorized, exempt, or not
prohibited pursuant to any Executive Order issued under the
International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.)
or 31 C.F.R. Chapter V. If we become aware that an Iranian banking
institution or any of its subsidiaries is indirectly using the
correspondent account you hold at our financial institution for
transactions other than those specified above, we will be required
to take appropriate steps to prevent such access, including
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terminating your account.
The purpose of the notice requirement is to help ensure cooperation
from correspondent account holders in denying Iranian banking
institutions access to the U.S. financial system. However, FinCEN does
not require or expect a covered financial institution to obtain a
certification from any of its correspondent account holders that
indirect access will not be provided in order to comply with this
notice requirement. Instead, methods of compliance with the notice
requirement could include, for example, transmitting a one-time notice
by mail, fax, or email to certain of the covered financial
institution's correspondent account customers, informing them that they
may not provide Iranian banking institutions with access to the covered
financial institution's correspondent account, or including such
information in the next regularly occurring transmittal from the
covered financial institution to those correspondent account holders.
FinCEN specifically solicits comments on the form and scope of the
notice that would be required under the rule. FinCEN also requests
comment as to whether a one-time notice will be sufficient to ensure
cooperation from correspondent account holders in denying Iranian
banking institutions access to the financial system, as well as the
incremental costs that financial institutions would incur if this rule
required an annual notice.
A covered financial institution also would be required under this
rulemaking to take reasonable steps to identify any indirect use of its
correspondent accounts by Iranian
[[Page 72883]]
banking institutions, to the extent that such indirect use can be
determined from transactional records maintained by the covered
financial institution in the normal course of business. For example, a
covered financial institution would be expected to apply an appropriate
screening mechanism to be able to identify a funds transfer order that
on its face listed an Iranian banking institution as the originator's
or beneficiary's financial institution, or otherwise referenced an
Iranian banking institution in a manner detectable under the financial
institution's normal screening processes. An appropriate screening
mechanism could be the mechanism used by a covered financial
institution to comply with various legal requirements, such as the
commercially available software programs used to comply with the
economic sanctions programs administered by OFAC. FinCEN specifically
solicits comments on the requirement under the proposed rule that
covered financial institutions take reasonable steps to screen their
correspondent accounts in order to identify any indirect use of such
accounts by Iranian banking institutions.
Notifying certain correspondent account holders and taking
reasonable steps to identify any indirect use of its correspondent
accounts by Iranian banking institutions in the manner discussed above
are the minimum due diligence requirements under the proposed rule.
Beyond these minimum steps, a covered financial institution should
adopt a risk-based approach for determining what, if any, additional
due diligence measures it should implement to guard against the
improper indirect use of its correspondent accounts by Iranian banking
institutions, based on risk factors such as the type of services it
offers and the geographic locations of its correspondent account
holders.
A covered financial institution that obtains knowledge that a
correspondent account is being used by a foreign bank to provide
indirect access to an Iranian banking institution must take all
appropriate steps to prevent such indirect access, including the
notification of its correspondent account holder per section
1010.657(b)(2)(i)(A) and, where necessary, terminating the
correspondent account. However, this provision does not require
financial institutions to prevent indirect access to correspondent
accounts when such access is necessary to conduct transactions
involving Iranian banking institutions that are: (1) Authorized
pursuant to Executive Orders issued under IEEPA or pursuant to 31 CFR
Chapter V, including transactions authorized by the Office of Foreign
Assets Control; (2), exempted from the prohibitions of such authority;
or (3) not prohibited by such authority.
A covered financial institution may afford the foreign bank a
reasonable opportunity to take corrective action prior to terminating
the correspondent account. Should the foreign bank refuse to comply, or
if the covered financial institution cannot obtain adequate assurances
that Iranian banking institutions will no longer be able to improperly
access the correspondent account, the covered financial institution
must terminate the account within a commercially reasonable time. This
means that the covered financial institution should not permit the
foreign bank to establish any new positions or execute any transactions
through the account, other than those necessary to close the account. A
covered financial institution may reestablish an account closed under
the proposed rule if it determines that the account will not be used to
provide improper indirect access to an Iranian banking institution.
FinCEN specifically solicits comments on the requirement under the
proposed rule that covered financial institutions prevent improper
indirect access to Iranian banking institutions, once such indirect
access is identified.
3. Reporting Not Required
Section 1010.657(b)(3) of the proposed rule clarifies that the rule
does not impose any reporting requirement upon any covered financial
institution that is not otherwise required by applicable law or
regulation. A covered financial institution must, however, document its
compliance with the requirement that it notify those correspondent
account holders that the covered financial institution knows or has
reason to know provide services to Iranian banking institutions, that
such correspondents may not provide Iranian banking institutions with
improper access to the correspondent account maintained at the covered
financial institution.
IV. Request for Comments
FinCEN invites comments on all aspects of the proposal to prohibit
the opening or maintaining of correspondent accounts for or on behalf
of Iranian banking institutions, and specifically invites comments on
the following matters:
1. The form and scope of the notice to certain correspondent
account holders that would be required under the rule and whether a
one-time notice will be sufficient to ensure cooperation from
correspondent account holders in denying Iranian banking institutions
access to the financial system, and the incremental costs that
financial institutions would incur if this rule required an annual
notice;
2. The appropriate scope of the proposed requirement for a covered
financial institution to take reasonable steps to identify any indirect
use of its correspondent accounts by Iranian banking institutions;
3. The appropriate steps a covered financial institution should
take once it identifies an indirect use of one of its correspondent
accounts by an Iranian banking institution; and
4. The impact of the proposed special measure upon legitimate
transactions with Iran involving, in particular, U.S. persons and
entities; foreign persons, entities, and governments; and multilateral
organizations doing legitimate business with persons or entities
operating in Iran.
V. Regulatory Flexibility Act
It is hereby certified that this proposed rule will not have a
significant economic impact on a substantial number of small entities.
Given that U.S. financial institutions have long been subject to
sanctions regulations prohibiting the provision of correspondent
account services for banking institutions in Iran, FinCEN assesses that
the prohibition on maintaining such accounts will not have a
significant impact on a substantial number of small entities. In
addition, all U.S. persons, including U.S. financial institutions,
currently must exercise some degree of due diligence in order to comply
with various legal requirements. The tools used for such purposes,
including commercially available software used to comply with the
economic sanctions programs administered by OFAC, can easily be
modified to monitor for the use of correspondent accounts by Iranian
banking institutions. Thus, the special due diligence that would be
required by this rulemaking--i.e., the one-time transmittal of notice
to certain correspondent account holders and the screening of
transactions to identify any indirect use of correspondent accounts, is
not expected to impose a significant additional economic burden upon
small U.S. financial institutions. FinCEN invites comments from members
of the public who believe there will be a significant economic impact
on small entities.
VI. Paperwork Reduction Act
The collection of information contained in this proposed rule is
being submitted to the Office of Management
[[Page 72884]]
and Budget for review in accordance with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)). Comments on the collection of information
should be sent to the Desk Officer for the Department of Treasury,
Office of Information and Regulatory Affairs, Office of Management and
Budget, Paperwork Reduction Project (1506), Washington, DC 20503 (or by
email to [email protected]) with a copy to FinCEN by mail or
email at the addresses previously specified. Comments should be
submitted by one method only. Comments on the collection of information
should be received by January 27, 2012. In accordance with the
requirements of the Paperwork Reduction Act of 1995, 44 U.S.C.
3506(c)(2)(A), and its implementing regulations, 5 CFR part 1320, the
following information concerning the collection of information as
required by 31 CFR 1010.657 is presented to assist those persons
wishing to comment on the information collection.
The collection of information in this proposed rule is in
1010.657(b)(2)(i) and 1010.657(b)(3)(i). The notification requirement
in 1010.657(b)(2)(i) is intended to ensure cooperation from
correspondent account holders in denying Iranian banking institutions
access to the U.S. financial system. The information required to be
maintained by 1010.657(b)(3)(i) will be used by federal agencies and
certain self-regulatory organizations to verify compliance by covered
financial institutions with the provisions of 31 CFR 1010.657. The
class of financial institutions affected by the notification
requirement is identical to the class of financial institutions
affected by the recordkeeping requirement. The collection of
information is mandatory.
Description of Affected Financial Institutions: Banks, broker-
dealers in securities, futures commission merchants and introducing
brokers, and mutual funds maintaining correspondent accounts.
Estimated Number of Affected Financial Institutions: 5,000.
Estimated Average Annual Burden Hours per Affected Financial
Institution: The estimated average burden associated with the
collection of information in this proposed rule is one hour per
affected financial institution.
Estimated Total Annual Burden: 5,000 hours.
FinCEN specifically invites comments on: (a) Whether the proposed
collection of information is necessary for the proper performance of
the mission of FinCEN, including whether the information shall 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 maintain the information.
VII. Executive Order 12866
The proposed rule is not a significant regulatory action for
purposes of Executive Order 12866, ``Regulatory Planning and Review.''
List of Subjects in 31 CFR Chapter X
Administrative practice and procedure, Banks and banking, Brokers,
Counter-money laundering, Counter-terrorism, Foreign banking, Iran.
Authority and Issuance
For the reasons set forth in the preamble, chapter X of title 31 of
the Code of Federal Regulations is proposed to be amended as follows:
Chapter X--Financial Recordkeeping and Reporting of Currency and
Financial Transactions
1. The authority citation for chapter X is amended to read as
follows:
Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314,
5316-5332 Title III, secs. 311, 312, 313, 314, 319, 326, 352, Pub.
L. 107-56, 115 Stat. 307.
2. Subpart F of Chapter X is amended by adding new Sec. 1010.657
under the undesignated center heading ``SPECIAL DUE DILIGENCE FOR
CORRESPONDENT ACCOUNTS AND PRIVATE BANKING ACCOUNTS'' to read as
follows:
Sec. 1010.657 Special measures against the Islamic Republic of Iran.
(a) Definitions. For purposes of this section:
(1) Correspondent account has the same meaning as provided in Sec.
1010.605(c)(1)(ii).
(2) Covered financial institution has the same meaning as provided
in Sec. 1010.605(f)(1)-(2).
(3) Foreign bank has the same meaning as 1010.100(u).
(4) Iranian banking institution means the following:
(i) Any foreign bank chartered by Iran, including any branches,
offices, or subsidiaries of such bank operating in any jurisdiction,
and any branch or office within Iran of any foreign bank licensed by
Iran;
(ii) The Central Bank of Iran (Bank Markazi Iran); and
(iii) Any foreign bank of which more than 50 percent of the voting
stock or analogous interest is owned by two or more foreign banks
chartered by Iran.
(5) Subsidiary means a company of which more than 50 percent of the
voting stock or analogous interest is owned by another company.
(b) Requirements for covered financial institutions.
(1) Prohibition on direct use of correspondent accounts. A covered
financial institution shall terminate any correspondent account that is
established, maintained, administered, or managed in the United States
for, or on behalf of, an Iranian banking institution, provided that the
account is not blocked under any Executive Order issued pursuant to the
International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.)
(IEEPA) or under 31 CFR Chapter V.
(2) Special due diligence of correspondent accounts to prohibit
improper indirect use.
(i) A covered financial institution shall apply special due
diligence to its correspondent accounts that is reasonably designed to
guard against their improper indirect use by Iranian banking
institutions. At a minimum, that special due diligence must include:
(A) Notifying those correspondent account holders that the covered
financial institution knows or has reason to know provide services to
Iranian banking institutions, that such correspondents generally may
not provide Iranian banking institutions with access to the
correspondent account maintained at the covered financial institution;
and
(B) Taking reasonable steps to identify any indirect use of its
correspondent accounts by Iranian banking institutions, to the extent
that such indirect 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
should adopt to guard against the improper indirect use of its
correspondent accounts by Iranian banking institutions.
(iii) A covered financial institution that obtains knowledge that a
correspondent account is being used by the foreign bank to provide
indirect access to an Iranian banking institution, shall take all
appropriate steps to prevent such indirect access, including the
notification of its correspondent account holder under paragraph
[[Page 72885]]
(b)(2)(i)(A) of this section and, where necessary, terminating the
correspondent account, except to the extent that such indirect access
to the correspondent accounts is necessary to conduct transactions
involving Iranian banking institutions that are: (1) Authorized
pursuant to Executive Orders issued under IEEPA or pursuant to 31 CFR
Chapter V, including transactions authorized by the Office of Foreign
Assets Control; (2), exempted from the prohibitions of such authority;
or (3) not prohibited by such authority.
(3) Recordkeeping and reporting.
(i) A covered financial institution is required to document its
compliance with the notice requirement set forth in paragraph
(b)(2)(i)(A) of this section.
(ii) Nothing in this section shall require a covered financial
institution to report any information not otherwise required to be
reported by law or regulation.
Dated: November 18, 2011.
James H. Freis, Jr.,
Director, Financial Crimes Enforcement Network.
[FR Doc. 2011-30331 Filed 11-25-11; 8:45 am]
BILLING CODE 4810-02-P