[Federal Register Volume 78, Number 80 (Thursday, April 25, 2013)]
[Proposed Rules]
[Pages 24584-24592]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-09784]


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DEPARTMENT OF THE TREASURY

Financial Crimes Enforcement Network

31 CFR Part 1010

RIN 1506-AB21


Imposition of Special Measures Against Halawi Exchange Co. as a 
Financial Institution of Primary Money Laundering Concern

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

ACTION: Notice of proposed rulemaking.

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SUMMARY: In a finding, notice of which is published elsewhere in this 
issue of the Federal Register, the Director of FinCEN found that Halawi 
Exchange Co. (``Halawi Exchange'') is a financial institution operating 
outside of the United States that is of primary money laundering 
concern. FinCEN is issuing this notice of proposed rulemaking 
(``NPRM'') to propose the imposition of two special measures against 
Halawi Exchange.

DATES: Written comments on this NPRM must be submitted on or before 
June 24, 2013.

ADDRESSES: You may submit comments, identified by RIN 1506-AB21, by any 
of the following methods:
     Federal E-rulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments. Include RIN 1506-AB21 
in the submission.
     Mail: The Financial Crimes Enforcement Network, P.O. Box 
39, Vienna, VA 22183. Include RIN 1506-AB21 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 FURTHER INFORMATION CONTACT: The FinCEN regulatory helpline at 
(800) 949-2732 and select Option 6.

SUPPLEMENTARY INFORMATION:

I. Statutory Provisions

    On October 26, 2001, the President signed into law the Uniting and 
Strengthening America by Providing Appropriate Tools Required to 
Intercept and Obstruct Terrorism Act of 2001 (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, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5314, 5316-
5332, to promote the prevention, detection, and prosecution of 
international money laundering and the financing of terrorism. 
Regulations implementing the BSA appear at 31 CFR Chapter X. The 
authority of the Secretary of the Treasury (the ``Secretary'') to 
administer the BSA and its implementing regulations has been delegated 
to the Director of FinCEN.
    Section 311 of the USA PATRIOT Act (``section 311''), codified at 
31 U.S.C. 5318A, grants the Director of FinCEN 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'' to address the primary money laundering concern.

II. Imposition of Special Measures Against Halawi Exchange as a 
Financial Institution of Primary Money Laundering Concern

A. Special Measures

    As noticed elsewhere in this issue of the Federal Register, on 
April 22, 2013, the Director of FinCEN found that Halawi Exchange is a 
financial institution operating outside the United States that is of 
primary money laundering concern (the ``Finding''). Based upon that 
Finding, the Director of FinCEN is authorized to impose one or more 
special measures. Following the consideration of all factors relevant 
to the Finding and to selecting the special measures proposed in this 
NPRM, the Director of FinCEN proposes to impose the special measures 
authorized by section 5318A(b)(1) and (5), (respectively, the ``first 
special measure'' and the ``fifth special measure''). In connection 
with this action, FinCEN consulted with staff of the Federal functional 
regulators, the Department of Justice, and the Department of State, 
among others.
    On April 23, 2013, FinCEN imposed the first special measure by 
temporary order (the ``Order'') to immediately address the threat to 
the U.S. financial system that the activities of Halawi Exchange 
represent.

B. Discussion of Section 311 Factors

    In determining which special measures to implement to address the 
primary money laundering concern, FinCEN considered the following 
factors.

[[Page 24585]]

1. Whether Similar Action Has Been or Will Be Taken by Other Nations or 
Multilateral Groups Against Halawi Exchange
    Other countries or multilateral groups have not yet taken action 
similar to those proposed in this rulemaking that would: (1) Require 
domestic financial institutions and agencies to file reports concerning 
any transactions or attempted transactions related to Halawi Exchange; 
(2) prohibit domestic financial institutions and agencies from opening 
or maintaining a correspondent account for or on behalf of a foreign 
banking institution if such correspondent account is used to process a 
transaction involving Halawi Exchange; and (3) to require those 
domestic financial institutions and agencies to screen their 
correspondents in a manner that is reasonably designed to guard against 
processing transactions involving Halawi Exchange. FinCEN encourages 
other countries to take similar action based on the information 
contained in this notice and the Finding.
2. Whether the Imposition of the First or 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 first special measure imposed by order and sought to be 
finalized through notice and comment rulemaking requires domestic 
financial institutions and agencies to file reports concerning any 
transactions or attempted transactions related to Halawi Exchange. 
Given the general recordkeeping and reporting obligations already in 
place, FinCEN does not expect any increase in the burden associated 
with these requirements to be significant. Likewise, U.S. financial 
institutions generally apply some level of screening and (when 
required) reporting of 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 and to detect potential suspicious activity. As explained in 
more detail in the section-by-section analysis below, financial 
institutions should be able to leverage these current screening and 
reporting procedures to detect attempted transactions involving Halawi 
Exchange. As appropriate, the proposal would deem reports filed as Bank 
Secrecy Act-Suspicious Activity Reports (``BSA-SARs'') to comply with 
this reporting requirement if filed according to the specifications 
listed in the regulatory text and discussed in the section-by-section 
analysis. Moreover, the number of transactions to which the 
recordkeeping and reporting obligations apply is expected to be 
relatively limited because, according to available public information, 
Halawi Exchange has account relationships with only a limited number of 
financial institutions and claims to have an agency or sub-agency 
relationship with only two U.S. money transmitters. Thus, the 
additional reporting and recordkeeping requirements that would be 
required by this rulemaking are not expected to create a significant 
competitive disadvantage for U.S. financial institutions.
    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 a foreign 
banking institution if such correspondent account is used to process a 
transaction involving Halawi Exchange after the effective date of the 
final rule implementing the fifth special measure. 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 to provide services to Halawi Exchange. 
There is a minimal burden involved in transmitting a one-time notice to 
all foreign correspondent account holders concerning the prohibition on 
processing transactions involving Halawi Exchange through the U.S. 
correspondent account. As noted above, U.S. financial institutions 
generally apply some level of automated transaction and account 
screening, often through the use of commercially available software. As 
explained in more detail in the section-by-section analysis below, 
financial institutions should be able to leverage their current 
screening procedures to include Halawi Exchange and support compliance 
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 
Would Have a Significant Adverse Systemic Impact on the International 
Payment, Clearance, and Settlement System, or on Legitimate Business 
Activities of Halawi Exchange
    The requirements proposed in this NPRM would target Halawi Exchange 
specifically; they would not target a class of financial transactions 
(such as wire transfers) or a particular jurisdiction. Halawi Exchange 
is not a major participant in the international payment system and is 
not relied upon by the international banking community for clearance or 
settlement services. Thus, the imposition of the first and fifth 
special measures against Halawi Exchange would not have a significant 
adverse systemic impact on the international payment, clearance, and 
settlement system.
    In light of its Finding that Halawi Exchange is of primary money 
laundering concern and in particular that it poses a risk of terrorism 
finance, FinCEN believes that any impact on the legitimate business 
activities of Halawi Exchange is outweighed by the need to protect the 
U.S. financial system. The presence of 365 active money exchanges 
currently registered in Lebanon will alleviate any burden on legitimate 
business activities within that jurisdiction.
4. The Effect of the Proposed Action on United States National Security 
and Foreign Policy
    The additional recordkeeping and reporting requirements required by 
the first special measure will provide FinCEN and law enforcement with 
greater insight into transactions related to Halawi Exchange. This 
knowledge, in turn, is expected to help FinCEN and law enforcement 
identify other participants in the money laundering schemes in which 
Halawi Exchange participates or other unidentified money laundering 
schemes, which would be utilized in efforts to detect and deter these 
and other financial crimes. Such efforts would enhance national 
security by making it more difficult for terrorists and money 
launderers to access the substantial resources of the U.S. financial 
system.
    The exclusion of Halawi Exchange from the U.S. financial system as 
required by the fifth special measure would similarly enhance national 
security by making it more difficult for terrorists and money 
launderers to access the substantial resources of the U.S. financial 
system. More generally, the imposition of the first and fifth

[[Page 24586]]

special measures would complement the U.S. Government's worldwide 
efforts to expose and disrupt international money laundering and 
terrorism financing.
    Therefore, pursuant to the finding that Halawi Exchange is a 
financial institution operating outside of the United States of primary 
money laundering concern, and after conducting the required 
consultations and weighing the relevant factors, the Director of FinCEN 
proposes to impose the first and fifth special measures.

III. Section-by-Section Analysis for Imposition of First and Fifth 
Special Measures

A. 1010.659(a)--Definitions

1. Halawi Exchange Co.
    Section 1010.659(a)(1) of the proposed rule would define Halawi 
Exchange Co. to include all branches, offices, and subsidiaries of 
Halawi Exchange Co. operating in Lebanon or in any other jurisdiction.
    Covered financial institutions should take commercially reasonable 
measures to determine whether a customer is a branch, office, or 
subsidiary of Halawi Exchange Co.
2. Correspondent Account
    Section 1010.659(a)(2) of the proposed rule would define 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 to handle other financial transactions related to the 
foreign bank. Under this definition, ``payable through accounts'' are a 
type of correspondent account.
    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 rule as was 
established for depository institutions in the final rule implementing 
the provisions of section 312 of the USA PATRIOT Act requiring enhanced 
due diligence for correspondent accounts maintained for certain foreign 
banks.\1\
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    \1\ See 31 CFR 1010.605(c)(2)(i).
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    In the case of securities broker-dealers, futures commission 
merchants, introducing brokers-commodities, and investment companies 
that are open-end companies (``mutual funds''), FinCEN is also using 
the same definition of ``account'' for purposes of this rule as was 
established for these entities in the final rule implementing the 
provisions of section 312 of the USA PATRIOT Act requiring enhanced due 
diligence for correspondent accounts maintained for certain foreign 
banks.\2\
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    \2\ See 31 CFR 1010.605(c)(2)(ii)-(iv).
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3. Covered Financial Institution
    Section 1010.659(a)(3) of the proposed rule would define ``covered 
financial institution'' with the same definition used in the final rule 
implementing the provisions of section 312 of the USA PATRIOT Act,\3\ 
which in general includes the following:
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    \3\ See 31 CFR 1010.605(e)(1).
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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 savings association;
     a corporation acting under section 25A of the Federal 
Reserve Act (12 U.S.C. 611);
     a trust bank or trust company;
     a broker or dealer in securities;
     a futures commission merchant or an introducing broker-
commodities; and
     a mutual fund.
4. Principal Money Transmitter
    Section 1010.659(a)(4) of the proposed rule would define principal 
money transmitters as money transmitters required to register under 31 
CFR 1022.380.\4\ A person that is a money transmitter solely because 
that person serves as an agent of another money transmitter and does 
not process transactions on its own behalf will not be covered by the 
proposed rule.
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    \4\ 31 CFR 1010.100(ff)(5) defines a money transmitter as (A) A 
person that provides money transmission services. The term ``money 
transmission services'' means the acceptance of currency, funds, or 
other value that substitutes for currency from one person and the 
transmission of currency, funds, or other value that substitutes for 
currency to another location or person by any means. ``Any means'' 
includes, but is not limited to, through a financial agency or 
institution; a Federal Reserve Bank or other facility of one or more 
Federal Reserve Banks, the Board of Governors of the Federal Reserve 
System, or both; an electronic funds transfer network; or an 
informal value transfer system; or (B) Any other person engaged in 
the transfer of funds.
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5. Subsidiary
    Section 1010.659(a)(5) of the proposed rule would define 
``subsidiary'' as a company of which more than 50 percent of the voting 
stock or analogous equity interest is owned by Halawi Exchange.

B. 1010.659(b)--Reporting Requirements for Covered Financial 
Institutions and Principal Money Transmitters

    The proposed rule imposing the first special measure would require 
covered financial institutions and principal money transmitters to take 
reasonable steps to collect and report to FinCEN specified information 
regarding any transaction involving Halawi Exchange in which the 
covered financial institution or principal money transmitter is 
requested to engage, directly or indirectly, after the imposition of 
the first special measure. This proposed rule would not alter or 
otherwise impact other regulatory obligations of covered financial 
institutions or principal money transmitters under the BSA except if 
the financial institution fulfilled its reporting obligations under the 
first special measure by submitting a suspicious activity report.
1. Reporting
(i) Identity of the Participants in a Transaction or Attempted 
Transaction
    Section 1010.659(b)(1)(i) of the proposed rule would require 
covered financial institutions and principal money transmitters to 
report the identity and address of the participants in any transaction 
involving Halawi Exchange, including the identity of the transmittor 
and recipient of any transmittal of funds. This information would 
include any identifying information the covered financial institution 
or principal money transmitter obtained in the ordinary course of 
business, including the information required under 31 CFR 1010.410(f) 
(generally known as the ``travel rule''), such as name, account number 
if used, address, the identity of the beneficiary's financial 
institution, or any other specific identifier of the recipient received 
with the transmittal order. In addition, the proposed rule would 
require covered financial institutions and principal money transmitters 
to provide any additional information that it collects in the ordinary 
course of business relevant to the identity of the participants in a 
transaction or attempted transaction.

[[Page 24587]]

    ``Transactions involving Halawi Exchange'' include, at a minimum, 
any transactions for which the documentation, such as the transmittal 
order, payment instruction, or SWIFT message, includes the following as 
a party in any capacity: the name of Halawi Exchange; the name of any 
branches, offices, or subsidiaries of Halawi Exchange; or the names of 
any of the principals of Halawi Exchange identified in the finding that 
appear as acting on behalf of Halawi Exchange. Financial institutions 
should be able to put these names into their existing screening 
programs to be easily identified and reported.
    While inquiries made to the sender of an instruction to obtain 
additional information not originally included in a received 
instruction may take extra time and resources, FinCEN believes that 
these concerns do not outweigh the need to obtain full and accurate 
information concerning Halawi Exchange as quickly as possible. Note, 
however, that there is no expectation that a covered financial 
institution or principal money transmitter seek additional information 
from financial institutions in a chain of intermediaries beyond the 
immediate counter party from which the covered financial institution or 
principal money transmitter received the instruction. Some requests for 
additional information may not yield every item of additional 
information sought. To supplement the information received from the 
immediate counter party, the proposed rule would require covered 
financial institutions and principal money transmitters to provide any 
additional information that they collect in the ordinary course of 
business relevant to the identity of the parties involved in the 
transaction or attempted transaction.
(ii) Legal Capacity
    Section 1010.659(b)(1)(ii) of the proposed rule would require 
covered financial institutions and principal money transmitters to 
report the legal capacity in which Halawi Exchange and any customer of 
Halawi Exchange is acting with respect to the transaction. This would 
include any identifying information collected by the covered financial 
institution or principal money transmitter in the ordinary course of 
business and must include the roles of Halawi Exchange or any of its 
customers in the transaction as set out in the transmittal order, such 
as transmittor or recipient of a transmittal order or as an 
intermediary financial institution involved in the payment chain 
associated with a transaction. The proposed rule would not require the 
covered financial institution or principal money transmitter to seek 
additional information regarding the legal capacity of the parties 
involved in the transaction beyond what it already has in its 
possession in the ordinary course of business.
(iii) Description of the Transaction or Attempted Transaction and its 
Purpose
    Section 1010.659(b)(1)(iii) of the proposed rule would require 
covered financial institutions and principal money transmitters to 
report a description of the transaction and its purpose. The 
description would include additional details of the transaction, 
including amounts, and in particular, a general description of any 
underlying reason for the transaction or obligation which the financial 
transaction supports, such as the purchase of specific goods or 
services, initiation or repayment of a loan or other debt, settlement 
of a trade, transaction in foreign exchange, or other type of financial 
obligation, or other relevant information the covered financial 
institution or principal money transmitter may have available. To the 
extent a covered financial institution or principal money transmitter 
finds that it does not have sufficient information to enable it to 
report a description of the transaction and its purpose, it would be 
reasonable for the covered financial institution or principal money 
transmitter to inquire further (for example, with any applicable 
customer, respondent bank, or correspondent bank) to obtain additional 
information. In so doing, a covered financial institution or principal 
money transmitter should consider analogizing to procedures it would 
follow in fulfilling its obligation to determine whether a transaction 
should be reported as suspicious, in particular to aid it in examining 
the available facts, including the background and possible purpose of 
the transaction to determine whether it is consistent with the type of 
transaction in which a particular person would normally be expected to 
engage.
2. When To File
    Section 1010.659(b)(2) of the proposed rule would require covered 
financial institutions and principal money transmitters to make the 
reports required by Section 1010.659(b)(1) within fifteen business days 
following the day when the covered financial institution or principal 
money transmitter engaged in or a decision was made not to engage in 
the transaction. By ensuring that FinCEN receives information shortly 
after a transaction is executed or refused to be executed, the 
contemplated time period will enable FinCEN and law enforcement to more 
effectively monitor the ongoing activities of Halawi Exchange. Based on 
other time limits contained in the BSA, FinCEN believes the fifteen 
days allowed by this proposed rule should be sufficient to make the 
required reports, but acknowledges that in some cases where requests 
must be made of foreign financial institutions additional time may be 
required. In such a case, the reports should be filed within fifteen 
days with whatever information the covered financial institution or 
principal money transmitter has at that time, and any additional 
information discovered must be submitted as a supplemental or corrected 
report. FinCEN requests comment on whether fifteen days is sufficient 
time for a covered financial institution or principal money transmitter 
to obtain the required information or whether some other period of time 
is more appropriate.
    Covered financial institutions and principal money transmitters 
would additionally be required to take reasonable steps to identify any 
reportable transaction, involving Halawi Exchange, to the extent that 
such use can be determined from transactional records maintained in the 
ordinary course of business. For example, a covered financial 
institution or principal money transmitter would be expected to apply 
an appropriate screening mechanism to be able to identify a transmittal 
order that on its face listed Halawi Exchange as the originator's or 
beneficiary's financial institution, or otherwise referenced Halawi 
Exchange in a manner detectable under the financial institution's 
normal screening mechanism. An appropriate screening mechanism could be 
the mechanism used by a covered financial institution or principal 
money transmitter to comply with various legal requirements, such as 
the commercially available software programs used to comply with the 
economic sanctions programs administered by OFAC. Willful failure to 
provide timely, accurate, and complete information in such reporting 
may constitute a violation of these requirements subject to civil and 
criminal penalties under 31 U.S.C. 5321 and 5322.
    FinCEN specifically solicits comments on the requirement under the 
proposed rule that covered financial institutions and principal money 
transmitters take reasonable steps to screen their transactions to 
identify any transaction or attempted transaction involving Halawi 
Exchange.

[[Page 24588]]

3. How To File
    The proposed rule would require covered financial institutions and 
principal money transmitters to report in a CSV file such information 
as determined by the Director of FinCEN as relevant to the identity of 
the participants, their legal capacity, and description of the 
transaction. This information could include the following requested 
information contained in the Order: Transaction Reference Number, 
Payment Date, Instruction Date, Payment Amount, Transmittor's Account 
Number, Transmittors's Full Name, Transmittors's Address, Transmittor's 
Financial Institution's Identifier, Transmittor's Financial 
Institution's Name, Transmittor's Financial Institution's Address, 
Incoming Correspondent Financial Institution's Identifier, Incoming 
Correspondent Financial Institution's Name, Incoming Correspondent 
Financial Institution's Address, Outgoing Correspondent Financial 
Institution's Identifier, Outgoing Correspondent Financial 
Institution's Name, Outgoing Correspondent Financial Institution's 
Address, Recipient's Financial Institution's Identifier, Recipient's 
Financial Institution's Name, Recipient's Financial Institution's 
Address, Recipient's Account Number, Recipient's Full Name, Recipient's 
Address, Payment Instructions. Covered financial institutions and 
principal money transmitters would be required to submit the CSV file 
in a manner specified by the Director of FinCEN. To ease regulatory 
burden and as appropriate, the proposal would deem reports filed as 
BSA-SARs to comply with this reporting requirement if filed within 15 
days with all required information included in an attached CSV file and 
containing, both in the narrative and field 35z, ``Halawi Exchange SM1 
Report''. FinCEN specifically solicits comments on the requirements for 
reporting under the proposed rule.

C. 1010.659(c)--Prohibition on Accounts and Due Diligence Requirements 
for Covered Financial Institutions

1. Prohibition on Use of Correspondent Accounts
    Section 1010.659(c)(1) of the proposed rule imposing the fifth 
special measure would prohibit covered financial institutions from 
establishing, maintaining, or managing in the United States any 
correspondent account for or on behalf of a foreign banking institution 
if such correspondent account is used to process a transaction 
involving Halawi Exchange, including any of its branches, offices or 
subsidiaries.
2. Special Due Diligence for Correspondent Accounts To Prohibit Use
    As a corollary to the prohibition on maintaining correspondent 
accounts that processed transactions involving Halawi Exchange, section 
1010.659(c)(2) of the proposed rule would require a covered financial 
institution to apply special due diligence to its correspondent 
accounts that is reasonably designed to guard against processing 
transactions involving Halawi Exchange. That special due diligence must 
include notifying those foreign correspondent account holders that the 
covered financial institution knows or has reason to know provide 
services to Halawi Exchange that such correspondents may not provide 
Halawi Exchange with access to the correspondent account maintained at 
the covered financial institution and implementing appropriate risk-
based procedures to identify transactions involving Halawi Exchange.
    A covered financial institution may satisfy the notification 
requirement by transmitting the following notice to its foreign 
correspondent account holders that it knows or has reason to know 
provide services to Halawi Exchange:

    Notice: Pursuant to U.S. regulations issued under section 311 of 
the USA PATRIOT Act, 31 CFR 1010.659, we are prohibited from 
establishing, maintaining, administering, or managing a 
correspondent account for or on behalf of a foreign banking 
institution if such correspondent account processes any transaction 
involving Halawi Exchange Co. or any of its subsidiaries. The 
regulations also require us to notify you that you may not provide 
Halawi Exchange Co. or any of its subsidiaries with access to the 
correspondent account you hold at our financial institution. If we 
become aware that the correspondent account you hold at our 
financial institution has processed any transactions involving 
Halawi Exchange Co. or any of its subsidiaries, we will be required 
to take appropriate steps to prevent such access, including 
terminating your account.

    A covered financial institution would, for example, have knowledge 
through transaction screening software that the correspondents provide 
Halawi Exchange access to the U.S. correspondent account. The purpose 
of the notice requirement is to help ensure cooperation from 
correspondent account holders in denying Halawi Exchange access to the 
U.S. financial system. However, FinCEN would 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 one-time 
notice by mail, fax, or email. FinCEN specifically solicits comments on 
the form and scope of the notice that would be required under the rule.
    The special due diligence would also include implementing risk-
based procedures designed to identify any use of its correspondent 
accounts to process transactions involving Halawi Exchange. A covered 
financial institution would be expected to apply an appropriate 
screening mechanism to identify a funds transfer order that on its face 
listed Halawi Exchange as the financial institution of the originator 
or beneficiary, or otherwise referenced Halawi Exchange in a manner 
detectable under the financial institution's normal screening 
mechanisms. 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.
    A covered financial institution would also be required to implement 
risk-based procedures to identify disguised use of its correspondent 
accounts including through methods used to hide the beneficial owner of 
a transaction. Specifically, FinCEN is concerned that Halawi Exchange 
may attempt to disguise its transactions by relying on types of 
payments and accounts that would not explicitly identify Halawi 
Exchange as an involved party. A financial institution may develop a 
suspicion of such misuse based on other information in its possession, 
patterns of transactions, or any other method available to it based on 
its existing systems. Under the proposed rule, a covered financial 
institution that suspects or has reason to suspect use of a 
correspondent account to process transactions involving Halawi Exchange 
must take all appropriate steps to attempt to verify and prevent such 
use, including a notification to its correspondent account holder per 
section 1010.659(c)(2)(i)(A) requesting further information regarding a 
transaction, requesting corrective action to address the perceived risk 
and, where necessary, terminating the correspondent account. A covered 
financial institution may reestablish an account closed under the rule 
if it determines that the account will not be used to process 
transactions involving Halawi Exchange. FinCEN specifically

[[Page 24589]]

solicits comments on the requirement under the proposed rule that 
covered financial institutions take reasonable steps to prevent any 
processing of transactions involving Halawi Exchange.
3. Recordkeeping and Reporting
    Section 1010.659(c)(3) of the proposed rule would clarify that 
subsection (c) of 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 Halawi 
Exchange that such correspondents may not process any transaction 
involving Halawi Exchange through the correspondent account maintained 
at the covered financial institution.

IV. Request for Comments

    FinCEN invites comments on all aspects of the proposal to impose 
the first and fifth special measures against Halawi Exchange and 
specifically invites comments on the following matters:
    1. The impact of the proposed special measures upon legitimate 
transactions with Halawi Exchange 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 Lebanon.

First Special Measure

    2. The form and scope of the reports to FinCEN required under the 
proposed rule to impose the first special measure;
    3. The appropriate time within which a financial institution would 
be required to report to FinCEN;
    4. The requirements for reporting under the proposed rule.
    5. The appropriate scope of the proposed requirement for a 
financial institution to take reasonable steps to identify any 
reportable transactions by Halawi Exchange; and
    6. The appropriate steps a financial institution should take once 
it identifies a transaction related to Halawi Exchange.

Fifth Special Measure

    7. The form and scope of the notice to certain correspondent 
account holders that would be required under the rule;
    8. The appropriate scope of the proposed requirement for a covered 
financial institution to take reasonable steps to identify any use of 
its correspondent accounts to process transactions involving Halawi 
Exchange; and
    9. The appropriate steps a covered financial institution should 
take once it identifies use of one of its correspondent accounts to 
process transactions involving Halawi Exchange.

V. Regulatory Flexibility Act

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

A. Proposal To Require a Report of a Transaction or Attempted 
Transaction Under the First Special Measure

1. Estimate of the Number of Small Entities to Whom the Proposed Rule 
Will Apply
    The reporting requirement proposed under the first special measure, 
requires certain covered financial institutions and principal money 
transmitters to report to FinCEN information associated with 
transactions or attempted transactions involving Halawi Exchange.
    For purposes of the RFA, both banks and credit unions are 
considered small entities if they have less than $175 million in 
assets.\5\ Of the estimated 8,000 banks, 80% have less than $175 
million in assets and are considered small entities.\6\ Of the 
estimated 7,000 credit unions, 90% have less than $175 million in 
assets.\7\ FinCEN estimates that this rule will impact a limited number 
of banks and credit unions. On the basis of publicly available 
information, FinCEN understands that Halawi Exchange currently 
maintains no accounts in the United States. Moreover, to the extent 
that a transaction involving Halawi Exchange was to be processed 
through a U.S. financial institution, this would most likely involve a 
small subset of the largest financial institutions that actively engage 
in international transactions. Therefore, FinCEN estimates that this 
reporting requirement will only impact less than 1% of all small banks 
and credit unions.
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    \5\ Table of Small Business Size Standards Matched to North 
American Industry Classification System Codes, Small Business 
Administration Size Standards at 27 (SBA Oct. 1, 2012) [hereinafter 
SBA Size Standards].
    \6\ Federal Deposit Insurance Corporation, Find an Institution, 
http://www2.fdic.gov/idasp/main.asp; select Size or Performance: 
Total Assets, type Equal or less than $: ``175000'', select Find.
    \7\ National Credit Union Administration, Credit Union Data, 
http://webapps.ncua.gov/customquery/; select Search Fields: Total 
Assets, select Operator: Less than or equal to, type Field Values: 
``175000000'', select Go.
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    Broker-dealers are defined in 31 CFR 1010.100(h) as certain broker/
dealers required to register with the Securities and Exchange 
Commission (``SEC''). Because FinCEN and the SEC regulate substantially 
the same population, for the purposes of the RFA, FinCEN relies on the 
SEC's definition of small business as previously submitted to the Small 
Business Administration (``SBA''). The SEC has defined the term ``small 
entity'' to mean a broker or dealer that: (1) Had total capital (net 
worth plus subordinated liabilities of less than $500,000 on the date 
in the prior fiscal year as of which its audited financial statements, 
were prepared pursuant to Rule 17a-5(d) or, if not required to file 
such statements, a broker or dealer that had total capital (net worth 
plus subordinated debt) of less than $500,000 on the last business day 
of the preceding fiscal year (or in the time that it has been in 
business if shorter); and (2) is not affiliated with any person (other 
than a natural person) that is not a small business or small 
organization as defined in this release.'' \8\ Currently, based on SEC 
estimates, there 18% of broker-dealers are classified as ``small'' 
entities for purposes of the RFA.\9\ Because of the limited number of 
relationships that Halawi Exchange has with these institutions, the 
reporting requirements of the first special measure will impact less 
than 1% of small broker-dealers.
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    \8\ 17 CFR 240.0-10(c).
    \9\ 76 FR 37572, 37602 (June 27, 2011) (The SEC estimates 871 
small broker-dealers of the 5,063 total registered broker-dealers).
---------------------------------------------------------------------------

    Futures commission merchants (``FCMs'') are defined in 31 CFR 
1010.100(x) as those FCMs required to register with the Commodity 
Futures Trading Commission (``CFTC''). Because FinCEN and the CFTC 
regulate substantially the same population, for the purposes of the 
RFA, FinCEN relies on the CFTC's definition of small business as 
previously submitted to the SBA. In the CFTC's ``Policy Statement and 
Establishment of Definitions of `Small Entities' for Purposes of the 
Regulatory Flexibility Act,'' the CFTC

[[Page 24590]]

concluded that registered FCMs should not be considered to be small 
entities for purposes of the RFA.\10\ The CFTC's determination in this 
regard was based, in part, upon the obligation of registered FCMs to 
meet the capital requirements established by the CFTC. Therefore, the 
reporting requirements of the first special measure will not impact 
small FCMs.
---------------------------------------------------------------------------

    \10\ 47 FR 18618, 18619 (Apr. 30, 1982).
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    For purposes of the RFA, an introducing broker-commodities is 
considered small if it has less than seven million dollars in gross 
receipts annually.\11\ Based on NAICS code classification and 
information maintained by the CFTC, FinCEN estimates that there are 
1,800 introducing brokers-commodities,\12\ 80% of which are small 
entities.\13\ Because of the limited number of relationships that 
Halawi Exchange has with these institutions, the reporting requirements 
of the first special measure will impact less than 1% of small 
introducing brokers-commodities.
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    \11\ SBA Size Standards at 28.
    \12\ 77 FR 20128, 20197 (Apr. 3, 2012).
    \13\ 2007 Economic Census, Finance and Insurance: Subject 
Series--Estab and Firm Size: Summary Statistics by Revenue Size of 
Establishments for the United States: 2007 (Introducing brokers-
commodities are classified within NAICS code 523140 of which 80% are 
small).
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    For purposes of the RFA, a mutual fund is considered small if it 
has less than seven million dollars in gross receipts annually.\14\ 
Based on NAICS code classification and information maintained by the 
Investment Company Institute, FinCEN estimates that there are 8,700 
mutual funds,\15\ 90% of which are small entities.\16\ Because of the 
limited number of relationships that Halawi Exchange has with these 
institutions, the reporting requirements of the first special measure 
will impact less than 1% of small mutual funds.
---------------------------------------------------------------------------

    \14\ SBA Size Standards at 28.
    \15\ Investment Company Institute (ICI) 2012 Investment Company 
Fact Book, at 18 (2012), available at: http://www.icifactbook.org/pdf/2012_factbook.pdf (Number of mutual funds in the United States 
in 2011).
    \16\ 2007 Economic Census, Finance and Insurance: Subject 
Series--Estab and Firm Size: Summary Statistics by Revenue Size of 
Establishments for the United States: 2007 (Mutual funds are 
classified within NAICS code 523120 of which 90% are small).
---------------------------------------------------------------------------

    For the purposes of the RFA, a money transmitter is considered 
small if it has less than seven million dollars in gross receipts 
annually. Of the estimated 17,000 principal money transmitters, FinCEN 
estimates 95% have less than seven million in gross receipts 
annually.\17\ As indicated above, the reporting required by the first 
special measure will impact a small subset of the largest money 
transmitters. FinCEN estimates that the reporting required by the first 
special measure will impact less than 1% of small money transmitters 
Therefore, FinCEN has determined that neither a substantial number of 
small banks nor money transmitters will be significantly impacted by 
the proposal to require reporting under the first special measure.
---------------------------------------------------------------------------

    \17\ See FinCEN MSB Registration List (3/08/2012), http://www.fincen.gov/financial_institutions/msb/msbstateselector.html 
(Sort list by entities that engage in money transmission and remove 
repeat registrations).
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2. Description of the Projected Reporting and Recordkeeping 
Requirements of the First Special Measure
    Covered financial institutions and principal money transmitters at 
which a transaction is conducted or attempted by Halawi Exchange will 
be required to report information to FinCEN in a CSV file. Covered 
financial institutions and principal money transmitters would be able 
to rely on processes already developed to comply with suspicious 
activity reporting and commercially available software used to comply 
with the economic sanctions programs administered by OFAC, which can be 
leveraged to monitor for and report transactions involving Halawi 
Exchange. To ease regulatory burden and as appropriate, the proposal 
would deem reports filed as BSA-SARs to comply with this reporting 
requirement if filed within 15 days with all required information 
included in an attached CSV file and containing both in the narrative 
and field 35z ``Halawi Exchange SM1 Report.'' Because Halawi Exchange 
has been found to be a primary money laundering concern with links to 
terrorist financing, there will be significant overlap between the 
information that will be reported to satisfy the first special measure 
and the long standing requirement to file a BSA-SAR. Therefore, as the 
form of the reporting is structured to allow covered financial 
institutions and principal money transmitters to satisfy pre-existing 
regulatory obligations, any increase in the reporting burden that would 
be required by the imposition of the first special measure--i.e., 
reporting of all transactions involving Halawi Exchange on a timelier 
basis--would not impose a significant additional economic burden upon 
small U.S. financial institutions.

B. Proposal To Prohibit Covered Financial Institutions from Opening or 
Maintaining Correspondent Accounts With Certain Foreign Banks Under the 
Fifth Special Measure

1. Estimate of the Number of Small Entities to Whom the Proposed Fifth 
Special Measure Will Apply
    As noted above, 80% of banks, 90% of credit unions, 18% of broker-
dealers, 80% of introducing brokers-commodities, zero FCMs, and 90% of 
mutual funds are small entities. FinCEN understands that Halawi 
Exchange currently maintains no accounts in the United States. The 
limited number of foreign banking institutions with which Halawi 
Exchange maintains or will maintain accounts will likely limit the 
number of covered financial institutions to the largest U.S. banks who 
actively engage in international transactions. Thus, the prohibition on 
maintaining correspondent accounts for foreign banking institutions 
which engage in transactions involving Halawi Exchange under the fifth 
special measure would not impact a substantial number of small 
entities.
2. Description of the Projected Reporting and Recordkeeping 
Requirements of the Fifth Special Measure
    The proposed fifth special measure will require covered financial 
institutions to provide a notification intended to ensure cooperation 
from correspondent account holders in denying Halawi Exchange access to 
the U.S. financial system. FinCEN estimates that burden on institutions 
providing this notice is one hour. Covered financial institutions would 
also be required to take reasonable measures to detect use of their 
correspondent accounts to directly or indirectly process transactions 
involving Halawi Exchange. All U.S. persons, including U.S. financial 
institutions, currently must exercise some degree of due diligence to 
comply with OFAC sanctions and suspicious activity reporting. 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 identify correspondent accounts with foreign 
banking institutions involving Halawi Exchange. Thus, the special due 
diligence that would be required by the imposition of the fifth special 
measure--i.e., the one-time transmittal of notice to certain 
correspondent account holders, the screening of transactions to 
identify any use of correspondent accounts, and the implementation of 
risk-based measures

[[Page 24591]]

to detect indirect use of correspondent accounts--would not impose a 
significant additional economic burden upon small U.S. financial 
institutions.

C. Certification

    When viewed as a whole, FinCEN does not anticipate that the 
proposals contained in this rulemaking will have a significant impact 
on a substantial number of small businesses. Accordingly, FinCEN 
certifies that this rule will not have a significant economic impact on 
a substantial number of small entities.
    FinCEN invites comments from members of the public who believe 
there will be a significant economic impact on small entities from the 
imposition of the first and fifth special measures regarding Halawi 
Exchange.

VI. Paperwork Reduction Act

    The collection of information contained in this proposed rule is 
being submitted to the Office of Management and Budget for review in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)). Comments on the collection of information should be sent to 
the Desk Officer for the Department of Treasury, Office of Information 
and Regulatory Affairs, Office of Management and Budget, Paperwork 
Reduction Project (1506), Washington, DC 20503 (or by email to oira 
submission@omb.eop.gov 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 June 24, 2013. 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 1320, the following information 
concerning the collection of information as required by 31 CFR 1010.659 
is presented to assist those persons wishing to comment on the 
information collection.

A. Proposed Information Collection Under the First Special Measure

    The provisions in this proposed rule pertaining to the collection 
of information can be found in sections 1010.659(b)(1). The information 
required to be reported section 1010.659(b)(1) will be used by the U.S. 
Government to monitor the activities of the institution of primary 
money laundering concern. The proposed collection of information will 
be collected as a separate information collection under previously 
approved OMB Control Number 1506-0065. The collection of information is 
mandatory. FinCEN estimates the total annual burden of this collection 
to be 500 hours.

B. Proposed Information Collection Under the Fifth Special Measure

    The notification requirement in section 1010.659(c)(2)(i) is 
intended to ensure cooperation from correspondent account holders in 
denying Halawi Exchange access to the U.S. financial system. The 
information required to be maintained by section 1010.659(c)(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 1010.659. 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-commodities, and mutual funds.
    Estimated Number of Affected Financial Institutions: 5,000.
    Estimated Average Annual Burden in Hours Per Affected Financial 
Institution: The estimated average burden associated with the 
collection of information in this proposed rule is one hour per 
affected financial institution.
    Estimated Total Annual Burden: 5,000 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 report the information.
    An agency may not conduct or sponsor and a person is not required 
to respond to a collection of information unless it displays a valid 
OMB control number.

VII. Executive Order 12866

    Executive Orders 12866 and 13563 direct agencies to assess costs 
and benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). Executive Order 13563 
emphasizes the importance of quantifying both costs and benefits, of 
reducing costs, of harmonizing rules, and of promoting flexibility. It 
has been determined that the proposed rule is not a ``significant 
regulatory action'' for purposes of Executive Order 12866.

List of Subjects in 31 CFR Part 1010

    Administrative practice and procedure, banks and banking, brokers, 
counter-money laundering, counter-terrorism, foreign banking.

Authority and Issuance

    For the reasons set forth in the preamble, part 1010 of title 31 of 
the Code of Federal Regulations is proposed to be amended as follows:

PART 1010--GENERAL PROVISIONS

0
1. The authority citation for part 1010 is revised 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.
0
2. Add Sec.  1010.659 to subpart F to read as follows:


Sec.  1010.659  Special measures against Halawi Exchange Co.

    (a) Definitions. For purposes of this section:
    (1) Halawi Exchange Co. means all branches, offices, and 
subsidiaries of Halawi Exchange Co. operating in any jurisdiction.
    (2) Correspondent account has the same meaning as provided in Sec.  
1010.605(c)(1)(ii).
    (3) Covered financial institution has the same meaning as provided 
in Sec.  1010.605(e)(1).
    (4) Principal Money Transmitter means a money transmitter required 
to register under Sec.  1022.380 of this Chapter.
    (5) Subsidiary means a company of which more than 50 percent of the 
voting stock or analogous equity interest is owned by another company.
    (b) Reporting requirements for covered financial institutions and 
principal money transmitters. (1) Reporting. A covered financial 
institution or principal money transmitter is required to take 
reasonable steps to collect and report to FinCEN the following 
information with respect to any transaction or attempted transaction 
involving Halawi Exchange Co.:

[[Page 24592]]

    (i) The identity and address of the participants in the transaction 
or attempted transaction, including the identity of the originator and 
beneficiary of any funds transfer;
    (ii) The legal capacity in which Halawi Exchange Co. is acting with 
respect to the transaction or attempted transaction and, to the extent 
Halawi Exchange Co. is not acting on its own behalf, the customer or 
other person on whose behalf Halawi Exchange Co. or is acting; and
    (iii) A description of the transaction or attempted transaction and 
its purpose.
    (2) When to file. A report required by this paragraph (b) shall be 
filed by the reporting financial institution within fifteen business 
days following the day when the covered financial institution or 
principal money transmitter engaged in the transaction or became aware 
of an attempted transaction.
    (3) How to file. A report required by this paragraph (b) shall be 
filed electronically in a comma separate value format in a manner 
determined by the Director of FinCEN. However, if a covered financial 
institution or principal money transmitter determines the reportable 
transaction to be suspicious, filing FinCEN Form 111 within 15 days 
with all required information included in an attached comma separated 
value file and containing both in the narrative and field 35z the text 
``Halawi Exchange SM1 Report'' will be deemed to comply with this 
requirement.
    (c) Prohibition on accounts and due diligence requirements for 
covered financial institutions. (1) Prohibition on 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, a foreign banking 
institution if such correspondent account is being used to process a 
transaction that involves Halawi Exchange Co.
    (2) Special due diligence of correspondent accounts to prohibit 
use. (i) A covered financial institution shall apply special due 
diligence to its correspondent accounts that is reasonably designed to 
guard against their use to process transactions involving Halawi 
Exchange Co. 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 
Halawi Exchange Co., that such correspondents may not provide Halawi 
Exchange Co. with access to the correspondent account maintained at the 
covered financial institution; and
    (B) Taking reasonable steps to identify any use of its 
correspondent accounts by Halawi Exchange Co., 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 correspondent 
accounts to process transactions involving Halawi Exchange Co.
    (iii) A covered financial institution that obtains knowledge that a 
correspondent account may be being used to process transactions 
involving Halawi Exchange Co., shall take all appropriate steps to 
further investigate and prevent such access, including the notification 
of its correspondent account holder under paragraph (b)(2)(i)(A) of 
this section and, where necessary, terminating the correspondent 
account.
    (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 paragraph (c) shall require a covered 
financial institution to report any information not otherwise required 
to be reported by law or regulation.

    Dated: April 20, 2013.
Jennifer Shasky Calvery,
Director, Financial Crimes Enforcement Network.
[FR Doc. 2013-09784 Filed 4-23-13; 11:15 am]
BILLING CODE 4810-02-P