Due Diligence Measures for Certain Types of Accounts Involving Foreign Persons
The BSA (31 USC § 5318(i)) requires financial institutions to establish appropriate, and where necessary, enhanced due diligence policies, procedures, and controls that are reasonably designed to detect and report instances of money laundering through private banking accounts for non U.S. persons and correspondent accounts for foreign financial institutions.
FinCEN regulation 31 CFR § 1010.610 requires covered financial institutions, including FCMs and IBs, to establish due diligence programs that include appropriate, specific, risk-based, and where necessary, enhanced policies, procedures and controls that are reasonably designed to detect and report, on an ongoing basis, any known or suspected money laundering activity conducted through or involving any correspondent account established, maintained, administered, or managed by such covered financial institution in the United States for a foreign financial institution.
FinCEN regulation 31 CFR § 1010.620 requires covered financial institutions, including FCMs and IBs, to maintain due diligence programs that are reasonably designed to detect and report known or suspected money laundering or suspicious activity conducted through or involving any private banking account that is established, maintained, administered, or managed in the United States by such financial institution for a non-U.S. person.
The due diligence program must ensure, at a minimum, that the financial institution takes reasonable steps to ascertain the identity of the nominal and beneficial owners of the private account, whether any such person is a senior foreign political figure, the sources of funds deposited into the private banking account and the purpose and expected use of the account. The program also must ensure that the financial institution reviews the activity in the private banking account to ensure it is consistent with the information obtained about the client and reports known or suspected money laundering or suspicious activity conducted to, from or through the private banking account. Where a senior foreign political figure is the nominal or beneficial owner of a private banking account, the program must include enhanced scrutiny of the account that is reasonably designed to detect and report transactions that may involve the proceeds of foreign corruption.
The 2007 amendment to the correspondent account regulation (31 CFR 1010.610(b)) ushered enhanced due diligence requirements for correspondent accounts for certain foreign banks. The regulation requires covered institutions, which includes FCMs and IBs, to apply certain specified minimum enhanced due diligence procedures to any correspondent account maintained for a foreign bank that operates under:
(1) An offshore banking license;
(2) A banking license issued by a foreign country that has been designated as non-cooperative by an intergovernmental group or organization of which the U.S. is a member and with which designation the U.S. concurs; or
(3) A banking license issued by a foreign country that has been designated as warranting special measures due to money laundering concerns.
Notwithstanding the final regulation for correspondent accounts, on June 7, 2006, FinCEN issued guidance that confirmed an IB is not subject to the correspondent account due diligence requirements where it merely solicits and accepts orders for transactions in commodity futures and options. This guidance also confirmed that an FCM operating as the carrying broker in a give-up arrangement, and not the FCM operating as the executing broker, is subject to compliance with the due diligence provisions of the correspondent account regulation.
FinCEN has issued guidance for FCMs and IBs that addresses:
(1) Whether all five of the risk factors enumerated in the final due diligence regulation for correspondent accounts must be applied in every instance;
(2) How certain intermediated relationships should be treated for purposes of the correspondent account regulation;
(3) How the due diligence regulation for private banking accounts applies to clearing firms;
(4) How firms should determine whether a foreign entity is a "foreign financial institution;" and
(5) How futures firms should evaluate the purpose and anticipated activity of a correspondent account.