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Notice I-07-34

September 11, 2007

FinCEN Issues Final Rule Relating to Enhanced Due Diligence Requirements for Correspondent Accounts Maintained by Certain Foreign Banks

On August 9, 2007, FinCEN issued a final rule implementing USA Patriot Act Section 312's enhanced due diligence provisions with respect to correspondent accounts maintained by certain foreign banks. FCMs and IBs1 are required to apply the enhanced due diligence procedures to correspondent accounts maintained for:

  • A foreign bank operating under an offshore banking license;

  • A foreign bank operating under a license issued by a country on the Financial Action Task Force's non-cooperative country list (no countries currently appear on that list); or

  • A foreign bank operating under a license issued by a country designated by the Secretary of Treasury as being of primary money laundering concern (under Section 311 of USA Patriot Act).

The rule will become effective in two parts. On February 5, 2008, FCMs and IBs must apply the rule to all such correspondent accounts established on or after February 5, 2008. On May 5, 2008, the rule will apply to all such existing accounts established before February 5, 2008.

FCMs and IBs are required to establish enhanced due diligence procedures that, at a minimum, include taking reasonable steps to:

    (1) conduct risk based enhanced scrutiny of correspondent accounts established or maintained of the identified foreign banks to guard against money laundering and to identify and report suspicious transactions;

    (2) determine whether the foreign bank maintains correspondent accounts for other foreign banks that enable those other foreign banks to gain access to the bank's correspondent account with the FCM or IB (and therefore access to the U.S. financial system), and if so, to take reasonable steps to obtain information to assess and mitigate the money laundering risks associated with those accounts; and

    (3) identify the owners of the foreign bank if the bank's shares are not publicly traded, and the nature and extent of each owner's ownership interest.

FCMs and IBs should conduct a risk assessment of the foreign bank's correspondent account to determine the appropriate amount of enhanced scrutiny. Based on the risk assessment, an FCM/IB should, as appropriate, (1) obtain and consider information relating to the foreign bank's anti-money laundering program to assess the risk of money laundering presented by the foreign bank's correspondent account; (2) monitor transactions to, from or through the correspondent account in a manner reasonably designed to detect money laundering and suspicious activity; and (3) obtain information from the foreign bank about the identity of any person with authority to direct transactions through any correspondent account that is a payable-through account, and the sources and beneficial owner of funds and other assets in the payable-through account.

The final rule does not require an FCM/IB to conduct an audit of a foreign bank's AML program, or to determine the extent to which the foreign bank's AML program is reasonably designed to detect and prevent money laundering. Under the final rule, an FCM/IB is required to consider and assess more generally the extent to which it may be exposed to money laundering by the foreign bank's correspondent account.

An FCM/IB's due diligence program should include procedures for situations where the FCM/IB cannot perform the enhanced due diligence, including when the FCM/IB should refuse to open the account, suspend transaction activity, file a suspicious activity report or close the account.

If you have any questions on this final rule, contact Sharon Pendleton, Director - Compliance at spendleton@nfa.futures.org or 312-658-6540 or Carol Wooding, Assistant General Counsel at cwooding@nfa.futures.org or 312-781-1409.


1 An IB that limits its activities to soliciting and accepting orders for the purchase or sale of commodity futures contracts is not required to comply with the due diligence provisions of the correspondent account rule. Similarly, the executing FCM in a give-up arrangement is not subject to compliance with the due diligence provisions of the correspondent account rule. See FIN-2006-G011, Application of the Regulations Requiring Special Due Diligence Programs for Certain Foreign Accounts to Certain Introduced Accounts and Give-Up Arrangements in the Futures Industry, June 7, 2006.

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