Final Rule on Enhanced Due Diligence Requirements

Following the solicitation of comments from its proposed rulemaking, the Financial Crimes Enforcement Network (FinCEN) issued a final rule under Section 312 of the Patriot Act to take effect September 10, 2007.  The new rule will be applicable to new correspondent accounts opened by February 5, 2008.  In addition, pre-existing correspondent accounts must comply by May 5, 2008.  A correspondent account under the Patriot Act is defined as an account that is established by a financial institution through which a foreign bank handles transactions related to that foreign bank.  This allows foreign banks to conduct business in the United States without the expense of maintaining an office in the United States. 

The new rule requires financial institutions to establish enhanced due diligence policies for these correspondent accounts.  Those financial institutions that are required to enact these enhanced due diligence measures are those that maintain correspondent accounts for foreign banks operating under an offshore banking license, foreign banks that operate under a license issued by a country designated as non-cooperative with money laundering principles established by an international organization to which the United States belongs, and foreign banks that operate under a license issued by a country designated as warranting special measures - according to the Department of Treasury - due to money laundering concerns.

Once identified, these financial institutions are required to conduct an enhanced scrutiny of its correspondent accounts for the above foreign banks, including assessing its own money laundering program and monitoring transactions that flow through those correspondent accounts.  Financial institutions must also take steps to determine whether a foreign bank maintains correspondent accounts for other foreign banks and to identify the owners of a foreign bank, unless the shares are publicly traded.

The final rule can be found here.

For more information, please contact Mary A. Zambreno of Dickinson, Mackaman, Tyler & Hagen.