UPDATE Anti-Money Laundering

advertisement
UPDATE
Anti-Money Laundering
JANUARY 2002
The International Money Laundering Abatement and
Anti-Terrorist Financing Act of 2001: What it Means
for Broker-Dealers, Investment Companies, Banks
and Other Financial Institutions
Federal regulators are quickly responding to the
short deadlines imposed in the International Money
Laundering Abatement and Anti-Terrorist Financing
Act of 2001 (the “Act”), enacted as part of the USA
PATRIOT Act, on October 26, 2001. On December 20,
2001, the Department of the Treasury (“Treasury”)
issued proposed regulations intended to clarify
application of the new recordkeeping requirements
and shell bank prohibitions in the Act to brokerdealers, banks and other financial institutions, and to
require broker-dealers to report suspicious
transactions. An interim rule also issued by Treasury
on December 20, 2001 requires trades and businesses
to report cash transactions of more than $10,000.
Contents
Adopted in response to terrorist attacks in order to
strike at the source of terrorist funding, the Act sets
broad parameters and ambitious goals for financial
institutions to identify and prevent, in the first
instance, possible money laundering activity. Similar
to the privacy provisions of Gramm-Leach-Bliley, the
Act will affect the operations of virtually every
financial institution and also require coordination
among various federal agencies for implementation.
Although banks and banking regulators have been
attuned to money laundering problems for many
years, non-bank financial institutions and their
regulators have had a far more limited involvement.
Broker-Dealer SAR Reporting ..................................... 10
Primary Money Laundering Concerns ....................... 11
Summary ........................................................................... 2
Coverage of the Act ......................................................... 2
Deadlines .......................................................................... 3
Agency Review and Reports;
Possible Future Legislation .................................... 4
Penalties for Non-Compliance; Expanded
Immunity for SAR Reporting .......................................... 13
Balancing National Security v. Privacy ........................... 13
Information Sharing .................................................... 13
Government Surveillance ............................................ 13
Federal Regulators ........................................................... 5
Privacy Concerns .......................................................... 14
Obligations of “Covered Financial Institutions” ........... 5
................................................................................................
Foreign Shell Banks ...................................................... 5
This Update was produced by K&L’s multi-office, interdisciplinary
anti-money laundering practice, which provides enterprise-wide
solutions for financial institutions to help them understand and
comply with newly enacted money-laundering legislation. We invite
you to visit our website at www.kl.com, or to contact a member of
our practice (see last page of this Update) if you have any questions,
would like more information about our services, or if we can provide
you with copies of the legislation. This Update was prepared by
Diane E. Ambler ([email protected]), James E. Day ([email protected]), and
Kathy Kresch Ingber ([email protected]).
Obligations of “Financial Institutions” .......................... 6
Anti-Money Laundering Programs ............................ 6
Due Diligence Programs .............................................. 8
Private Banking Accounts ....................................... 8
Correspondent Accounts ........................................ 8
“Know Your Customer” Procedures ........................... 9
The Act laid down a number of substantive
requirements. Firms that fail to follow these
requirements could face substantial exposure; the
Act imposes severe civil and criminal penalties for
violations. Part IX identifies conflicting national
security and privacy concerns.
suggests guidelines for compliance. Part VII identifies
the substantive obligations of financial institutions
and suggests guidelines for compliance. Part VIII
highlights penalties for non-compliance with the
provisions of the Act. Part IX identifies conflicting
national security and privacy concerns.
I.
II. COVERAGE OF THE ACT
SUMMARY
The purpose of this K&L Update is to discuss the
principal provisions of the Act in detail and, more
importantly, to highlight the practical impact of the
new provisions on the compliance functions and
operations of the financial institutions affected by
the Act. In addition, it identifies general guidelines
for compliance.
For the time being, financial institutions—particularly
non-bank financial institutions—may be able to do
little more than assess their business relationships,
establish internal chains of authority and
responsibility, and begin the process of identifying
and educating affected personnel. Since more than
one member of an entity’s corporate family may be
covered by the Act, financial services firms will need
to review the policies and procedures of their various
subsidiaries to develop uniformity and consistency.
Throughout this K&L Update, a number of themes
that resound in the early wake of the Act’s enactment
will be highlighted—
n
n
n
How are financial institutions—particularly nonbank financial institutions—affected?
What important deadlines are looming and what
should financial institutions be doing right now?
What federal regulators are responsible for
implementation of the Act and how will
jurisdictional issues work?
Part II of this Update identifies the various financial
institutions covered by the Act and briefly describes
the Act’s impact on each. Part III sets forth the
deadlines established by the Act by which regulators
and financial institutions must take certain actions.
Part IV notes the requirements for agency review and
reports, as experience with the provisions of the Act
develops. Part V describes the jurisdiction of federal
regulators. Part VI identifies the substantive
obligations of covered financial institutions and
2
Congress intended the Act to sweep broadly.
Congress therefore deliberately chose to have the
anti-money laundering provisions of the Act apply
not just to banks, but also to “financial institutions,”
as defined in the Bank Secrecy Act and further
supplemented by the Act. “Financial institutions,”
as defined in the Bank Secrecy Act, include, among
other things, banks, trust companies, thrift
institutions, private bankers, US agencies or branches
of foreign banks, investment bankers, broker-dealers
in securities or commodities, investment companies,
and insurance companies. 1 The Act enlarges the
definition of “financial institutions” to include futures
commission merchants, commodity trading advisors,
and commodity pool operators.
Certain of these “financial institutions,” specifically,
banks, thrifts, trust companies, credit unions, US
branches or agencies of foreign banks, and registered
broker-dealers, are further designated as “covered
financial institutions” subject to particular
requirements in the Act related to correspondent
accounts with foreign banks.
Banks. Banks have been dealing with extensive antimoney laundering laws and regulations since the
passage of the Bank Secrecy Act in 1970. Even so,
the Act increases their recordkeeping, monitoring and
reporting obligations. Accordingly, even banks with
up-to-date anti-money laundering procedures will
have to substantially revise those procedures in light
of the new Act.
Broker-Dealers. The additional burden of the new
Act on broker-dealers and other non-bank financial
institutions is likely to be greater than on banks. For
example, the Act provides that mandatory reporting of
“suspicious activities” shall be extended to brokerdealers.2 Under current regulations, only banks,
subsidiaries of bank holding companies (such as bank
broker-dealers), casinos, and money services
businesses have been required to file SARs. The Act
KIRKPATRICK & LOCKHART LLP ANTI-MONEY LAUNDERING UPDATE
substantially expands this universe, and the
Secretary of the Treasury (“Secretary”) has just
issued proposed regulations extending mandatory
SAR reporting to all broker-dealers registered with
the Securities and Exchange Commission (“SEC”)
(including insurance companies or their affiliates that
are registered broker-dealers solely for the purpose
of selling variable annuity contracts). Thus, to the
extent that broker-dealers have not yet developed
anti-money laundering policies and procedures to
identify and report suspicious activities, they will be
expected to do so.
In addition, proposed regulations just issued by
Treasury specifically apply the Act’s shell bank
restrictions to broker-dealers maintaining
“correspondent accounts” with foreign banks.
Treasury has listed examples of such accounts to
include prime brokerage accounts, foreign currency
accounts, futures accounts, trading accounts and
custody accounts.
Commodities Futures Trading Commission
(“CFTC”) Regulated Entities. The Act permits the
Secretary, in consultation with the CFTC, to require
entities it regulates, such as futures commission
merchants, commodity trading advisors, and
commodity pool operators, to file SARs.
Insurance Companies. Insurance companies are
“financial institutions,” but not “covered financial
institutions,” under the Act. There are no provisions
in the Act specifically targeting insurance companies
or their activities, although the Act does reference a
“[s]tate financial institutions supervisory agency,”
which would appear to include state insurance
regulators, as an appropriate recipient of reports
prepared by the Secretary pursuant to the
requirements of the Act. In addition, the Secretary
indicated it would remove an interpretive exemption
from SAR reporting for insurance companies or their
affiliates that are registered broker-dealers solely for
the purpose of selling variable annuity contracts.
Investment Advisers. Notably absent from the
definitions of “financial institution” or “covered
financial institution” under the Act are investment
advisers. Therefore, with one exception, the new
mandates in the Act do not appear to apply directly
to investment advisers. The Act does require the
Secretary to issue regulations, by April 2002,
JANUARY 2002
requiring entities not included in the term “financial
institution,” which could include investment advisers,
to file CTRs with Treasury. Interim regulations issued
by Treasury on December 20, 2001 apply only to
persons engaged in a “trade or business.”
Investment Companies. Investment companies are
“financial institutions,” but not “covered financial
institutions,” under the Act. Although certain of the
Act’s provisions thereby apply to investment
companies, it is not clear necessarily how. In that
vein, the Act mandates the Secretary, the SEC and the
Federal Reserve Board (the “Fed”) to jointly submit a
report to Congress on recommendations, by October
26, 2002, for effective regulations to apply the
various provisions of the Bank Secrecy Act to
investment companies, including private investment
companies falling within Section 3(c)(1) or Section
3(c)(7) of the Investment Company Act of 1940.
III. DEADLINES
The Act establishes an aggressive compliance
schedule for financial institutions and federal
regulators.
n
By December 25, 2001—
– Covered financial institutions will be prohibited
from opening or maintaining correspondent
accounts with foreign shell banks.
– Covered financial institutions that maintain
correspondent accounts with foreign banks will
be required to have records identifying the
owners of the foreign bank and providing the
name and address of persons authorized to
accept service of legal process in the US.
n
n
By December 31, 2001—Federal banking
regulators, when ruling on an application under the
Bank Holding Company Act or the Federal Deposit
Insurance Act, must consider the effectiveness of
the financial institutions’ anti-money laundering
activities.
By January 1, 2002 (issued December 20,
2001)—The Secretary, after consultation with the
SEC and other federal regulators, is to publish
proposed regulations (to be finalized by July 1,
2002) extending mandatory SAR reporting to
broker-dealers registered with the SEC.
Kirkpatrick & Lockhart LLP
3
n
n
By February 23, 2002—The Secretary is to issue
regulations to encourage further cooperation
among financial institutions, their regulatory
authorities and law enforcement authorities for the
sharing of financial information regarding persons
suspected of participating in money laundering
activities or terrorist acts.
– Financial institutions will be required to adopt
anti-money laundering programs that include
policies, procedures, and controls to detect
and prevent money laundering, designate a
compliance officer to oversee the program,
provide for employee training, and provide for
regular audits of their anti-money laundering
program, subject to regulations to be issued by
the Secretary related to the size, location and
activities of the financial institutions covered.
– The Secretary is to issue regulations
implementing new CTR reporting requirements.
Among other things, these regulations could
require persons not included in the term
“financial institution,” such as investment
advisers, to file CTRs with Treasury. Interim
regulations issued by Treasury on
December 20, 2001 require CTR reporting by
persons who, in the course of engaging in a
trade or business, receive currency in excess of
$10,000 in one or more related transactions.
4
n
By April 24, 2002—
– The Secretary, in consultation with the
appropriate federal functional regulators, is to
issue regulations delineating the due diligence
policies, procedures, and controls required for
correspondent accounts and private banking
accounts for non-US persons. Compliance
with these regulations is required by July 23,
2002.
n
n
By July 1, 2002—The Secretary, after
consultation with the SEC and other federal
regulators, is to issue final regulations (to be
proposed by January 1, 2002) extending
mandatory SAR reporting to broker-dealers
registered with the SEC.
n
By July 23, 2002—Financial institutions will be
required to adopt detailed due diligence
procedures for correspondent accounts and
private banking accounts for non-US persons.
Implementing Treasury regulations are to be
finalized by April 24, 2002.
By July 26, 2002—The Secretary is to establish a
secure network that allows financial institutions to
make SAR filings on-line and that makes timely
information available to financial institutions.
By October 26, 2002—
– The Secretary is to submit a report to Congress
jointly with the SEC and the Fed on
recommendations for effective regulations to
apply the requirements of the Act to
investment companies, including private
investment companies.
– Financial institutions will be required to adopt
“know your customer” procedures for opening
customer accounts.
In addition, the Secretary is authorized to issue
regulations governing maintenance of concentration
accounts by financial institutions. The Secretary
also now has the power to require financial
institutions to monitor and keep records regarding
transactions involving particular foreign
jurisdictions, financial institutions, transactions and/
or accounts that the Secretary identifies as “primary
money laundering concerns.” There are no deadlines
by which the Secretary must issue these regulations.
IV. AGENCY REVIEW AND REPORTS;
POSSIBLE FUTURE LEGISLATION
Not later than April 2002, the Secretary, in
consultation with the federal functional regulators,
must submit a report to Congress with
recommendations for identifying foreign nationals.
In addition, the Secretary must also by that date
submit a report to Congress relating to the role of the
Internal Revenue Service in administering the Bank
Secrecy Act, including possible recommendations to
transfer functions to other government agencies.
KIRKPATRICK & LOCKHART LLP ANTI-MONEY LAUNDERING UPDATE
Not later than April 2002, and annually thereafter,
the Secretary must submit a report to Congress on
methods for improving compliance with foreign
financial agency transaction reporting requirements.
Not later than October 26, 2002, the Secretary must
submit a report to Congress on the need for any
additional legislation related to domestic or
international transfers of money outside of the
conventional financial institutions system. By the
same date, the Secretary must also submit another
report to Congress regarding the effectiveness of the
CTR filing requirements, in light of the volume of
CTR filings and the failure of some financial
institutions to utilize the exemptions available.
Not later than April 2004, the Secretary, in
consultation with various federal agencies, including
the SEC and federal banking agencies, must evaluate
the operations of the Act and make recommendations
to Congress about possible further legislative action.
In any event, the Act is scheduled to sunset after
September 30, 2004 upon joint resolution of
Congress.
Reports prepared pursuant to the requirements of the
Act are to be made available to state and federal
agencies and organizations in certain circumstances
upon request, but they are exempt from general
disclosure under the Freedom of Information Act.
V. FEDERAL REGULATORS
The Act appoints a single federal agency, Treasury,
to adopt regulations and oversee compliance with
the Act’s requirements. In several instances, the Act
instructs Treasury to consult and coordinate with
other “federal functional regulators” 3 or specific
federal agencies. In other instances, the Act
instructs Treasury to adopt joint regulations with
specified other agencies. This arrangement
intentionally focuses regulation and enforcement in
one US agency in order to streamline anti-money
laundering efforts tailored to problems presented by
foreign jurisdictions, financial institutions and
accounts. In order to successfully address the
business issues unique to the various financial
institutions involved, the Act is structured to require
Treasury to work with other appropriate regulators.
JANUARY 2002
VI. OBLIGATIONS OF “COVERED FINANCIAL
INSTITUTIONS”
Foreign Shell Banks; Recordkeeping
Substance of the Requirement
Effective December 25, 2001, covered financial
institutions may not “establish, maintain, administer,
or manage” a correspondent account4 in the US for
or on behalf of a foreign bank that does not have a
physical presence 5 in any country—known as a
“shell bank”—unless the shell bank “is an affiliate
of a depository institution, credit union or foreign
bank that maintains a physical presence in the United
States, or a foreign country” and is supervised by a
banking authority.6
The Act requires covered financial institutions that
maintain any foreign bank correspondent accounts in
the US to maintain records identifying: (i) the owners
of the foreign bank; and (ii) the name and address of
a person residing in the US authorized to accept
service of process with regard to the correspondent
account. These records must be turned over to a
Federal law enforcement officer within 7 days of
receipt of a request for them.
Under the Act, a covered financial institution must
comply with a request of an “appropriate Federal
banking agency”7 for “information and account
documentation for any account opened, maintained,
administered or managed in the United States” not
later than 120 hours after receipt of the request. The
rule applies to all accounts at a covered financial
institution and not just accounts of foreign persons
or non-citizens. Since any requests for information
will be made by the “appropriate Federal banking
agency” and not by law enforcement officials, no
court process (i.e., summons, subpoena or courtapproved warrant) appears to be involved.
The Act subjects foreign banks that maintain
correspondent accounts in the US to subpoena and
summons with respect to records, including records
maintained outside the US, relating to those
accounts. A covered financial institution must
terminate any correspondent relationship with a
foreign bank not later than 10 business days after
receipt of written notice from the Secretary or the
Kirkpatrick & Lockhart LLP
5
Attorney General that the foreign bank has failed to
comply with a summons or subpoena issued in
relation to the correspondent account (unless the
foreign bank has initiated court proceedings to
contest the summons or subpoena).
Proposed Regulations
On December 20, 2001, the Secretary issued
proposed regulations intended to codify interim
guidance, with some modifications, published by
Treasury on November 27, 2001 with regard to the
shell bank prohibitions and recordkeeping
requirements for correspondent accounts maintained
by foreign banks. The proposed regulations apply
the definition of correspondent account in the Act to
all covered financial institutions—including brokerdealers. In this regard, Treasury stated that brokerdealers must comply with these provisions of the Act
“with respect to any account they provide in the US
to a foreign bank that permits the foreign bank to
engage in securities transactions, funds transfers, or
other financial transactions through that account.” 8
“Foreign bank” is defined in the proposed
regulations as “any organization that: (i) is organized
under the laws of a foreign country; (ii) engages in
the business of banking; (iii) is recognized as a bank
by the bank supervisory or monetary authority of the
country of its organization or principal banking
operations; and (iv) receives deposits in the regular
course of its business.” Among other things, it
includes a branch of a foreign bank in a US territory
but not a US branch or agency of a foreign bank.
The term “owner” is also defined in the regulations
and includes certain direct and indirect owners likely
to be able to influence the foreign bank’s operations.9
Also adopted by the proposed regulations are model
certifications for account holders to state whether
they are, or whether they provide banking services
to, a shell bank covered by the prohibition. Use of
the model certifications provides covered financial
institutions a safe harbor for the obligations under
these provisions. Treasury also indicated that a
covered financial institution may use relevant
information provided by a foreign bank that files an
Annual Report on Form FR Y–7 with the Fed.
The rules propose a requirement that covered
financial institutions verify the information provided
by a foreign bank every two years or at any time a
covered financial institution has reason to believe
that the previously provided information is no longer
accurate. A model recertification will provide a
covered financial institution a safe harbor in
connection with the verification of previously
provided information. Information requested by a
covered financial institution under the proposed
rules and received within 90 days after publication of
the final rules will be deemed to satisfy the rule
requirements until such time as the information must
be verified.
Guidelines for Compliance
Covered financial institutions are required “to take
reasonable steps” to ensure that any correspondent
account established, maintained, administered or
managed by or for a foreign bank is not, and is not
being used indirectly by, a shell bank. At the least, a
covered financial institution should consider the
relationships it has with foreign banks, review its
correspondent accounts with foreign banks, and
have its foreign bank account holders complete the
model certifications suggested by Treasury.
VII. OBLIGATIONS OF “FINANCIAL
INSTITUTIONS”
Anti-Money Laundering Programs
Substance of the Requirement
The Act requires each financial institution—
including broker-dealers, investment companies and
insurance companies—to develop and institute an
anti-money laundering program that must, at a
minimum:
n
n
n
n
include internal policies, procedures, and
controls;
designate a compliance officer to administer and
oversee the program;
provide for ongoing employee training; and
include an independent audit function to test the
program.
The Secretary is obligated to issue regulations by
6
KIRKPATRICK & LOCKHART LLP ANTI-MONEY LAUNDERING UPDATE
April 24, 2002, the effective date of this provision,
that take into account the “size, location, and
activities” of the financial institutions affected.
These regulations may also establish “minimum
standards” for financial institutions’ anti-money
laundering programs. In adopting these regulations,
the Secretary must consult with the appropriate
federal functional regulator, including the SEC and
the CFTC.
n
n
Guidelines for Compliance
Treasury has advised that the focus of a brokerdealer’s anti-money laundering compliance program
should be the development of procedures “that can
reasonably be expected to promote the detection and
reporting of suspicious activity.” A compliance
program that captures only those transactions above
a set dollar threshold likely would not be satisfactory.
Treasury recognized, however, that compliance
programs would necessarily vary to reflect the size
and nature of a broker-dealer’s operations.
In developing their expanded anti-money laundering
programs, financial institutions may want to keep the
following guidelines in mind. Much of the following
is derived from SEC staff guidance that predated the
Act. While it may be premature to adopt procedures
before regulations are introduced this spring,
preliminary thought could be given to the types of
procedures that may be appropriate, along the lines
of the following:
Policies and Procedures. Financial institutions
should consider the nature and extent of their
activities, the types of accounts that they maintain,
and the types of transactions in which their
customers engage. Procedures could
n
n
Identify “suspicious activities” that may need to
be reported on an SAR—such as an unusual
volume of wire transfers, wire transfers to
prohibited individuals, or wire transfers or
transactions with suspect countries—perhaps
through the use of automated systems.
Identify “customer risk indicators” that would
trigger additional scrutiny—such as when a
customer refuses to identify or indicate a
legitimate source for his or her funds and other
assets when opening an account.
JANUARY 2002
n
Ensure that procedures are in place to alert the
financial institution when the Secretary identifies
a “primary money laundering concern” and
requires heightened due diligence for transactions
with such “primary money laundering concern.”
Identify relationships that could be comparable to
the Act’s coverage of correspondent accounts
and private banking accounts and potential areas
of risk that raise red flags over any possible
unlawful activities in those types of accounts.
Address the added due diligence and other
provisions in the Act, and ensure that procedures
prohibit transactions with individuals, entities,
and jurisdictions identified by the Office of
Foreign Assets Control (“OFAC”), including
those individuals on OFAC’s Specially
Designated Nationals and Blocked Persons List.
Compliance Officer. The financial institution must
designate an anti-money laundering compliance
officer. Consistent with SEC statements in other
compliance areas, the officer should have sufficient
responsibility and authority to implement and
enforce the financial institution’s anti-money
laundering policies and procedures. This provides
evidence of senior management commitment to antimoney laundering efforts and, more importantly,
provides added insurance that the officer will have
sufficient clout to investigate potentially suspicious
activities.
Employee Training. Training must encompass all
relevant employees and be constantly reevaluated
and updated. Employees should be able to recognize
signs of possible money laundering (“suspicious
activities”) and know what to do once a risk is
identified. Programs will need frequent reevaluation
to ensure that employees are informed about, and
understand their obligations under, the new Act and
its implementing regulations. Updating training
programs will be particularly important as regulations
implementing the provisions of the Act are proposed
and adopted.
Audit. A financial institution’s anti-money
laundering program must provide for an independent
audit to review and test implementation of the
financial institution’s policies and procedures.
Kirkpatrick & Lockhart LLP
7
Financial institutions should ensure that the audit
takes place no less frequently than annually and
covers all aspects of its operations.
Due Diligence Programs
The Act imposes substantial new due diligence
procedural requirements for every financial
institution that establishes, maintains, administers, or
manages a private banking account10 or a
correspondent account11 in the US for a non-US
person.
While these provisions appear to be most relevant in
the context of banks and banking relationships, the
Secretary is required to clarify these provisions as
they apply to other, non-bank financial institutions in
consultation with the appropriate federal functional
regulators.12 Implementing regulations are to be
issued by April 24, 2002, and these provisions take
effect on July 23, 2002.
Private Banking Accounts
Substance of the Requirement
The due diligence procedures for private banking
accounts require the financial institution to take
reasonable steps to:
n
n
Ascertain the identity of the nominal and
beneficial accountholders and the source of funds
deposited into the account; and
Conduct enhanced scrutiny of accounts
requested or maintained by or on behalf of a
senior foreign political figure, or any immediate
family member or close associate, to detect and
report transactions that may involve the proceeds
of foreign corruption.
Congress intended that these new due diligence
procedures apply not only to private banking
accounts physically located in the US, but also to
private banking accounts that are physically located
outside of the US and managed by US personnel
from inside the US.
Guidelines for Compliance
These procedures may not be novel for banks and
other financial institutions that have had to file SARs
under current law and have faced heightened
8
scrutiny recently over the use of private banking
accounts by foreign public officials. For brokerdealers and other non-bank financial institutions,
however, the provisions are likely to be new.
Accordingly, broker-dealers and other non-bank
financial institutions may want to prepare for the
issuance of regulations. They should carefully
monitor future pronouncements from the Secretary
while also determining the extent to which they offer
“private accounts,” and whether the circumstances
surrounding such accounts would trigger the Act’s
additional due diligence provisions. If so, they
should ascertain whether they could collect the
information required by the Act, or identify the
accounts for which such information is not available.
Correspondent Accounts
Substance of the Requirement
Reflecting the particular concern Congress has
expressed over the use of certain correspondent
accounts to launder money, the Act requires
enhanced due diligence procedures for
correspondent accounts requested or maintained by
or on behalf of a foreign bank operating: (a) under an
off-shore banking license; or (b) under a banking
license issued by a foreign country that has been
designated either as non-cooperative with
international anti-money laundering principles or
procedures or by the Secretary as a primary money
laundering concern.
At a minimum, the Act provides that enhanced due
diligence procedures for correspondent accounts will
require a financial institution to take reasonable steps
to:
n
n
n
Ascertain the ownership of the foreign bank;
Carefully monitor the account to detect and report
any suspicious activity; and
Determine whether the foreign bank maintains
correspondent accounts for any other bank and, if
so, the identity of those banks and related due
diligence information.
These requirements are not meant to be
comprehensive. Congress intended that financial
institutions take additional “reasonable steps” before
opening or operating correspondent accounts for
KIRKPATRICK & LOCKHART LLP ANTI-MONEY LAUNDERING UPDATE
foreign banks, “including steps to check the foreign
bank’s past record and local reputation, the
jurisdiction’s regulatory environment, the bank’s
major lines of business and client base, and the
extent of the foreign bank’s anti-money laundering
program.”
Guidelines for Compliance
A country can be identified as “non-cooperative”
unilaterally by the Secretary or by agreement of the
US and other countries through the Financial Action
Task Force on Money Laundering (“FATF”). The
FATF has currently identified 19 countries as “noncooperative.”13 Some are obvious choices, but
others are not. Moreover, the list changes
periodically as the international community, through
the FATF, determines that certain additional
countries are “non-cooperative” or others previously
identified as “non-cooperative” mend their ways.
Thus, broker-dealers and other financial institutions
will need to keep a close eye on the FATF and amend
their policies and procedures as the FATF amends its
list or the Secretary identifies other countries as
“non-cooperative.”
The sweep of these provisions could be quite broad.
One country listed as non-cooperative is Hungary.
Thus, under the new procedures, listing a country as
“non-cooperative” triggers heightened due diligence
for banks operating in that country. Thus, if the
account is opened by a bank operating in Hungary,
the Act would require the US financial institution to
ascertain the ownership of the Hungarian bank and
may require it to evaluate the history of the
Hungarian bank, its client base, and the adequacy of
its money laundering policies and procedures. It will
also need to determine whether the Hungarian bank
offers correspondent accounts to other banks and
perform due diligence on those banks.
“Know Your Customer” Procedures
Substance of the Requirement
The Act requires the Secretary, jointly with federal
functional regulators, to issue implementing
regulations by October 26, 2002, imposing
mandatory know your customer procedures for
financial institutions to follow in opening customer
accounts. At a minimum, these procedures will
JANUARY 2002
require the financial institution to verify “to the
extent reasonable and practical” the identity of “any
person seeking to open an account,” to maintain
records of the information used to verify the person’s
identity, and to check that the potential customer
does not appear on any list of “known or suspected
terrorists or terrorist organizations.” There is a
recognition that “one size won’t fit all”: the Act
mandates that, in adopting regulations, the Secretary
take into consideration the various types of accounts
maintained by various types of financial institutions,
the various methods of opening accounts, and the
various types of identifying information available.
Appropriate federal functional regulators may, by
rule or order, exempt financial institutions or types of
accounts from the requirements of these regulations,
in accordance with standards and procedures
prescribed by the Secretary.
Not later than April 24, 2002 (before issuing final
regulations), the Secretary must (in consultation with
the federal functional regulators) issue a study to
Congress recommending how to require foreign
nationals to provide financial institutions the
information necessary for the new verification
provisions, apply for or obtain an identification
number similar to a Social Security or tax
identification number, and establish a system for
financial institutions to review lists of known or
suspected terrorists.
Guidelines for Compliance
Financial institutions should take advantage of the
time provided before these provisions become
effective to prepare for them. Financial institutions
should analyze the type of information they collect
for different kinds of accounts and identify the
customers, accounts, or types of accounts for which
the information required by the Act will be difficult to
verify. For those accounts, the financial institution
may want to consider whether it is advisable to
maintain the accounts and, if so, devise procedures
to obtain the necessary information.
Also, the financial institution should ensure that it
can easily and frequently access lists of known or
suspected terrorists or terrorist organizations—
principally the list of Specially Designated Nationals
and Blocked Persons issued by OFAC. Among other
Kirkpatrick & Lockhart LLP
9
things, that list designates certain individuals and
entities as known or suspected terrorists or terrorist
organizations. The list is long, and OFAC has
updated it frequently since the September 11 attacks.
Moreover, many of the individuals are listed under
several names and aliases. The length and
complexity of the list make it impractical and
inefficient to rely on a manual review of the list each
time a customer account is opened. Accordingly,
prior to the effective date for this provision, financial
institutions may want to explore ways to
electronically cross-verify the list each time an
account is opened.
Broker-Dealer SAR Reporting
Substance of the Requirement
The Act substantially expands the universe of
entities required to file SARs. SARs are filed with the
Financial Crimes Enforcement Network (FinCEN), the
agency within Treasury responsible for anti-money
laundering activities. Current federal regulations
require only banks, subsidiaries of bank holding
companies, casinos, and money services businesses
to file SARs. Thus, broker-dealers, investment
advisers, and investment companies have generally
not been required to make such reports, unless they
were subsidiaries of bank holding companies. Many
broker-dealers have, however, filed SARs voluntarily.
The Act expands the reach of this reporting scheme.
The Secretary, after consultation with the SEC and
the Fed, issued proposed regulations on
December 20, 2001, requiring registered brokerdealers to file suspicious activity reports. Final
regulations requiring such reporting must be
published before July 1, 2002. Under the proposed
regulations, the SAR reporting requirements for
broker-dealers will be effective 180 days after final
regulations are published in the Federal Register.
These proposed regulations require broker-dealers to
file SARs in certain situations and permit additional
voluntary filing of SARs. SAR filing would be
required for any transaction conducted or attempted
by, at or through a broker-dealer involving
(separately or in the aggregate) funds or assets of
$5,000 or more for which (i) the broker-dealer detects
any known or suspected federal criminal violation
10
involving the broker-dealer or (ii) the broker-dealer
knows, suspects, or has reason to suspect that the
transaction (a) involves funds related to illegal
activity, (b) is designed to evade the regulations, or
(c) has no business or apparent lawful purpose and
the broker-dealer knows of no reasonable explanation
for the transaction after examining the available facts,
including the background and possible purpose of
the transaction.
The proposed regulations for SAR reporting under
the Act are consistent with the suspicious activity
reporting standards of the current federal regulations
with one notable exception. Current regulations
involve a two-tiered reporting system, under which
SARs must be filed for $5,000 violations where a
suspect can be identified and $25,000 violations
where a suspect cannot be identified. The proposed
rules do not adopt this two-tiered approach.
SAR requirements also may be expanded to other
types of entities. In this regard, the Act states that
the Secretary “may” (as opposed to “must”) issue
regulations extending mandatory SAR reporting
requirements to CFTC-regulated entities, after
consultation with the CFTC, and does not set any
deadline for the Secretary to act. In addition, the
Secretary, the SEC, and the Fed must, by October 26,
2002, jointly submit a report to Congress on
recommendations for effective regulations extending
SAR reporting to registered investment companies,
including private investment companies under
Sections 3(c)(1) and (7) of the Investment Company
Act of 1940.
Guidelines for Compliance
Before the Act was passed, the SEC staff provided
some helpful guidance on the nature of suspicious
activities in the context of the staff’s examination of
broker-dealers. The staff advised that broker-dealers
should be wary of the following practices:
n
The customer wishes to engage in transactions
that lack business sense, apparent investment
strategy, or are inconsistent with the customer’s
stated business/strategy or prior investment
history.
KIRKPATRICK & LOCKHART LLP ANTI-MONEY LAUNDERING UPDATE
n
n
n
n
n
n
n
n
n
n
n
n
n
n
The customer exhibits unusual concern for
secrecy, particularly with respect to his identity,
type of business, assets or dealings with firms.
Upon request, the customer refuses to identify or
fails to indicate a legitimate source for his funds
and other assets.
The customer exhibits a lack of concern regarding
risks, commissions, or other transaction costs.
The customer appears to operate as an agent for
an undisclosed principal, and is reluctant to
provide information regarding that entity.
The customer has difficulty describing the nature
of his business.
The customer lacks general knowledge of his
industry.
For no apparent reason, the customer has multiple
accounts under a single name or multiple names,
with a large number of inter-account or third-party
transfers.
The customer, or a person publicly associated
with the customer, has a questionable background
including prior criminal convictions.
The customer account has unexplained or sudden
extensive wire activity, especially in accounts that
had little or no previous activity.
The customer’s account shows numerous
currency or cashier’s check transactions
aggregating to significant sums.
The customer’s account has a large number of
wire transfers to unrelated third parties.
The customer is from or has accounts in, or has
wire transfers to or from, a bank secrecy haven
country or country identified as a money
laundering risk.
The customer’s account indicates large or
frequent wire transfers, immediately withdrawn by
check or debit card.
The customer’s account shows a high level of
account activity with very low levels of securities
transactions.
JANUARY 2002
Determining whether many of these activities are in
fact suspicious is a line-drawing exercise particularly
problematic for on-line brokers or other brokers who
generally do not have face-to-face interaction with
customers. Accordingly, broker-dealer training
programs should sensitize employees to the new
requirements under the Act, what money laundering
is, how it is done, what activities should raise
concern, and what steps should be followed when
suspicions arise.
SAR reporting may also place additional strains on
broker-client relationships. SAR reports can and do
trigger governmental investigations of a client, which
in turn can damage a client’s reputation and financial
relations. In this connection, banks, thrifts and
broker-dealers may freeze or close accounts and
refuse further business with clients if they receive
subpoenas investigating potentially criminal activity.
While it is true that entities filing SARs are
prohibited from informing the customer at the time
they make the report, and broker-dealers making
voluntary or mandatory SAR disclosures to the
government enjoy broad immunity from liability,
broker-dealers should reevaluate their privacy
disclosures to ensure that clients are informed
beforehand of the broker-dealer’s general reporting
obligations.
Primary Money Laundering Concerns
One of the Act’s more novel provisions allows the
Secretary, in consultation with the Secretary of State
and the Attorney General, to identify foreign
jurisdictions, foreign financial institutions, classes of
transactions within or involving a foreign
jurisdiction, and types of accounts14 posing a
primary money laundering concern (“PMLC”) and to
impose “special measures” to require heightened due
diligence for any transaction or account that
involves a PMLC.
Substance of the Requirement
The Act identifies 5 types of special measures
available to the Secretary in dealing with a PMLC.
Flexibility is built in to permit the Secretary to impose
any of the special measures (other than that relating
to the restriction or prohibition of accounts) for a
Kirkpatrick & Lockhart LLP
11
period of 120 days by order or any other manner
permitted by law. Otherwise, the special measures
can only be imposed by regulation.
Record Keeping and Reporting. The Secretary may
require a financial institution to maintain records and/
or file reports documenting transactions involving a
designated PMLC. This could require financial
institutions to create and maintain records at the
time, in the manner, and for the period of time
determined by the Secretary. In accordance with
procedures established by the Secretary, such
records must, at a minimum, include: (i) the identity
and address of the participants in a transaction or
relationship, including the identity of the originator
of any funds transfer; (ii) the legal capacity in which
a participant in any transaction is acting; (iii) the
identity of the beneficial owner of the funds involved
in any transaction; and (iv) a description of any
transaction.
Information Relating to Beneficial Ownership. The
Secretary may require a financial institution to take
reasonable steps to identify the beneficial owners of
an account held in the US by a foreign person or its
representative (other than publicly traded foreign
entities) that involves a PMLC. The Act directs the
Secretary to issue regulations defining “beneficial
ownership” of an account, as used in the Act, that
address an individual’s authority to fund, direct or
manage the account, as well as an individual’s
material interest in the account.
Information Relating to Payable-Through Accounts.
The Secretary may require any financial institution
that opens or maintains in the US a payable-through
account15 for a PMLC to: (A) identify each customer,
and its representative, who is permitted to use or
whose transactions are routed through such
payable-through account; and (B) obtain information
that is substantially comparable to that which the
“depository institution” obtains in the ordinary
course of business with respect to domestic
customers. This includes information such as the
name, address, and a taxpayer identification number
and, for a business account, account authorization
resolutions, incumbency certificates, and business
identification information.
12
Information Concerning Certain Correspondent
Accounts. The Secretary may require any financial
institution that opens or maintains in the US a
correspondent account for a PMLC to: (A) identify
each customer, and its representative, who is
permitted to use or whose transactions are routed
through such correspondent account; and (B) obtain
information that is substantially comparable to that
which the “depository institution” obtains in the
ordinary course of business with respect to domestic
customers. This includes the name, address, and a
taxpayer identification number and, for a business
account, account authorization resolutions,
incumbency certificates, and business identification
information.
Prohibitions or Conditions on Opening or
Maintaining Certain Correspondent or PayableThrough Accounts. The Secretary may, in
consultation with the Secretary of State, the Attorney
General and the Chairman of the Fed, prohibit or
impose conditions upon the opening or maintaining
in the US of a correspondent account or a payablethrough account by any domestic financial
institution or domestic financial agency for or on
behalf of a foreign banking institution if such
correspondent account or payable-through account
involves any jurisdiction, financial institution or
class of transaction that has been designated a
PMLC.
Guidelines for Compliance
What makes compliance with these provisions
particularly difficult is the absence of any helpful
guidance in the Act or its legislative history as to
what is meant by a transaction “involving” a PMLC.
Broadly construed, this concept could include any
transaction with any entity in a foreign jurisdiction
designated a PMLC, or it could be construed
narrowly to mean any transaction with a
governmental authority in a foreign jurisdiction.
From a practical standpoint, it will be up to the
Secretary to clearly describe each type of transaction
so designated in order for a financial institution to
implement the appropriate response.
Congress instructed the Secretary, in fashioning
regulatory guidance, to “require all US financial
institutions to use greater care when allowing any
KIRKPATRICK & LOCKHART LLP ANTI-MONEY LAUNDERING UPDATE
foreign financial institution inside the US financial
system.” Hence, it will be incumbent upon non-bank
financial institutions, such as broker-dealers and
investment companies, to include in their anti-money
laundering programs systems to monitor for PMLC
designations and implement the special measures
that the Secretary may impose.
For correspondent accounts and payable-through
accounts, a financial institution’s procedures should
require the maintenance of records identifying each
customer who is permitted to use the account and
records including account information that is
typically obtained by the financial institution in the
course of business with domestic customers. Antimoney laundering programs should require a
financial institution to maintain transaction records
and beneficial ownership information for accounts
held by foreign jurisdictions and foreign financial
institutions.
VIII.
PENALTIES FOR NON-COMPLIANCE;
EXPANDED IMMUNITY FOR
SAR REPORTING
Failure to follow the new provisions of the Act could
carry severe consequences. The Act authorizes the
imposition of a civil money penalty or criminal fine of
up to $1,000,000. Since these penalties appear to
apply separately to each violative transaction, there
could be substantial potential exposure should a
financial institution, for example, allow a prohibited
shell bank to funnel multiple transactions through a
correspondent account or allow a financial institution
connected with a PMLC jurisdiction to open and
maintain a correspondent account.
At the same time, the Act clarifies the extent of the
immunity from liability for disclosure for SAR
reporting in two respects. First, it makes explicit that
such immunity extends to voluntary reports to a
governmental authority. This should provide added
comfort to broker-dealers and other financial
institutions that decide to voluntarily report
suspicious activities before mandatory SAR
reporting is imposed on them. The Act extends this
immunity to liability under any “contract or other
legally enforceable agreement (including any
arbitration agreement).” Again, this should provide
added comfort to broker-dealers that have arbitration
clauses in customer account opening documents.
JANUARY 2002
IX. BALANCING NATIONAL SECURITY V.
PRIVACY
Information Sharing
The Act provides, effective immediately, that
financial institutions and financial trade associations,
after giving notice to Treasury, “may share
information with one another regarding individuals,
entities, organizations, and countries suspected of
possible terrorist or money laundering activities.”
The Act further provides that compliance with the
information sharing provisions of the Act generally
will not constitute a violation of the privacy
provisions of Gramm-Leach-Bliley.
The Act requires Treasury to issue regulations, by
February 23, 2002, to encourage further cooperation
among financial institutions, their regulatory
authorities and law enforcement authorities, for the
purpose of sharing information regarding individuals,
entities, and organizations engaged in or suspected
of terrorist acts or money laundering activities.
Among other things, the regulations may require
financial institutions to designate points of contact
for information sharing and account monitoring.
They may also require financial institutions to
develop and implement procedures for protecting
information.
Government Surveillance
Other provisions of the USA Patriot Act direct the
head of the US Secret Service to “take appropriate
actions to develop a national network of electronic
task forces” throughout the country. The main
thrust of this initiative is the prevention, detection
and investigation of various forms of electronic
crimes, including potential terrorist attacks against
critical technological infrastructures and financial
systems.
The USA Patriot Act also broadens presidential
authority under the International Emergency Powers
Act, enabling the government to seize the property
of any foreign person, organization or country that
the president determines was used to plan, authorize,
aid or engage in armed hostilities or attacks against
the US. Under this provision, the President may
confiscate not only financial assets and real property
of suspected terrorists, but also computers and other
hardware, computer files and related software, and
whatever other components of technological
Kirkpatrick & Lockhart LLP
13
infrastructures and network systems that the
government believes were used to facilitate terrorist
activity.
The USA Patriot Act amends the principal federal
privacy and surveillance laws to allow the
government greater access to the public’s personal
information in the furtherance of investigations, both
for terrorism and otherwise, and to allow greater
sharing of this information among investigative
agencies at federal, state and local levels.
It also amends existing search warrant law to allow
for “roving” warrants to intercept wire, oral and
electronic communications, among other things. The
government now may exercise broad investigative
authority under the USA Patriot Act to intercept
communications by any suspected terrorist or
terrorism accomplice, with access to any financial,
telephone or computer system or network used by
such suspects.
Privacy Concerns
The interrelationship between permissible
information sharing under the Act and the privacy
provisions under Gramm-Leach-Bliley present
difficult issues for financial institutions, both in terms
of recognizing a proper balance of these competing
public policies as well as maintaining strong
customer relations. Financial institutions should be
mindful of the Act’s requirements for information
sharing in establishing and enforcing their privacy
policies, and should be flexible as legal requirements
continue to evolve in this area.
The USA Patriot Act, in its entirety, presents a
multitude of new weapons to aid intelligence and law
enforcement communities in the fight against
terrorism. At the same time, it also presents a new set
of concerns for every business owner participating in
today’s technology driven marketplace. Generally,
every US financial institution, telecommunications
provider, e-business and high-tech company should
operate under the assumption that its network could
be susceptible to covert search by law enforcement
agencies. Further, all such entities should assume
that every foreign client who raises a suspicion of
questionable ties to terrorist activity or funding may
subject them to such investigation and scrutiny and
plan accordingly.
14
Endnotes:
1 The Bank Secrecy Act definition of a “financial
institution” includes: an insured bank; a commercial bank or
trust company; a private banker; a US agency or branch of a
foreign bank; an insured institution (replaced in the Act by
“credit union”); a thrift institution; a registered broker or
dealer; a broker or dealer in securities or commodities; an
investment banker or investment company; a currency
exchange; an issuer, redeemer, or cashier of traveler’s
checks, checks, money orders, or similar instruments; an
operator of a credit card system; an insurance company; a
dealer in precious metals, stones, jewels; a pawnbroker; a
loan or finance company; a travel agency; a licensed sender
of money; a telegraph company; a business engaged in
vehicle sales, including automobile, airplane, and boat sales;
persons involved in real estate closings and settlements; the
United States Postal Service; certain governmental agencies;
a casino, gambling casino, or gaming establishment with an
annual gaming revenue of more than $1,000,000; other
businesses designated by regulation.
2 Up to now, the federal government principally has relied
on two reporting regimes to detect and prevent money
laundering: (a) reporting of currency transactions over
$10,000 on Currency Transaction Reports (“CTRs”) with
the Department of the Treasury (“Treasury”) or on Form
8300 with the IRS (which also includes transactions in cash
equivalents in certain circumstances) and (b) reporting of
“suspicious activities” to Treasury through filing
Suspicious Activity Reports (“SARs”).
3 Gramm-Leach-Bliley defines federal functional regulator
as meaning: the Board of Governors of the Federal Reserve
System; the Office of the Comptroller of the Currency; the
Board of Directors of the Federal Deposit Insurance
Corporation; the Director of the Office of Thrift
Supervision; the National Credit Union Administration
Board; the Securities and Exchange Commission. The Act
also includes the Commodities Futures Trading
Commission in the definition of federal functional regulator
for purposes of the Act only.
4 The Act defines a “correspondent account” with respect
to a bank as “an account established to receive deposits
from, or make payments on behalf of, a foreign financial
institution or handle other financial transactions related to
such institution.”
5 “Physical presence” is defined in the Act as “a place of
business that (i) is maintained by a foreign bank; (ii) is
located at a fixed address (other than solely an electronic
address) in a country in which the foreign bank is
authorized to conduct banking activities, at which location
the foreign bank employs one or more individuals on a fulltime basis and maintains operating records related to
banking activities; and (iii) is subject to inspection by the
banking authority which licensed the foreign bank to
conduct banking activities.”
6 Congress included this exception to the shell bank
prohibition to “permit US financial institutions to do
business with shell branches of large, established banks on
the understanding that the bank regulator of the large,
established bank will also supervise the established bank’s
branch offices worldwide, including any shell branch.” In
KIRKPATRICK & LOCKHART LLP ANTI-MONEY LAUNDERING UPDATE
considering this provision, Congress cautioned financial
institutions “not to abuse this exception, to exercise both
restraint and common sense in using it, and to refrain from
doing business with any shell operation that is affiliated
with a poorly regulated bank.”
7 The Federal Deposit Insurance Act defines “appropriate
Federal banking agency” as the Comptroller of the
Currency, in the case of any national banking association,
any District bank, or any Federal branch or agency of a
foreign bank; the Board of Governors of the Federal
Reserve System, in the case of, among other things, any
state member insured bank (except a District bank), certain
foreign banks and branches or agencies of a foreign bank,
and any bank holding company and any subsidiary of a
bank holding company (other than a bank); the Federal
Deposit Insurance Corporation in the case of a State
nonmember insured bank (except a District bank), or an
insured branch of a foreign bank; and the Director of the
Office of Thrift Supervision in the case of any savings
association or any savings and loan holding company.
8 Treasury stated that such broker-dealer accounts “would
include, among others, the following: (1) accounts to
purchase, sell, lend or otherwise hold securities, either in a
proprietary account or an omnibus account for trading on
behalf of the foreign bank’s customers on a fully disclosed
or non-disclosed basis; (2) prime brokerage accounts that
consolidate trading done at a number of firms; (3) accounts
for trading foreign currency; (4) various forms of custody
accounts for the foreign bank and its customers; (5) overthe-counter derivatives accounts; and (6) futures accounts
to purchase futures, which would be maintained primarily
by broker-dealers that are duly registered as “futures
commission merchants.”
9 The proposed regulations define an “owner” as “any
large direct owner, indirect owner, and reportable small
direct owner.” Under the proposed regulations, a “large
direct owner” of a foreign bank would be “a person who: (i)
[o]wns, controls, or has power to vote 25 percent or more
of any class of voting shares or other voting interests of the
foreign bank; or (ii) [c]ontrols in any manner the election of
a majority of the directors (or individuals exercising similar
functions) of the foreign bank.” A “small direct owner”
would be “a person who owns, controls, or has power to
vote less than 25 percent of any class of voting shares or
other voting interests of the foreign bank.” A “reportable
small direct owner” would be “(A) [e]ach of two or more
small direct owners who in the aggregate own 25 percent or
more of any class of voting shares or other voting interests
of the foreign bank and are majority-owned by the same
person, or by the same chain of majority-owned persons;
and (B) [e]ach of one or more small direct owners who are
majority-owned by another small direct owner and in the
aggregate all such small direct owners own 25 percent or
more of any class of voting shares or other voting interests
of the foreign bank. The proposed regulations indicate that
in determining who is a “reportable small direct owner” “a
small direct owner who owns or controls less than 5
percent of the voting shares or other voting interests of the
JANUARY 2002
foreign bank need not be taken into account.” The
proposed rules define an “indirect owner” as: “(A) [a]ny
person in the ownership chain of any large direct owner
who is not majority-owned by another person; [and] (B)
[a]ny person, including a small direct owner who is a
majority-owner . . . in the ownership chain of any reportable small direct owner who is not majority-owned by
another person. The proposed rules indicate that a person
who is a reportable small owner need not also be reported
as an indirect owner.
10 A “private banking account” is defined by the Act as an
account (or combination of accounts) requiring a minimum
aggregate balance of $1,000,000 (a) established by or on
behalf of one or more individuals with a direct or beneficial
ownership interest in the account and (b) assigned to or
administered or managed, in whole or in part, by an officer,
employee or agent of a financial institution who acts as a
liaison between the financial institution and the direct or
beneficial owner of the account. Congress intended
accounts opened with balances of less than $1,000,000 that
subsequently exceed the threshold and accounts with
balances of $1,000,000 or more that subsequently fall
below the threshold to be included.
11 See footnote 4, above.
12 Congress cautioned that “other categories of foreign
financial institutions will also require use of enhanced due
diligence policies, procedures and controls including, for
example, offshore broker-dealers or investment companies,
foreign money exchanges, foreign casinos, and other foreign
money services businesses.”
13 The 19 countries currently on the FATF list are: Cook
Islands; Dominica; Egypt; Grenada; Guatemala; Hungary;
Indonesia; Israel; Lebanon; Marshall Islands; Myanmar;
Nauru; Nigeria; Niue; Philippines; Russia; St. Kitts and
Nevis; St. Vincent and the Grenadines; Ukraine.
14 The Act defines an “account,” with respect to a bank, as
“a formal banking or business relationship established to
provide regular services, dealings, and other financial
transactions; and … includes a demand deposit, savings
deposit, or other transaction or asset account and a credit
account or other extension of credit.” It directs the
Secretary, after consultation with the appropriate federal
functional regulators, to define by regulation the meaning of
the term “account” for non-bank financial institutions, to
the extent appropriate.
15 A “payable-through account” is defined as “an
account . . .opened at a depository institution by a foreign
financial institution by means of which the foreign financial
institution permits its customers to engage, either directly
or through a sub-account, in banking activities usual in
connection with the business of banking in the United
States.” The Act directs the Secretary, after consultation
with the appropriate federal functional regulators, to define
by regulation the meaning of “payable-through account”
for non-bank financial institutions.
Kirkpatrick & Lockhart LLP
15
Kirkpatrick & Lockhart LLP has diverse experience in issues involving or related to money laundering
to help banking and diversified financial services clients assess their risk, establish and review compliance
practices, investigate potential weaknesses, perform internal investigations, and respond to regulatory
inquiries and enforcement actions while being sensitive to the privacy of each client and their customers
through an effective attorney-client privilege relationship.
If you have any questions about how the Act applies to non-bank financial institutions or banks,
please contact one of the members of our interdisciplinary anti-money laundering practice team. While
the group has over 50 attorneys firmwide, the selected members below focus their practice on financial
institution compliance issues.
BOSTON
PITTSBURGH
Michael S. Caccese
D. Lloyd Macdonald
Stanley V. Ragalevsky
617.261.3133
617.261.3117
617.261.9203
Mark A. Rush
412.355.8333
SAN FRANCISCO
Jonathan David Jaffe
David Mishel
HARRISBURG
Raymond P. Pepe
415.249.1023
415.249.1015
717.231.5988
WASHINGTON
LOS ANGELES
William J. Bernfeld
William P. Wade
310.552.5014
310.552.5071
Diane E. Ambler
James E. Day
Kathy Kresch Ingber
Robert A. Wittie
202.778.9886
202.778.9228
202.778.9015
202.778.9066
NEW YORK
Richard D. Marshall
212.536.3941
Kirkpatrick & Lockhart LLP
Challenge us.
BOSTON n DALLAS n HARRISBURG n LOS ANGELES n MIAMI n NEWARK n NEW YORK n PITTSBURGH n SAN FRANCISCO n WASHINGTON
.........................................................................................................................................................................
This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein
should not be used or relied upon in regard to any particular facts or circumstances without first consulting with a lawyer.
© 2002
KIRKPATRICK & LOCKHART LLP. ALL RIGHTS RESERVED.
Download