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FACT Sent Comments to FinCEN on Proposed Renewal of Due Diligence Requirements

November 30, 2020 
The Honorable Kenneth A. Blanco 
Director, Financial Crimes Enforcement Network 
U.S. Department of the Treasury 
P.O. Box 39 
Vienna, VA 22183 

Submitted via Federal E-rulemaking Portal: http://www.regulations.gov 

Re: Proposed Renewal Without Change of Correspondent and Private Banking AML Due Diligence Programs, Docket Number FINCEN–2020–0012; OMB No. 1506–0046 

Dear Director Blanco,  

On behalf of the Financial Accountability and Corporate Transparency (FACT) Coalition, we appreciate the  opportunity to comment on the Financial Crimes Enforcement Network’s (FinCEN) proposal to renew  without change the requirements for Anti-Money Laundering Due Diligence Programs for Correspondent  Accounts for Foreign Financial Institutions and for Private Banking Accounts.  

The FACT Coalition is a non-partisan alliance of more than 100 state, national, and international organizations in the United States promoting policies to combat the harmful impacts of corrupt financial practices. 

We agree with the comments submitted today by Elise J. Bean, the former Staff Director and Chief Counsel of the U.S. Senate Permanent Subcommittee on Investigations. As such, the FACT Coalition supports FinCEN’s proposed renewal of existing anti-money laundering (AML) due diligence program requirements for correspondent banking and private banking accounts, but the Coalition urges FinCEN to additionally update, clarify, and strengthen the rules in 31 C.F.R. §§ 1010.610, 1010.620 and 1010.605 rather than simply renewing them without change.  

In line with the comments submitted by Ms. Bean, the FACT Coalition specifically recommends: 

1. deleting the expired effective dates — now more than a decade old — in both the correspondent  and private banking due diligence rules;  

2. strengthening the correspondent banking due diligence rule to require an enhanced due diligence  review of every foreign bank rated as high risk by the U.S. financial institution administering the  correspondent account;  

3. expanding the categories of U.S. financial institutions subject to the correspondent and private  banking due diligence rules; and  

4. applying the private banking due diligence rule to domestic as well as foreign senior political figures. 

For additional details on each of these bullets, please refer to Ms. Bean’s comments, which we have attached as an annex to our submission.  

Should you have any questions or need additional information, please contact Erica Hanichak at  [email protected] 

Sincerely,  

Ian Gary  Executive Director 

Clark Gascoigne  Senior Policy Advisor 

Erica Hanichak  Government Affairs Director 

 
 
 

November 30, 2020 

Director Kenneth A. Blanco 
Financial Crimes Enforcement Network 
U.S. Department of the Treasury 

Submitted via Federal E-rulemaking Portal: http://www.regulations.gov 

Re: Proposed Renewal Without Change of Correspondent and Private Banking AML Due  Diligence Programs, Docket Number FINCEN–2020–0012; OMB No. 1506–0046 

Dear Director Blanco: 

The purpose of this letter is to express support for the proposed renewal by the Financial  Crimes Enforcement Network (FinCEN) of existing anti-money laundering (AML) due diligence  program requirements for correspondent banking and private banking accounts,1 but also to urge  that the rules in 31 C.F.R. §§ 1010.610, 1010.620 and 1010.605 be updated, clarified, and  strengthened rather than renewed without change. 

Specifically, this letter recommends: (1) deleting the expired effective dates, now more  than a decade old, in both the correspondent and private banking due diligence rules; (2)  strengthening the correspondent banking due diligence rule to require an enhanced due diligence  review of every foreign bank rated as high risk by the U.S. financial institution administering the  correspondent account; (3) expanding the categories of U.S. financial institutions subject to the  correspondent and private banking due diligence rules; and (4) applying the private banking due  diligence rule to domestic as well as foreign senior political figures. 

Importance of Correspondent and Private Banking Due Diligence. The United States  has long known that money launderers, terrorists, corrupt officials, and other criminals seek to  infiltrate the U.S. financial system through correspondent and private banking accounts  established or managed in the United States. Investigations, for example, by the U.S. Senate  Permanent Subcommittee on Investigations, where I worked for more than a decade as staff  director and chief counsel for Senator Carl Levin, have extensively documented the misuse of  correspondent and private banking accounts at a variety of financial institutions.2 It was that investigative work which caused Senator Levin to author Section 312 of the Patriot Act of 2001,  which is the statutory basis for the rules now being proposed for renewal. 

Recent scandals and U.S. enforcement actions show that the abusive practices which produced Section 312 continue to occur, with hundreds of billions of illicit dollars moving through U.S. correspondent and private banking accounts at Deutsche Bank, JPMorgan Chase,  Goldman Sachs, and other financial institutions.3 The ongoing multi-billion-dollar misuse of  U.S. correspondent and private banking accounts shows that the U.S. AML due diligence rules  are as important as ever and should not only be renewed, but strengthened. 

Correspondent Banking 

One of the rules proposed for renewal, 31 C.F.R. § 1010.610, requires covered financial  institutions to establish AML due diligence policies, procedures, and controls related to their  correspondent accounts as part of their AML programs. Rather than renew this rule “without  change” as proposed by FinCEN, this letter respectfully recommends that the rule be updated,  clarified and strengthened. 

The term “correspondent account” is defined in 31 C.F.R. § 1010.605(c) as an account  established for a “foreign financial institution” (sometimes narrowed to a “foreign bank”) to  “receive deposits from, or to make payments or other disbursements on behalf of, the foreign  financial institution, or to handle other financial transactions related to such foreign financial  institution.” This definition, like others, indicate that § 1010.605’s provisions play an integral role in the correspondent banking rule and should be considered as part of the proposed renewal of § 1010.610. 

Update Effective Dates. The first and easiest issue has to do with effective dates. Right now, 31 C.F.R. § 1010.610 (e) and (f) specify dates in 2006 and 2008 when the rule’s due diligence requirements for correspondent accounts take effect. Since those dates elapsed twelve and fourteen years ago, rather than leave the subsections unchanged, FinCEN should delete the expired dates and make clear that § 1010.610’s due diligence requirements now apply to all existing and new correspondent accounts established, maintained, administered, or managed in the United States by covered financial institutions. 

Subject More High-Risk Foreign Banks to Enhanced Due Diligence. The second issue involves what foreign banks should be subjected to enhanced due diligence reviews when seeking to open a U.S. correspondent account. Currently, 31 C.F.R. § 1010.610(c) requires U.S.  financial institutions to conduct enhanced due diligence reviews for three types of foreign banks, those holding (1) an offshore license; (2) a license issued by a foreign country designated by an  international body as “non-cooperative” with international AML principles or procedures; or (3)  a license issued by a foreign country designated by the United States as “warranting special  measures due to money laundering concerns.” While all three categories describe high-risk foreign banks that warrant enhanced due diligence, recent correspondent banking scandals indicate that they do not go far enough and should be expanded. Examples identified earlier are FBME Bank in Cyprus, Danske Bank in Estonia, and ABLV Bank in Latvia which collectively moved nearly $900 billion in illicit funds through U.S. correspondent accounts. Yet at the time of their misdeeds, none of those foreign banks fell into the three categories of foreign banks requiring enhanced due diligence under the correspondent banking rule, even though each operated in a high-risk jurisdiction and set up accounts for high-risk clients.  

To mitigate that weakness in U.S. correspondent banking safeguards, § 1010.610(c)(2), in  particular, should be strengthened by expanding it to apply to all foreign banks that are rated  high risk or hold a license issued by a foreign jurisdiction that has been rated as high risk by the  U.S. financial institution administering the correspondent account. That change would ensure  that more high-risk foreign banks – as determined by the U.S. financial institution’s own AML  program – would be subject to an enhanced due diligence review.  

Expand Rule’s Coverage of Financial Institutions. The third and final correspondent banking issue involves what U.S. financial institutions should be subject to the rule’s due diligence requirements. Currently, 31 C.F.R. § 1010.610(g) limits application of the correspondent banking due diligence rule to a certain set of U.S. banks, securities brokers dealers, commodity brokers, and mutual funds as specified in § 1010.605(e)(1). That list of covered financial institutions specified in (e)(1), which was determined more than 14 years ago,  fails to take into account subsequent regulatory changes and excludes some key categories of financial institutions that can provide correspondent accounts to high-risk foreign banks. Those  excluded categories include “banks that lack a Federal functional regulator,” investment banks  and investment companies, “an issuer, redeemer, or cashier of travelers’ checks, checks, money  orders, or similar instruments,” and “an operator of a credit card system.” In connection with its renewal of 31 C.F.R. § 1010.610 and in reliance on 31 U.S.C. § 5318A(e)(1)(B) and (2),  FinCEN should modify § 1010.605(e)(1) to include those additional categories of financial institutions and ensure that when they provide accounts to foreign banks, they comply with the correspondent banking due diligence rule.  

Private Banking 

The second rule proposed for renewal is 31 C.F.R. § 1010.620, which requires covered  financial institutions to establish AML due diligence policies, procedures, and controls related to  their private banking accounts as part of their AML programs. Again, rather than renew this rule  “without change” as proposed by FinCEN, this letter respectfully recommends that the private  banking due diligence rule be updated, clarified, and strengthened. 

The term “private banking account” is defined in 31 C.F.R. § 1010.605(m) as an account  that requires a “minimum aggregate deposit of funds or other assets of not less than $1,000,000;” is established “on behalf of or for the benefit of one or more non-U.S. persons who are direct or  beneficial owners” of the account; and is managed by a financial institution’s officer, employee,  or agent “acting as a liaison between that institution and the direct or beneficial owner of the  account.” This and other definitions in § 1010.605, again, play a pivotal role in the renewal of  the private banking due diligence rule and should be considered as part of the renewal effort. 

Update Effective Dates. The first issue here, again, involves the rule’s effective date.  Like the correspondent banking due diligence rule, the private banking due diligence rule includes outdated provisions related to its effective date. Right now, 31 C.F.R. § 1010.620(e)(1),  (2) and (3) specify a date in 2006 when the rule’s due diligence requirements for private banking accounts take effect. Since that date elapsed fourteen years ago, rather than leave the subsection unchanged, FinCEN should delete the expired date and make clear that § 1010.620’s due diligence requirements now apply to all existing and new private banking accounts established, maintained, administered, or managed in the United States by covered financial institutions. 

Expand Rule’s Coverage of Financial Institutions. The second issue focuses on what  U.S. financial institutions should be subject to the private banking rule’s due diligence requirements. Like the correspondent banking rule, the private banking rule applies only to a  specified set of U.S. financial institutions. Those financial institutions are identified in 31 C.F.R. § 1010.620(e)(4) which applies the private banking due diligence requirements only to the banks,  securities brokers-dealers, commodity brokers, and mutual funds specified in § 1010.605(e)(1). The list of covered financial institutions specified in (e)(1), which was determined more than 14  years ago, fails to take into account subsequent regulatory changes and excludes some key categories of financial institutions that can provide private banking accounts to foreign individuals. Those excluded categories include “banks that lack a Federal functional regulator,” investment banks and investment companies, “an issuer, redeemer, or cashier of travelers’  checks, checks, money orders, or similar instruments,” and “an operator of a credit card  system.” In connection with its renewal of 31 C.F.R. § 1010.620 and in reliance on 31 U.S.C.  § 5318A(e)(3), FinCEN should also modify § 1010.605(e)(1) to include those additional categories of financial institutions and ensure that when they provide private banking accounts to foreign individuals, they comply with the private banking rule’s due diligence requirements.  

Add Senior U.S. Political Figures. A third issue involves private banking accounts opened by senior political figures. Currently, 31 C.F.R. § 1010.620(c) requires covered financial  institutions to apply “enhanced scrutiny” to private banking accounts in which a senior foreign  political figure is a “nominal or beneficial owner.” The rule is silent about accounts in which the nominal or beneficial owner is a senior U.S. political figure, even though, for decades, the Financial Action Task Force (FATF) on money laundering, which the United States supports as a  founding member, has called on jurisdictions to conduct due diligence reviews of accounts opened by domestic as well as foreign political figures. FATF Recommendation 12 states, in part, that financial institutions should determine whether a domestic political figure is the nominal or beneficial owner of an account and, if so, to conduct a risk assessment of that individual as well as conduct ongoing enhanced monitoring of the account. To come into compliance with FATF Recommendation No. 12, rather than leave § 1010.620(c) unchanged, FinCEN should update the provision by adding a new subsection related to senior U.S. political figures. That new subsection could require U.S. financial institutions to conduct an initial due diligence review and risk assessment as well as ongoing enhanced account monitoring for private banking accounts in which a nominal or beneficial owner is a senior U.S. political figure. That updated provision would ensure that covered financial institutions carefully review a private banking account opened by a domestic as well as foreign senior political figure. 

FinCEN is to be commended for seeking to renew the existing correspondent and private banking due diligence rules, but rather than renew them without change, FinCEN should take this opportunity to update, clarify, and strengthen them. Thank you for this opportunity to comment on the proposed renewal. 

Sincerely, 

Elise J. Bean 

Former Staff Director and Chief Counsel of the 

U.S. Senate Permanent Subcommittee on Investigations