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					12th Annual Conference on International Trade - Gaining an Edge in a Competitive Market
        The USA Patriot Act - Does it Pose Challenges to International Banking
                              Chicago - October 11, 2002
                                      Susan Galli
Patriot Act Provisions
   Patriot Act Sec. 313 and Sec. 319 – Shell Bank
    Prohibition, Recordkeeping and Termination of
    Correspondent Accounts for Foreign Banks
   Sec. 326 - Customer Identification and Verification
   Sec. 312 – Due Diligence and Enhanced Due Diligence
   Sec. 314 - Information Sharing
    Prohibition of Correspondent Accounts for Foreign
    Shell Banks and Recordkeeping
Several Provisions were self-enacting by Statute and have been
refined by Final Regulations published on September 26, 2002.

 Section 313: Prohibition on U.S. Correspondent Accounts with Shell Banks -
  Effective Date: December 25, 2001 by Statute.
 Sec. 319(b) - Availability of Bank Records - The Act contains Provisions to
  assist Bank Regulators and Law Enforcement Authorities in obtaining Certain
  Records from Covered Financial Institutions about Their Correspondent
  Accounts maintained for Foreign Banks that must be maintained in the U.S. and
  include:
 Records identifying the Owners of the Foreign Bank, and
 The Name and Address of a Person in the United States Who is authorized to Accept
  Legal Process on Behalf of the Foreign Bank.
 The U.S. Government may direct a Covered Financial Institution to terminate a
  Correspondent Relationship with a Foreign Correspondent that fails to comply with a
  Subpoena or Summons or has failed to initiate Proceedings to contest a Subpoena.
    Prohibition of Correspondent Accounts for Foreign
    Shell Banks and Recordkeeping

   Effective Date: Dec. 25, 2001 for Banks, October 28, 2002 for Securities
    Broker Dealers

   For the Purposes of 103.177 and 103.185:

    “A Correspondent Account or Relationship is an Account
    established by a Covered Financial Institution for a Foreign Bank
    to receive Deposits from, to make Payments or other Disbursements
    on Behalf of a Foreign Bank, or to handle other Financial Transactions
    related to the Foreign Bank”.

   For Accounts in place on or before October 28th, Financial Institutions have 60
    Days to obtain the Certificates, for Accounts established after October 28th,
    Financial Institutions have 30 Days to obtain the Certificates.
     Compliance with the USA Patriot Act
Section 326 - Identification and Verification of Accountholders

The Treasury Department and the Functional Regulators have jointly issued
Proposed Regulations setting Minimum Standards for Customer Identification
that shall apply to all Customers Opening an Account at a Financial Institution.
At a Minimum, the Regulations Shall require Procedures for:

   Verifying the Identity of Any Person seeking to open an Account to the Extent
    Reasonable and Practicable;
   Maintaining Records of the Information used to verify a Person’s Identity, Including
    Name, Address, and other Identifying Information;
   Consulting Applicable Lists of Known or Suspected Terrorists or Terrorist
    Organizations generated by Government Agencies to Determine whether a Person
    seeking to Open an Account appears on any such List
Due Diligence and Enhanced Due
   Diligence Under Sec. 312
Section 312 - Special Due Diligence Programs




 Furthest Reaching Proposed Regulation Under the Act

 Proposes to require all Financial Institutions (Domestic and U.S.
  Operations of Foreign Banks) to have Enhanced Due
  Diligence Policies, Procedures and Internal Controls for Private
  Banking Clients and Correspondent Accounts opened or
  maintained for a Foreign Person
   Section 312 - Special Due Diligence Programs

 On May 30,Treasury Department issued a Proposed Rule that was
   Broad in its Coverage and Requirements

      – Proposed Definition of “Correspondent Account” reaches practically
        every Relationship of a Covered Financial Institution with a Foreign
        Financial Institution

      – Proposed Definition of “Covered Financial Institution applies to “Foreign
        Branches” of Insured Depository Institutions

      – Proposed Definition of “Foreign Financial Institution” covers Entities not
        specifically Tracked or Classified by U.S. Banks

      – Proposed Definition of “Beneficial Owner” is Complex and Captures Individuals
        that have no Beneficial Interest in an Account
Due Diligence Programs for Correspondent Accounts of
Covered Foreign Financial Institutions
Under the Proposal, a U.S. Covered Financial Institution is required to
Establish a Due Diligence Program with Policies, Procedures and
Controls to Detect and Report Suspected Money Laundering through
Covered Foreign Correspondent Accounts. The Program must include
Procedures for:

   Determining whether the Correspondent Account is Subject to the Enhanced Due
    Diligence Requirements for High Risk Banks
   Assessing whether the Foreign Correspondent Institution presents a
    “Significant” Risk of Money Laundering;
   Considering Information available about the Supervision and Regulation of the
    Foreign Correspondent Institution from U.S. Government and Multinational
    Organization Sources;
   Reviewing Applicable Guidance from Treasury and other Federal Regulators; and
   Reviewing “Public Information” to determine whether the Institution has been
    Subject to Criminal or Regulatory Actions relating to Money Laundering.
Enhanced Due Diligence Programs for Correspondent
Accounts for Certain Foreign Offshore Banks and Banks
Licensed in Jurisdictions Determined to be High Risk
If a Correspondent Bank is an Offshore Bank which is Licensed by Certain
Jurisdictions or Any Bank Licensed in a High Risk Jurisdiction for Money
Laundering (FATF Non-Cooperative or Sec. 311 Designation), there would
be a Second Tier of Due Diligence.

   Reviewing the Bank’s Anti-Money Laundering Program and considering the Extent to Which
    the Program is reasonably designed to Prevent and Detect Money Laundering;
   “When Appropriate”, Monitoring Transactions through the Account to detect Money
    Laundering, and obtaining Information about the Persons who will have Authority to Direct
    Transactions through the Account and about the Sources and Beneficial Owners of their
    Funds or Assets;
   If the Foreign Bank has Accounts for other Foreign Banks, identifying those Banks and
    Obtaining and Assessing the Offshore Bank’s Policies and Procedures “for minimizing Risks”
    with respect to its own Correspondent Bank Accounts; and
   For Non-publicly Traded Banks, obtaining Information about “Owners” (Someone who
    Directly or Indirectly owns or Controls or has Voting Power over 5% or more of any Class of
    Securities in the Bank) and the Nature of their Interest.
Interim Rule Issued on July 23, 2002 by Treasury


  Final Rule could not be completed by the Statutory
  Deadline of July 23, 200

  Deferred Application of Provisions to Financial
  Institutions other than Banks, Securities Broker
  and Dealers, Future Commission Merchants, and
  Introducing Brokers

  Takes a Risk-Based Approach to Compliance and
  provides General Guidance to affected Institutions
  on how to prioritize Money Laundering Risks.
    Enhanced Due Diligence Programs for Correspondent
    Banking - Interim Rule for Banks
   Pending Promulgation of the Final Rule, Treasury expects Banks to be in
    Compliance with Section 312. Nevertheless, Treasury recognizes that Banks
    cannot implement Final Enhanced Due Diligence Policies and Procedures
    until the Final Regulation is Published and in Effect.

   In the Interim, Treasury will recognize as reasonable an Enhanced Due
    Diligence Policy that is based on Best Practices for Correspondent Accounts,
    and that is based on a Risk Assessment that places Emphasis on High Risk
    Correspondent Banks. Treasury specifically refers to the New York Clearing
    House Association’s “Guidelines for Counter Money Laundering Policies and
    Procedures in Correspondent Banking” and the Basel Committee’s Paper on
    “Customer Due Diligence for Banks” as relevant Guidance.

   The EDD Program will be reasonable in the Interim Period if the Due Diligence
    Efforts are focused on those Correspondent Accounts that Pose a High Risk
    of Money Laundering based on an overall Assessment of the Money
    Laundering Risks posed by the Foreign Financial Institution.
  Enhanced Due Diligence Programs for Correspondent
  Banking - Interim Rule for Banks

 In the Interim Rule, Treasury specifically refers to Relevant Guidance
  Documents:

 The New York Clearing House Association’s “Guidelines for Counter
  Money Laundering Policies and Procedures in Correspondent
  Banking” published March 2002 (http://www.nych.org/); and

 The Basel Committee’s Paper on “Customer Due Diligence for Banks”
  published October 2001 (http://www.bis.org/publ/bcbs85.pdf)
Sec. 312 - Due Diligence Program for Correspondent
Accounts for Foreign Banks


   During Interim Phase, U.S. Banks should Accord
    Priority to:

     – High-Risk Foreign Banks which maintain Correspondent
       Deposit Accounts or their Equivalents especially those those
       that provide Services to Third Parties

     – Correspondent Accounts maintained for Foreign Financial
       Institutions other than Foreign Banks (Money Transmitters)

     – Accounts opened after July 23, 2002
Sec. 312 - Due Diligence Program for Correspondent
Accounts for Foreign Banks
In Addition to Existing Procedures related to “Know Your Customer” and
“Enhanced Due Diligence”, for Accounts opened on or after July 23, 2002,
Procedures must be Implemented with regard to Correspondent Accounts
established, maintained, administered or managed in the United States for a
Foreign Bank to determine:

   a.) If the Foreign Bank is operating under a Banking License issued by a Foreign
   Country that has been designated as Non-Cooperative with International Anti-Money
   Laundering Principles, such as those Countries identified as “Non-Cooperative
   Countries and Territories (“NCCT”) by the Financial Action Task Force (“FATF”) (The
   Current List of FATF NCCT can be found at http://www.fatf-gafi-org/NCCT_en.htm);

   b.) If the Foreign Bank is operating under a License that prohibits the Bank from
   conducting Banking Activities with the Citizens of, or with the Local Currency of the
   Country which issued the License (“Offshore Banking License”); or

   c.) If the Foreign Bank is operating under a Banking License issued by a Foreign
   Country that the Secretary of the Treasury has designated warranting Special Measures
   due to Money Laundering Concerns.
    Enhanced Due Diligence Programs for Correspondent
    Banking - Interim Rule for Banks
If the Foreign Bank for which the Correspondent Account is being Maintained
meets any one of the Previous Criteria, THEN, at a Minimum, the Following
Information must be ascertained in order for the Foreign Bank to Maintain or
Obtain an Account Relationship:

   For any Foreign Bank, the Shares of Which are not Publicly Traded, the
    Identity of all Persons who Directly or Indirectly own, control or have Voting
    Power of 5 Percent of More of any Class Securities of the Foreign Bank; and

   For any Foreign Bank, whether it offers Correspondent Accounts to other
    Foreign Banks, and if so, the Identity of those Foreign Banks.
Section 314(a) - Information Sharing Between Law
Enforcement and Financial Institutions - Final Rule
Highlights

    Effective Date: September 26, 2002

    FinCEN has the Authority to request Information regarding
     Suspected Terrorists or Money Launderers from any Financial
     Institution defined in the BSA, although Initial Implementation will
     Involve those Financial Institutions for which FinCEN possesses
     Contact Information.

    FinCEN, on behalf of a requesting Federal Law Enforcement
     Agency, may require a Financial Institution to search its Records
     to determine whether the Financial Institution maintains or has
     maintained Accounts for, or has engaged in Transactions with,
     any specified Individual, Entity or Organization.
    Section 314(a) - Information Sharing Between Law
    Enforcement and Financial Institutions - Final Rule
    Paragraph 103.100(b)(2) Lists all of the Obligations of a Financial Institution
     that Receives an Information Request under Section 103.100.

    Upon Receiving a Request from FinCEN, a Financial Institution must
     Expeditiously search its Records. Unless the Information Request states
     otherwise, a Financial Institution is only required to search its Records for:

      – Any Current Account maintained for a Named Suspect;

      – Any Account Maintained for a Named Suspect during the Preceding Twelve
        Months; and

      – Any Transaction, Other than a Transaction conducted through an Account,
        conducted by or on behalf of a Named Suspect, or any Transmittal of Funds
        Conducted in which a Named Suspect was either the Transmittor or the
        Recipient, During the Preceding Six Months that is required under Law or
        Regulation to be Recorded by the Financial Institution or is Recorded and
        Maintained Electronically by the Institution.
Section 314(a) - Information Sharing Between Law
Enforcement and Financial Institutions - Final Rule
   To Expedite Searches, Financial Institutions may Contact directly the Requesting
    Law Enforcement Agency (whose Contact Info will be Included in the Request)
    regarding Questions on the Scope of the Request.

   Any Matches Found as a Result of Information provided to a Financial Institution
    must be reported back to FinCEN, and NOT DIRECTLY to the requesting Law
    Enforcement Agency so that FinCEN may amplify the Information Provided with
    Other Relevant BSA Report Information.

   Information Regarding an Account or Transaction Identified to be Provided to
    FinCEN includes:

       − The Name of the Individual, Entity, Organization;
       − Name or Account Number or date and Type of each Transaction;
       − Social Security Number, Taxpayer Identification Number, Passport Number,
         Date of Birth, or other Similar Identifying Information that was Provided by
         the Individual, Entity, or Organization when the Account was Opened or a
         Transaction Conducted.
Section 314(a) - Information Sharing Between Law
Enforcement and Financial Institutions - Final Rule

   Each Financial Institution is required to designate one Person to be the
    Point of Contact at the Institution regarding the Request and to receive
    similar Requests for Information from FinCEN in the Future.
   Contact Information required by FinCEN includes:
      − Contact Name
      − Title
      − Mailing Address
      − e-Mail Address
      − Telephone and Fax Number

   Financial Institutions should Implement Policies and Procedures within
    their Organizations to Address the Dissemination of Information within
    their Organizations to Ensure that Requests are handled in an
    Expeditious Manner.
Sec. 314(b) - Voluntary Information Sharing Among
Financial Institutions - Final Rule Highlights


   Final Rule Effective September 26, 2002

   Covered Financial Institutions mean any Financial Institution that
    is required to establish and maintain an AML Program or is
    treated as having satisfied the AML Program requirements under
    31 CFR Part 103, unless FinCEN specifically determines that a
    Particular Class of Financial Institutions should not be Eligible to
    Share under Sec. 103.110.

   Financial Institutions that comply with the Provisions relating to
    Notice, Verification, Use, Disclosure and Security of Information
    for the Purpose of detecting, identifying, or reporting Activities
    involving Possible Money Laundering or Terrorist Activities will
    be under the Protection of the Statutory Safe Harbor from
    Liability.
Sec. 314(b) - Voluntary Information Sharing Among
Financial Institutions - Final Rule Highlights
 Before Information is shared, Financial Institutions must first
  submit to FinCEN a Notice as Provided in Appendix A of Subpart
  H. Such Notices will be valid for One Year, and must be
  renewed at the End of the One-Year Period.

 Prior to sharing Information, a Financial Institution must take
  Reasonable Steps to Verify that the other Financial Institution or
  Association of Financial Institutions with which it intends to share
  Information has submitted to FinCEN the required Notice.

    − FinCEN will Periodically Make Available a List of Financial Institutions
      or Associations of Financial Institutions that have Filed a Notice for
      Information Sharing Purposes;
    − A Financial Institution may also verify directly with the other Financial
      Institution or Association of Financial Institutions that the requisite
   Sec. 314(b) - Voluntary Information Sharing Among
   Financial Institutions - Final Rule Highlights
Use and Security of Information
   Information received by a Financial Institution or an Association of
    Financial Institutions shall not be used for any Purpose other than:

      − Identifying and, where appropriate, reporting on Money Laundering or
        Terrorist Activities;
      − Determining whether to establish or maintain an Account, or to engage in a
        Transaction; or
      − Assisting the Financial Institution in complying with any Requirement of this
        Part.

   Each Financial Institution or Association of Financial Institutions that engages
     in the Sharing of Information pursuant to this Section shall maintain adequate
     Procedures to Protect the Security and Confidentiality of such Information.
    This Requirement will be deemed satisfied to the extent that a Financial
    Institution applies to such information Procedures that the Institution has
    established to satisfy the Requirements of Section 501 of the Gramm-Leach-
    Bliley Act, and Applicable Regulations