Bank Secrecy Act |
EXPANDED EXAMINATION OVERVIEW AND PROCEDURES FOR PERSONS AND ENTITIES
Nonresident Aliens and Foreign Individuals—Overview
Objective. Assess the adequacy of the bank’s systems to manage the risks associated with transactions involving accounts held by nonresident aliens (NRAs) and foreign individuals, and management’s ability to implement effective due diligence, monitoring, and reporting systems.
Foreign individuals maintaining relationships with U.S. banks can be divided into two categories: resident aliens and nonresident aliens. For definitional purposes, an NRA is a non-U.S. citizen who: (i) is not a lawful permanent resident of the United States during the calendar year and who does not meet the substantial presence test,216 or (ii) has not been issued an alien registration receipt card, also known as a green card. The Internal Revenue Service (IRS) determines the tax liabilities of a foreign person and officially defines the person as a "resident" or "nonresident."
Although NRAs are not permanent residents, they may have a legitimate need to establish an account relationship with a U.S. bank. NRAs use bank products and services for asset preservation (e.g., mitigating losses due to exchange rates), business expansion, and investments. The amount of NRA deposits in the U.S. banking system has been estimated to range from hundreds of billions of dollars to about $1 trillion. Even at the low end of the range, the magnitude is substantial, both in terms of the U.S. banking system and the economy.
Risk Factors
Banks may find it more difficult to verify and authenticate an NRA accountholder’s identification, source of funds, and source of wealth, which may result in BSA/AML risks. The NRA’s home country may also heighten the account risk, depending on the secrecy laws of that country. Since the NRA is expected to reside outside of the United States, funds transfers or the use of foreign automated teller machines (ATMs) may be more frequent. The BSA/AML risk may be further heightened if the NRA is a politically exposed person (PEP). Refer to the expanded examination procedures, “Politically Exposed Persons,” page 268, for further information.
Risk Mitigation
Banks should establish policies, procedures, and processes that provide for sound due diligence and verification practices, adequate risk assessment of NRA accounts, and ongoing monitoring and reporting of unusual or suspicious activities. The following factors are to be considered when determining the risk level of an NRA account:
- The accountholder’s home country.
- The types of products and services used.
- Forms of identification.
- The source of wealth and funds.
- Unusual account activity.
NRA customers may request W-8 status for U.S. tax withholding. In such cases, the NRA customer completes a W-8 form, which attests to the customer’s foreign and U.S. tax-exempt status. While it is an IRS form, a W-8 is not sent to the IRS, but is maintained on file at the bank to support the lack of any tax withholding from earnings.217
The bank’s Customer Identification Program (CIP) should detail the identification requirements for opening an account for a non-U.S. person, including an NRA. The program should include the use of documentary and nondocumentary methods to verify a customer. In addition, banks must maintain due diligence procedures for private banking accounts for non-U.S. persons, including those held for PEPs or senior foreign political figures. Refer to the core overview and examination procedures, “Private Banking Due Diligence Program (Non-U.S. Persons),” page 120, and the expanded overview and examination procedures, “Politically Exposed Persons,” page 264.
