Bank Secrecy Act |
EXAMINATION PROCEDURES
Foreign Correspondent Account
Recordkeeping and Due Diligence
Objective. Assess the bank’s compliance with statutory and regulatory requirements for correspondent accounts for foreign shell banks, foreign correspondent account recordkeeping, and due diligence programs to detect and report money laundering and suspicious activity. Refer to the expanded sections of the manual for discussions and examination procedures regarding specific money laundering risks associated with foreign correspondent accounts.
1. Determine whether the bank engages in foreign correspondent banking.
Foreign Shell Bank Prohibition and Foreign Correspondent Account Recordkeeping
2. If so, review the bank’s policies, procedures, and processes. At a minimum, policies, procedures, and processes should accomplish the following:
- Prohibit dealings with foreign shell banks and specify the responsible party for obtaining, updating, and managing certifications or information for foreign correspondent accounts.
- Identify foreign correspondent accounts and address the sending, tracking, receiving, and reviewing of certification requests or requests for information.
- Evaluate the quality of information received in responses to certification requests or requests for information.
- Determine whether and when a Suspicious Activity Report (SAR) should be filed.
- Maintain sufficient internal controls.
- Provide for ongoing training.
- Independently test the bank’s compliance with 31 CFR 103.177.
3. Determine whether the bank has on file a current certification or current information (that would otherwise include the information contained within a certification) for each foreign correspondent account to determine whether the foreign correspondent is not a foreign shell bank (31 CFR 103.177(a)).
4. If the bank has foreign branches, determine whether the bank has taken reasonable steps to ensure that any correspondent accounts maintained for its foreign branches are not used to indirectly provide banking services to a foreign shell bank.
Special Due Diligence Program for Foreign Correspondent Accounts
5. Determine whether the bank has established a general due diligence program that includes appropriate, specific, risk-based, and, where necessary, enhanced policies, procedures, and controls for correspondent accounts established, maintained, administered, or managed in the United States for foreign financial institutions ("foreign correspondent account"). The general due diligence program must be applied to each foreign correspondent account established on or after July 5, 2006, and, by October 2, 2006, to correspondent accounts established prior to July 5, 2006. Verify that due diligence policies, procedures, and controls include:
- Determining whether any foreign correspondent account is subject to enhanced due diligence (31 CFR 103.176(a)(1)).
- Assessing the money laundering risks presented by the foreign correspondent account (1 CFR 103.176(a)(2)).
- Applying risk-based procedures and controls to each foreign correspondent account reasonably designed to detect and report known or suspected money laundering activity, including a periodic review of the correspondent account activity sufficient to determine consistency with information obtained about the type, purpose, and anticipated activity of the account (31 CFR 103.176(a)(3)).
6. Review the due diligence program’s policies, procedures, and processes governing the BSA/AML risk assessment of foreign correspondent accounts (31 CFR 103.176(a)(2)). Verify that the bank’s due diligence program considers the following factors, as appropriate, as criteria in the risk assessment:
- The nature of the foreign financial institution’s business and the markets it serves.
- The type, purpose, and anticipated activity of the foreign correspondent account.
- The nature and duration of the bank’s relationship with the foreign financial institution and any of its affiliates.
- The AML and supervisory regime of the jurisdiction that issued the charter or license to the foreign financial institution, and, to the extent that information regarding such jurisdiction is reasonably available, of the jurisdiction in which any company that is an owner of the foreign financial institution is incorporated or chartered.
- Information known or reasonably available to the bank about the foreign financial institution’s AML record.
7. Ensure the program is reasonably designed to:
- Detect and report, on an ongoing basis, known or suspected money laundering activity.
- Perform periodic reviews of correspondent account activity to determine consistency with the information obtained about the type, purpose, and anticipated activity of the account.
8. For foreign banks subject to enhanced due diligence, evaluate the criteria that the U.S. bank uses to guard against money laundering in, and report suspicious activity in connection with, any correspondent accounts held by such foreign banks. Verify that the enhanced due diligence procedures are applied to each correspondent account established for the foreign banks identified in 31 CFR 103.176(c) on or after February 5, 2008, and, by May 5, 2008, to such foreign correspondent accounts established prior to February 5, 2008. The foreign banks identified in 31 CFR 103.176(c) are those operating under:
- An offshore banking license.
- A banking license issued by a foreign country that has been designated as non-cooperative with international AML principles or procedures by an intergovernmental group or organization of which the United States is a member, and with which designation the United States representative to the group or organization concurs.
- A banking license issued by a foreign country that has been designated by the Secretary of the Treasury as warranting special measures due to AML concerns.
9. Review the bank’s policies, procedures, and processes and determine whether they include reasonable steps for conducting enhanced scrutiny of foreign correspondent accounts to guard against money laundering and to identify and report any suspicious transactions in accordance with applicable laws and regulations (31 CFR 103.176(b)(1)). Verify that this enhanced scrutiny reflects the risk assessment of each foreign correspondent account that is subject to such scrutiny and includes, as appropriate:
- Obtaining and considering information relating to the foreign bank’s anti-money laundering program to assess the risk of money laundering presented by the foreign bank’s correspondent account (31 CFR 103.176(b)(1)(i)).
- Monitoring transactions to, from, or through the correspondent account in a manner reasonably designed to detect money laundering and suspicious activity (31 CFR 103.176(b)(1)(ii)).
- Obtaining information from the foreign bank about the identity of any person with authority to direct transactions through any correspondent account that is a payable through account, and the sources and beneficial owner of funds or other assets in the payable through account (31 CFR 103.176(b)(1)(iii)).
10 Review the bank’s policies, procedures, and processes for determining whether foreign correspondent banks subject to enhanced due diligence maintain correspondent accounts for other foreign banks, and, if so, determine whether the bank’s policies, procedures, and processes include reasonable steps to obtain information relevant to assess and mitigate money laundering risks associated with the foreign correspondent bank’s correspondent accounts for other foreign banks, including, as appropriate, the identity of those foreign banks (31 CFR 103.176(b)(2)).
11. Determine whether policies, procedures, and processes require the bank to take reasonable steps to identify each of the owners with the power to vote 10 percent or more of any class of securities of a non-publicly traded foreign correspondent bank for which it opens or maintains an account that is subject to enhanced due diligence. For such accounts, evaluate the bank’s policies, procedures, and processes to determine each such owner’s interest (31 CFR 103.176(b)(3)).
Transaction Testing
Foreign Shell Bank Prohibition and
Foreign Correspondent Account Recordkeeping
12. On the basis of a risk assessment, prior examination reports, and a review of the bank’s audit findings, select a sample of foreign bank accounts. From the sample selected determine the following:
- Whether certifications and information on the accounts are complete and reasonable.
- Whether the bank has adequate documentation to evidence that it does not maintain accounts for, or indirectly provide services to, foreign shell banks.
- For account closures, whether closures were made within a reasonable time period and that the relationship was not re-established without sufficient reason.
- Whether there are any federal law enforcement requests for information regarding foreign correspondent accounts. If so, ascertain that requests were met in a timely manner.
- Whether the bank received any official notifications to close a foreign financial institution account.109 If so, ascertain that the accounts were closed within ten business days.
- Whether the bank retains, for five years from the date of account closure, the original of any document provided by a foreign financial institution, as well as the original or a copy of any document relied on in relation to any summons or subpoena of the foreign financial institution issued under 31 CFR 103.185.
Special Due Diligence Program for
Foreign Correspondent Accounts
13. From a sample selected, determine whether the bank consistently follows its general due diligence policies, procedures, and processes for foreign correspondent accounts. It may be necessary to expand the sample to include correspondent accounts maintained for foreign financial institutions other than foreign banks (such as money transmitters or currency exchangers), as appropriate.
14. From the original sample, determine whether the bank has implemented enhanced due diligence procedures for foreign banks operating under:
- An offshore banking license.
- A banking license issued by a foreign country that has been designated as non-cooperative with international AML principles or procedures.
- A banking license issued by a foreign country that has been designated by the Secretary of the Treasury as warranting special measures due to AML concerns.
15. From a sample of accounts that are subject to enhanced due diligence, verify that the bank has taken reasonable steps, in accordance with the bank’s policies, procedures, and processes, to:
- Determine, for any such foreign bank whose shares are not publicly traded, the identity of each of the owners of the foreign bank with the power to vote 10 percent or more of any class of securities of the bank, and the nature and extent of the ownership interest of each such owner.
- Conduct enhanced scrutiny of any accounts held by such banks to guard against money laundering and report suspicious activity.
- Determine whether such foreign bank provides correspondent accounts to other foreign banks and, if so, obtain information relevant to assess and mitigate money laundering risks associated with the foreign bank’s correspondent accounts for other foreign banks, including, as appropriate, the identity of those foreign banks.
16. On the basis of examination procedures completed, including transaction testing, form a conclusion about the adequacy of policies, procedures, and processes to meet regulatory requirements associated with foreign correspondent account recordkeeping and due diligence.
17. On the basis of the previous conclusion and the risks associated with the bank’s activity in this area, proceed to expanded examination procedures, if necessary.
