TO THE OFFICER IN CHARGE OF SUPERVISION AND APPROPRIATE
SUPERVISORY AND EXAMINATION STAFF AT EACH FEDERAL RESERVE BANK AND EACH DOMESTIC
AND FOREIGN BANKING ORGANIZATION SUPERVISED BY THE FEDERAL RESERVE
SUBJECT: Imposition of Special Measures against
VEF Banka
The Board of Governors of the Federal Reserve System is issuing this SR letter
to advise banking organizations under its supervision of new obligations relating
to joint stock company VEF Banka imposed by the U.S. Department of the
Treasury's Financial Crimes Enforcement Network (FinCEN). On July 12, 2006,
FinCEN issued a final rule that imposes special measures under section 311
of the USA PATRIOT Act (31 U.S.C. 5318A)1
against VEF Banka.2
These special measures apply to VEF Banka and any of its branches, offices
and subsidiaries operating in the Republic of Latvia or in any other jurisdiction.
One such subsidiary, Veiksmes lizings, is specifically identified in
the rule. This final rule is effective on August 14, 2006; it can
be found at
(http://www.fincen.gov/vef_final_rule_070706.pdf).
The final rule prohibits all covered financial institutions3
from opening or maintaining a correspondent account in the United States
for, or on behalf of, VEF Banka and its branches, offices, and subsidiaries.
Covered financial institutions are also required to apply special due diligence
to their correspondent accounts for foreign banks that is reasonably designed
to guard against the indirect use of the account by VEF Banka.
At a minimum, special due diligence under the final rule must include two elements:
- First, a covered financial institution must notify its correspondent account
holders that the account may not be used to provide VEF Banka with access
to the covered financial institution. The final rule requires a covered
financial institution to document its compliance with this notice requirement.
- Second, a covered financial institution must take reasonable steps to
identify any indirect use of its correspondent accounts by VEF Banka, to
the extent that such indirect use can be determined from transactional
records maintained in the covered financial institution's normal course
of business. For example, a covered financial institution is expected to
apply an appropriate screening mechanism to be able to identify a funds
transfer order that, on its face, lists VEF Banka as the originator's or
beneficiary's financial institution, or otherwise references it in a manner
detectable under the financial institution's screening procedures.
The final rule states that a covered financial institution must take a risk-based
approach (based on factors such as the type of services offered by, and the
geographic locations of, its correspondent account holders), when deciding
what, if any, additional due diligence measures it should adopt to guard against
the indirect use of its correspondent accounts by VEF Banka. Pursuant to the
final rule, a covered financial institution that obtains knowledge that its
correspondent account is being used by a foreign bank to provide indirect
access to VEF Banka is expected to take all appropriate steps to prevent such
indirect access, including, when necessary, terminating the correspondent
account.
Notices of proposed rulemaking and final rules accompanying the determination
"of primary money laundering concern," and imposition of a special
measure(s) pursuant to section 311 of the Patriot Act are available
on the FinCEN web site:
www.fincen.gov.
Reserve Banks are asked to distribute this SR letter to the domestic and foreign
banking organizations supervised by the Federal Reserve as well as to supervisory
and examination staff. For questions regarding these special measures, please
contact Suzanne Williams, Manager, BSA/AML Risk (202/452-3513).
Roger T. Cole
Acting Director
Notes:
- For background information on section 311,
refer to the "Special Measures" section of the Federal Financial
Institutions Examination Council Bank Secrecy Act/Anti-Money Laundering
Examination Manual, available at http://www.ffiec.gov/bsa_aml_infobase/. Return to text
- On April 26, 2005, the date that FinCEN issued
the proposed rule recommending the imposition of special measures against
VEF Banka, it also issued a similar finding and proposed special
measures with respect to a second Latvian entity named Multibanka. However,
FinCEN has decided against implementing a final rule against Multibanka.
Therefore, on July 12, 2006, FinCEN issued notice of the withdrawal
of its April 26, 2005, finding that joint stock company Multibanka
was a financial institution of primary money laundering concern and
notice of proposed rulemaking recommending the imposition of a special
measure against Multibanka (http://www.fincen.gov/311multibanka070706.pdf).
The withdrawal was effective as of July 13, 2006. Return to text
- Section 103.192(a)(2) of the rule defines covered
financial institution to include all of the following: an insured bank
(as defined in section 3(h) of the Federal Deposit Insurance Act (12 U.S.C. 1813(h)));
a commercial bank; an agency or branch of a foreign bank in the United States;
a federally insured credit union; a savings association; a corporation
acting under section 25A of the Federal Reserve Act (12 U.S.C. 611
et seq.); a trust bank or trust company that is federally
regulated and is subject to an anti-money laundering program requirement;
a broker or dealer in securities registered, or required to be registered,
with the Securities and Exchange Commission (SEC) under the Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.),
except persons who register pursuant to section 15(b)(11) of the
Securities Exchange Act of 1934; a futures commission merchant
or an introducing broker registered, or required to be registered, with
the Commodity Futures Trading Commission under the Commodity Exchange
Act (7 U.S.C. 1 et seq.), except persons
who register pursuant to section 4(f)(a)(2) of the Commodity Exchange Act;
and a mutual fund, which means an investment company (as defined in
section 3(a)(1) of the Investment Company Act of 1940
(("Investment Company Act") (15 U.S.C. 80a-3(a)(1)))
that is an open-end company (as defined in section 5(a)(1) of the
Investment Company Act (15 U.S.C. 80a-5(a)(1))) and that
is registered, or is required to register, with the SEC pursuant to
the Investment Company Act. Return to text