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Treasury Department Issues Final Rules Implementing the USA PATRIOT ACT Requirements for Foreign Bank Correspondent Accounts.

Article Excerpt
By Amy G Rudnick and Linda Noonan

Originally published October 2, 2002

On September 26, 2002, the U.S. Department of the Treasury ("Treasury") published in the Federal Register final rules implementing sections 313 and 319(b) of the USA PATRIOT Act. Those provisions prohibit covered financial institutions (i.e., U.S. banks, savings associations, other depository institutions and securities broker-dealers) from providing correspondent accounts to foreign shell banks and require foreign banks that maintain correspondent accounts with covered financial institutions to identify their owners and their U.S. agents for service of process. 67 Fed. Reg. 60562. The final rules supersede interim guidance issued to banks by Treasury on November 20, 2001, and proposed rules published by Treasury on December 28, 2001. The proposed rules were similar to the interim guidance for banks with some modifications and proposed to apply the requirements to the foreign branches of U.S. insured banks and to securities broker-dealers. The final rules become effective on October 28, 2002.

The final rules are substantially similar to Treasury's proposed rules. Consistent with the USA PATRIOT Act, the final regulations prohibit covered financial institutions from establishing, maintaining, administering or managing correspondent accounts for foreign shell banks and require covered financial institutions to take reasonable steps to ensure that any correspondent account for a foreign bank is not used to provide banking services indirectly to foreign shell banks. The final regulations also require covered financial institutions to maintain records in the United States that identify the owners of each foreign bank whose shares are not publicly traded and the foreign bank's U.S. agent for service of legal process for records pertaining to the account. In addition, the final rules continue to authorize the use of modified certification and recertification forms to comply with both the shell bank prohibition and the requirements to identify the foreign bank's owners and U.S. agent for service of process.

There are some notable differences between the proposal and the final rules, however. These differences are highlighted here and discussed in more detail below.

Highlights

The final rules exclude from the definition of a covered financial institution the foreign branches of U.S. insured banks. Consequently, foreign branches of U.S. insured banks will not be required to comply with the new rules.

While the final rules retain the requirement to identify whether a person owns a 25 percent or greater direct or indirect interest in a foreign bank, the final rules eliminate the complicated rules for determining whether a person...

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