#  BILLING CODE 4810-25

# 

**DEPARTMENT OF THE TREASURY**

**Departmental Offices**

**31 CFR Part 104**

**RIN 1505-AA87**

**Counter Money Laundering Requirements  Correspondent Accounts for
Foreign Shell Banks; Recordkeeping and Termination of Correspondent
Accounts for Foreign Banks.**

**AGENCY:** Departmental Offices, Department of the Treasury.

**ACTION:** Notice of Proposed Rulemaking.

**SUMMARY:** The Department of the Treasury (Treasury) is issuing a
proposed rule to implement new provisions of the Bank Secrecy Act that:
prohibit certain financial institutions from providing correspondent
accounts to foreign shell banks; require such financial institutions to
take reasonable steps to ensure that correspondent accounts provided to
foreign banks are not being used to indirectly provide banking services
to foreign shell banks; require certain financial institutions that
provide correspondent accounts to foreign banks to maintain records of
the ownership of such foreign banks and their agents in the United
States designated for service of legal process for records regarding the
correspondent account; and require the termination of correspondent
accounts of foreign banks that fail to turn over their account records
in response to a lawful request of the Secretary of the Treasury
(Secretary) or the Attorney General of the United States (Attorney
General).

**DATES:** Written comments on the proposed rule may be submitted to the
Treasury Department on or before \[INSERT DATE THAT IS 45 DAYS AFTER
PUBLICATION IN THE FEDERAL REGISTER\].

**ADDRESS:** Submit comments (preferably an original and three copies)
to Office of the Assistant General Counsel (Enforcement), Attention:
Official Comment Record, Room 2000, Department of the Treasury, 1500
Pennsylvania Ave., N.W., Washington, DC 20220. Comments will be
available for public inspection by appointment only at the Reading Room
of the Treasury Library by advance arrangement. To make appointments,
call (202) 622-0990 (not a toll-free number).

**FOR FURTHER INFORMATION CONTACT:** Gary W. Sutton, Senior Banking
Counsel, Office of the Assistant General Counsel (Banking & Finance),
(202) 622-1976, or William Langford, Attorney-Advisor, Office of the
Assistant General Counsel (Enforcement), (202) 622-1932 (not toll-free
numbers).

**SUPPLEMENTARY INFORMATION:**

**I. Background**

On October 26, 2001, the President signed into law the Uniting and
Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001 (Public Law
107-56) (the Act). Title III of the Act makes a number of amendments to
the anti-money laundering provisions of the Bank Secrecy Act (BSA),
which is codified in subchapter II of chapter 53 of title 31, United
States Code. These amendments are intended to make it easier to prevent,
detect, and prosecute international money laundering and the financing
of terrorism. Two of these provisions become effective on December 26,
2001.

First, section 313(a) of the Act adds a new subsection (j) to 31 U.S.C.
5318 that prohibits a covered financial institution from providing
correspondent accounts in the United States to foreign banks without a
physical presence in any country (shell banks) and requires those
financial institutions to take reasonable steps to ensure that
correspondent accounts provided to foreign banks are not being used to
indirectly provide banking services to foreign shell banks. The
Department of the Treasury expects that covered financial institutions,
as required by 31 U.S.C. 5318(j), will immediately terminate all
correspondent accounts with any foreign bank that it knows to be a shell
bank that is not a regulated affiliate as defined in the proposed rule,
and will terminate any correspondent account with a foreign bank that it
knows is being used to indirectly provide banking services to a foreign
shell bank.

Second, section 319(b) of the Act adds a new subsection (k) to 31 U.S.C.
5318 that requires any covered financial institution that provides a
correspondent account to a foreign bank to maintain records of the
foreign banks owners and agent in the United States designated to
accept service of legal process for records regarding the correspondent
account. Subsection (k) also authorizes the Secretary and the Attorney
General to issue a summons or subpoena to any foreign bank that
maintains a correspondent account in the United States and to request
records relating to such account, including records maintained outside
the United States relating to the deposit of funds into the foreign
bank. If a foreign bank fails to comply with or contest the summons or
subpoena, any covered financial institution with which the foreign bank
maintains a correspondent account must terminate the account upon notice
from the Secretary or the Attorney General.

Under the Act, Treasury is authorized to interpret and administer these
provisions. On November 20, 2001, Treasury issued Interim Guidance to
banks, savings associations, and other depository institutions to assist
them in meeting their compliance obligations under sections 5318(j) and
(k).[^1] The Interim Guidance, published in the *Federal Register* on
November 27, 2001 (66 FR 59342), included definitions of key terms in
sections 5318(j) and (k) and a model certification that depository
institutions may use as an interim means to assist them in meeting their
obligations related to dealing with foreign shell banks under section
5318(j) and recordkeeping under section 5318(k). In issuing the Interim
Guidance, Treasury stated that it may be relied upon by financial
institutions until superseded by regulations or a subsequent notice.
Treasury now is proposing to codify the Interim Guidance, with some
modifications, as regulatory standards, and proposing standards
applicable to securities brokers and dealers.

When issuing the Interim Guidance, Treasury deferred addressing the
compliance obligations of securities brokers and dealers with respect to
the requirements of sections 5318(j) and (k), because the Act requires
Treasury to define by regulation, after consultation with the Securities
and Exchange Commission (SEC), the types of accounts maintained by
brokers and dealers for foreign banks that are similar to correspondent
accounts that depository institutions maintain for foreign banks. As
further discussed below, Treasury is proposing to apply the requirements
of sections 5318(j) and (k)(3)(B)(i) to brokers and dealers in the same
manner that they apply to other covered financial institutions.

The proposed rule also carries forward from the Interim Guidance, with
some modifications, the model certification that covered financial
institutions may use to assist them in meeting the requirements of
sections 5318(j) and (k). Use of the model certification (Appendix A to
part 104) will provide a covered financial institution with a safe
harbor for purposes of compliance with those sections. Treasury is
proposing that covered financial institutions must verify the
information provided by a foreign bank, or otherwise relied upon for
purposes of sections 5318(j) and (k), every two years or at any time a
covered financial institution has reason to believe that the previously
provided information is no longer accurate. The proposed rule also
includes a model recertification (Appendix B to part 104), which also
will provide a covered financial institution with a safe harbor in
connection with the verification of previously provided information.

Proposed section 104.40(f) provides special rules and safe harbors for a
covered financial institution that, consistent with the Interim Guidance
or this notice of proposed rulemaking, requests information from a
foreign bank before the effective date of the final rule and receives
such information not later than the date that is 90 days after the
publication of the final rule. Such information will be deemed to
satisfy the covered financial institutions obligations for purposes of
the final rule until such time as the information must be verified.

As an administrative matter, the proposed rule also establishes a new
part 104 of title 31 of the Code of Federal Regulations. Part 104
eventually will include other regulations implementing the anti-money
laundering provisions of the Act for which Treasury is authorized or
required to issue regulations. At this point, most of part 104 has been
reserved for these future regulations.

## II. Description of the Proposed Rule

## 

*A. Limitations on Correspondent Accounts for Foreign Shell Banks*

Section 5318(j) provides that a covered financial institution shall
not establish, maintain, administer, or manage a correspondent account
in the United States for, or on behalf of, a shell bank that is not a
regulated affiliate (as described below). In addition, a covered
financial institution must take reasonable steps to ensure that any
correspondent account established, maintained, administered, or managed
by the covered financial institution in the United States for a foreign
bank is not being used by that foreign bank to indirectly provide
banking services to a foreign shell bank that is not a regulated
affiliate.

1\. What is a covered financial institution?

For purposes of section 5318(j), the term covered financial
institution is defined as: (1) any insured bank (as defined in section
3(h) of the Federal Deposit Insurance Act (12 U.S.C. 1813(h))); (2) a
commercial bank or trust company; (3) a private banker; (4) an agency or
branch of a foreign bank in the United States; (4) a credit union; (5) a
thrift institution; or (6) a broker or dealer registered with the SEC
under the Securities Exchange Act of 1934 (15 U.S.C. 78a *et seq*.).
*See* 31 U.S.C. 5318(j)(1), 5312(a)(2). The proposed rule incorporates
this statutory definition. Covered financial institutions include
insured banks organized in U.S. territories, Puerto Rico, Guam, American
Samoa, and the Virgin Islands, and corporations organized under section
25A of the Federal Reserve Act (12 U.S.C. 611 *et seq*.).

2\. What is a correspondent account?

Section 5318(j) applies to any correspondent account established,
maintained, administered, or managed by the covered financial
institution in the United States for a foreign bank. For purposes of
section 5318(j), correspondent account is defined with respect to
banking institutions as an account established to receive deposits
from, make payments on behalf of a foreign financial institution, or
handle other financial transactions related to such institution. *See*
31 U.S.C. 5318A(e)(1)(B). The Act also defines the term account as a
formal banking or business relationship established to provide regular
services, dealings, and other financial transactions \[and\] includes a
demand deposit, savings deposit, or other transaction or asset account
and a credit account or other extension of credit. S*ee* 31 U.S.C.
5318A(e)(1)(A).

Treasury, after consultation with the SEC, is required under the Act to
define the types of accounts that come within the definition of
correspondent account for purposes of securities brokers and dealers
compliance with section 5318(j). *See* 31 U.S.C. 5318A(e)(2). In
addition, Treasury may further define the terms correspondent account
and account as the Secretary deems appropriate. *See* 31 U.S.C.
5318A(e)(4). Treasury intends to maintain parity in treatment between
accounts provided to foreign banks by banks and broker-dealers, and to
treat functionally equivalent accounts, whether maintained by banks or
broker-dealers, in the same manner.

The statutory definition of correspondent account is broadly worded;
it is not limited to any particular type of account. The proposed rule
incorporates the statutory definition of correspondent account. It
includes, for example, any account that falls within the definition of
\"transaction account under Regulation D of the Board of Governors of
the Federal Reserve System (Federal Reserve).[^2] It also includes
clearing and settlement accounts (which may also fall within the
definition of transaction account). Such accounts are typically used
by foreign banks for remittance of funds in settlement of U.S. dollar
transactions with parties other than the U.S. bank at which the account
is maintained. In addition, foreign banks maintain fiduciary accounts
with U.S. banks for the benefit of such foreign banks or their
customers, including custody and escrow accounts. U.S. banks also
establish time deposit accounts for foreign banks that are used by
foreign banks primarily as funding mechanisms, as well as money market
deposit accounts (MMDAs) that share limited use for transactions
processing. In addition, U.S. banks engage in transactions with foreign
banks in securities, derivatives, repurchase agreements, foreign
exchange, and other instruments. To the extent that these transactions
involve an account, they would be covered by the definition of
correspondent account.

In light of the broad statutory definitions of correspondent account
and account for banking institutions, Treasury is proposing to apply
the same definition for purposes of the types of broker-dealer accounts
that are covered by section 5318(j). Thus, under the proposed rule,
brokers and dealers must comply with section 5318(j) with respect to any
account they provide in the U.S. to a foreign bank that permits the
foreign bank to engage in securities transactions, funds transfers, or
other financial transactions through that account. Such accounts would
include, for example, the following: (1) accounts to purchase, sell,
lend or otherwise hold securities, either in a proprietary account or an
omnibus account for trading on behalf of the foreign banks customers on
a fully disclosed or non-disclosed basis; (2) prime brokerage accounts
that consolidate trading done at a number of firms; (3) accounts for
trading foreign currency; (4) various forms of custody accounts for the
foreign bank and its customers; (5) over-the-counter derivatives
accounts; and (6) futures accounts to purchase futures, which would be
maintained primarily by broker-dealers that are dually registered as
futures commission merchants.

Treasury requests comments on the breadth of the definition of
correspondent account as applied to accounts maintained by depository
institutions and brokers and dealers for foreign banks. Comments are
requested on the extent to which different types of accounts may be used
to provide financial services directly or indirectly to foreign shell
banks. Comments are requested on the extent to which different types of
accounts may be used to facilitate money laundering, terrorist
financing, or other criminal transactions, including the extent to which
different types of accounts may be used to disguise the nature,
location, source, ownership, or control of the proceeds of unlawful
activity. Treasury also seeks comments on whether particular types of
accounts pose so little vulnerability to criminal transactions as to
merit exclusion from the broad definition of correspondent account,
together with the reasons therefor. Comments also are requested on the
adverse business implications for covered financial institutions, if
any, of adopting a broad definition of correspondent account for
purposes of section 5318(j).

Covered financial institutions may through their foreign branches
establish, maintain, administer, or manage correspondent accounts for
foreign banks. Because these foreign branches legally are part of
covered financial institutions, Treasury considers these correspondent
accounts to be maintained in the United States for purposes of section
5318(j). In addition, Treasury has broad authority under the Act to
establish anti-money laundering standards for U.S. financial
institutions and their foreign branches. S*ee* 31 U.S.C. 5318(h).
Therefore, the proposed rule applies to any correspondent accounts
provided by a foreign branch of a covered financial institution to a
foreign bank. Treasury requests comments on the extent to which such
accounts are in fact established, maintained, administered or managed in
the United States, as well as whether imposing this requirement on
foreign branches of covered financial institutions is commensurate with
the size, location, and activities of such institutions.

3\. What is a foreign bank?

The Act does not define foreign bank. For purposes of the proposed
rule, foreign bank is any organization that (1) is organized under the
laws of a foreign country, (2) engages in the business of banking, (3)
is recognized as a bank by the bank supervisory or monetary authority of
the country of its organization or principal banking operations, (4) and
receives deposits in the regular course of its business. A foreign
bank also includes a branch of a foreign bank located in a territory of
the United States, Puerto Rico, Guam, American Samoa, or the Virgin
Islands. A foreign bank does not include an agency or branch of a
foreign bank located in the United States or an insured bank organized
in a territory of the United States, Puerto Rico, Guam, American Samoa,
or the Virgin Islands. Those entities are covered financial
institutions under the statute. In addition, a foreign central bank or
foreign monetary authority that functions as a central bank is not a
foreign bank. Comments are requested on whether the term foreign
bank should be defined more specifically.

4\. What is a foreign shell bank?

For purposes of section 5318(j), a foreign shell bank is a foreign bank
without a physical presence in any country. S*ee* 31 U.S.C. 5318(j)(1).
Physical presence means a place of business that is maintained by a
foreign bank and is located at a fixed address, other than solely a post
office box or an electronic address, in a country in which the foreign
bank is authorized to conduct banking activities, at which location the
foreign bank: (1) employs one or more individuals on a full-time basis;
(2) maintains operating records related to its banking activities; and
(3) is subject to inspection by the banking authority that licensed the
foreign bank to conduct banking activities. *See* 31 U.S.C.
5318(j)(4)(B).

5\. What is a regulated affiliate?

The limitations on the direct and indirect provision of correspondent
accounts to foreign shell banks do not apply to a foreign shell bank
that is a regulated affiliate. A regulated affiliate is a foreign
shell bank that: (1) is an affiliate of a depository institution, credit
union, or foreign bank that maintains a physical presence in the United
States or a foreign country, as applicable; and (2) is subject to
supervision by a banking authority in the country regulating such
affiliated depository institution, credit union, or foreign bank. An
affiliate is a foreign bank that is controlled by or is under common
control with a depository institution, credit union, or foreign bank.
*See* 31 U.S.C. 5318(j)(3).

6\. What steps must a covered financial institution take to comply with
section 5318(j)?

In order to comply with the limitations on the direct and indirect
provision of correspondent accounts to foreign shell banks, a covered
financial institution must ensure that each foreign bank to which it
provides a correspondent account is not a shell bank, and take
reasonable steps to ensure that correspondent accounts provided to such
foreign banks are not being used to indirectly provide banking services
to foreign shell banks. Although the proposed rule does not prescribe
the manner in which a covered financial institution must satisfy its
obligations under section 5318(j), it does provide a safe harbor if a
covered financial institution uses the model certifications in Appendix
A and Appendix B for these purposes. A covered financial institution
that does not obtain, from a foreign bank or otherwise, the information
necessary to fulfill its obligations under section 5318(j) within the
prescribed time periods must terminate its correspondent account
relationship with the concerned foreign bank.

The Department of the Treasury expects that covered financial
institutions, as required by 31 U.S.C. 5318(j), will immediately
terminate all correspondent accounts with any foreign bank that it knows
to be a shell bank that is not a regulated affiliate, and will terminate
any correspondent account with a foreign bank that it knows is being
used to indirectly provide banking services to a foreign shell bank.
Because some correspondent accounts, at the time of termination, may
contain open securities or futures positions, a covered financial
institution may exercise its commercially reasonable discretion in
liquidating such open positions (including, but not limited to,
following its ordinary practices upon the default of a client). However,
a covered financial institution must take reasonable steps to ensure
that an account that is in the process of being terminated is not
permitted to establish new positions.

*B. Recordkeeping and Termination Requirements for Correspondent
Accounts of Foreign Banks*

Under 31 U.S.C. 5318(k), as added by section 319(b) of the Act, any
covered financial institution that maintains a correspondent account in
the United States for a foreign bank shall maintain records in the
United States identifying: (1) the owner(s) of such foreign bank; and
(2) the name and address of a person (as defined in 31 CFR 103.11(z))
who resides in the United States and is authorized to accept service of
legal process for records regarding the correspondent account.

Section 5318(k) authorizes the Secretary and the Attorney General to
issue a summons or subpoena to any foreign bank that maintains a
correspondent account in the United States and request records related
to such correspondent account, including records maintained outside of
the United States relating to the deposit of funds into the foreign
bank. The summons or subpoena may be served on the foreign bank in the
United States if the foreign bank has a representative in the United
States, or in a foreign country pursuant to any mutual legal assistance
treaty, multilateral agreement, or other request for international law
enforcement assistance.

A covered financial institution must terminate any correspondent
relationship with a foreign bank not later than 10 business days after
receipt of written notice from the Secretary or the Attorney General (in
each case, after consultation with the other) that the foreign bank has
failed either: (1) to comply with the summons or subpoena issued; or (2)
to initiate proceedings in a United States court contesting such summons
or subpoena. *See* 31 U.S.C. 5318(k)(3)(C).

If a covered financial institution fails to terminate the correspondent
relationship upon receiving notice from the Secretary or the Attorney
General, it is subject to a civil penalty of up to \$10,000 per day
until the correspondent relationship is so terminated. A covered
financial institution is not liable to any person in any court or
arbitration proceeding for terminating a correspondent relationship in
accordance with section 5318(k).

1\. What is a covered financial institution?

There is no statutory definition of covered financial institution for
purposes of section 5318(k). For the following reasons, Treasury
believes that covered financial institution in section 5318(k) should
be read to have the same meaning as the identical term in section
5318(j), which includes brokers and dealers.

Both sections 5318(j) and (k) deal with anti-money laundering efforts
related to correspondent relationships between U.S. financial
institutions and foreign banks. Congress expressly included brokers and
dealers in the category of covered financial institutions under
section 5318(j) and required Treasury to identify the types of accounts
that brokers and dealers maintain for foreign banks that are similar to
correspondent accounts. In addition, Congress provided that the same
definition of correspondent account applies in both sections 5318(j)
and (k).

Excluding brokers and dealers from the category of covered financial
institutions subject to the recordkeeping requirements and account
termination safeguards under section 5318(k) would be inconsistent with
the statutory scheme and would not reflect a comprehensive approach to
implementing the Acts anti-money laundering requirements. In addition,
Treasury has broad authority under the Act to establish anti-money
laundering standards for securities brokers and dealers. *See* 31 U.S.C.
5318(h). Consequently, under the proposed rule, brokers and dealers are
covered financial institutions subject to section 5318(k).

2\. What accounts are covered?

Section 5318(k) applies to correspondent accounts, which has the same
meaning as in section 5318(j), *i.e.,* an account established to receive
deposits from, make payments on behalf of a foreign financial
institution, or handle other financial transactions related to such
institution. In light of the Acts use of the same definition of
correspondent account in both sections 5318(j) and (k), Treasury
believes that both sections should be read as coextensive in the types
of accounts to which they apply.

3\. Who is an owner of a foreign bank?

Section 5318(k) does not define owner for purposes of the requirement
that a covered financial institution maintain records of the owners of
foreign banks to which it provides correspondent accounts. Treasury is
proposing to define an owner as any person who is a large direct
owner, an indirect owner, and a reportable small direct owner. The
proposed definition of each of these terms is discussed below. For
purposes of these definitions, person means any individual, bank,
corporation, partnership, limited liability company, or any other legal
entity, except that members of the same family[^3] shall be considered
one person, and each family member who has an ownership interest in the
foreign bank must be identified. Voting shares or other voting
interests means shares or other interests that entitle the holder to
vote for or select directors (or individuals exercising similar
functions).

The definition of owner applies only with respect to the provisions of
section 5318(k), which are designed to facilitate the service of legal
process. No inference may be drawn as to the applicability of this
definition to other provisions of the Act, including the enhanced due
diligence requirements of 31 U.S.C. 5318(i) (as added by section 312 of
the Act), which sets forth different standards for reporting ownership
information.

Foreign banks that maintain U.S. branches or agencies are required by
the Federal Reserve to file an Annual Report (FR Y-7), which lists the
foreign banks agent for service of process in the U.S. and information
on the ownership of the foreign bank. The current FR Y-7 generally
requires the reporting of persons who own, directly or indirectly, 5
percent or more of any class of the voting shares of a foreign bank. A
U.S. branch or agency of a foreign bank or other covered financial
institution may use the relevant portions of a current FR Y-7 filed by
the foreign bank to meet its recordkeeping obligations under section
5318(k) with respect to a correspondent account the U.S. branch or
agency or other covered financial institution maintains for the foreign
bank.

The definition of owner in the proposed rule is intended to minimize
reporting burdens by focusing on those persons who are likely to have
the ability to exert influence over the operations of a foreign bank.
The proposed definition necessarily reflects the complexity of ownership
relationships, including those that can be used or structured to obscure
controlling or influential owners of a foreign bank. The Department
recognizes that the reporting regime of FR Y-7 is significantly simpler
that the proposed definition, but believes that it would be more
burdensome for foreign banks. Comments are specifically requested
concerning whether the Treasury should use the ownership criteria of FR
Y-7 in lieu of the definition of owner in the proposed rule.

a\. Who is a small direct owner of a foreign bank?

A small direct owner of a foreign bank is a person who owns, controls,
or has power to vote less than 25 percent of the voting shares or other
voting interests of the foreign bank. The identity of a small direct
owner is not subject to reporting unless such person is a reportable
small direct owner.

A reportable small direct owner is: (1) each of two or more small
direct owners that in the aggregate own 25 percent or more of any class
of the voting shares or other voting interests of the foreign bank and
are majority-owned by the same person, or by a chain of majority-owned
persons; or (2) each of any one or more small direct owners that are
majority-owned by another small direct owner and in the aggregate all
such small direct owners own 25 percent or more of the voting shares or
other voting interests of the foreign bank. In determining who is a
reportable small direct owner, a small direct owner that owns or
controls less than 5 percent of the voting shares or other voting
interests of the foreign bank need not be taken into account.

b\. Who is a large direct owner of a foreign bank?

A large direct owner of a foreign bank is a person who: (1) owns,
controls, or has power to vote 25 percent or more of any class of voting
shares or other voting interests of the foreign bank; or (2) controls in
any manner the election of a majority of the directors (or individuals
exercising similar functions) of the foreign bank. A covered financial
institution must obtain the identity of each large direct owner of a
foreign bank.

c\. Who is an indirect owner of a foreign bank?

An indirect owner is any person in the ownership chain of any large
direct owner or a reportable small direct owner who is not
majority-owned by another person. In determining who is an indirect
owner, a small direct owner that owns or controls less than 5 percent
of the voting shares or other voting interests of the foreign bank need
not be taken into account. A covered financial institution must obtain
the identity of each indirect owner of a foreign bank.

For example, if any two or more small direct owners of a foreign bank
(1) in the aggregate own, control, or have power to vote 25 percent or
more of any class of voting securities or other voting interests of the
foreign bank, and (2) are majority-owned by the same person, or by the
same chain of majority-owned persons, the indirect owner is any person
in the ownership chain of those small direct owners who is not
majority-owned by another person.

Similarly, if one or more small direct owners of a foreign bank is
majority-owned by another small direct owner and in the aggregate all
such small direct owners own, control, or have power to vote 25 percent
or more of any class of voting shares or other voting interests of the
foreign bank, the indirect owner is (1) the small direct owner that is
the majority-owner of the other small direct owner(s), *or* (2) any
person in the ownership chain of the small direct owner that is the
majority-owner of the other small direct owner(s) that is not
majority-owned by another person.

*Examples of reportable owners.*

[Example 1]{.underline}. FB-1 is a foreign bank. Voting securities of
FB-1 are owned by Person C (15 percent), Person D (35 percent), Person E
(10 percent), Person F (20 percent), and Person G (20 percent).

Persons C and G are both majority-owned by Person X, which is
majority-owned by Person Y, which is majority-owned by Person Z, which
is not majority-owned by another person.

Person D is majority-owned by Person V, which is majority-owned by
Person W, which is not majority-owned by another person.

Persons E and F are not owned by another person.

Persons C, E, F, and G are small direct owners because each owns less
than 25 percent of the voting securities of FB-1. The identities of
Persons C and G are reportable small direct owners because: (1) in the
aggregate they own more than 25 percent of the voting securities of
FB-1; and (2) they are majority-owned by the same indirect owner Z. The
identities of Persons E and F are not subject to reporting.

Person D is a large direct owner because it owns 25 percent or more of
the voting securities of FB-1. The identity of Person D is subject to
reporting.

Person W is an indirect owner because it is a majority-owner of Person
V, which is a majority-owner of Person D. The identity of Person W is
subject to reporting. The identity of Person V is not subject to
reporting.

Person Z is an indirect owner because it is a majority-owner of Person
Y, which is a majority-owner of Person X, which is a majority-owner of
Persons C and G, which are small direct owners that in the aggregate own
25 percent or more of the voting securities of FB-1. The identity of
Person Z is subject to reporting. The identities of Persons Y and X are
not subject to reporting.

[Example 2]{.underline}. FB-2 is a foreign bank. Voting securities of
FB-2 are owned by Person K (20 percent) and Person L (10 percent).
Person K is majority-owned by Person L. Person L is not majority-owned
by another person. Persons K and L are small direct owners. However,
Person L is also an indirect owner subject to reporting because: (1)
Person L is a majority-owner of Person K; and (2) in the aggregate
Persons K and L own more than 25 percent of the voting securities of
FB-2. Person K is a reportable small direct owner for the same reason.

[Example 3]{.underline}. Same facts as in Example 2, except that Person
L is majority-owned by Person M, who is majority-owned by Person N, who
is not majority-owned by another person. In this example, Person N is an
indirect owner subject to reporting because Person N is the person in
the ownership chain of small direct owner Person L and is not
majority-owned by another person. Persons K and L are reportable small
direct owners. The identity of Person M is not subject to reporting.

[Example 4]{.underline}. FB-3 is a foreign bank. 30 percent of the
voting securities of FB-2 are owned by 6 members of the same family (as
defined in the proposed rule) in amounts ranging from 2 percent to 10
percent. The 6 family members are considered to be one person who is a
large direct owner of the bank. The identity of each of the 6 family
members is subject to reporting. Other family members who do not own
voting securities in FB-3 are not subject to reporting.

4\. What steps must a covered financial institution take to comply with
section 5318(k)(3)(B)(i)?

Although the proposed rule does not prescribe the manner in which a
covered financial institution must obtain information concerning the
identity of owners of foreign banks and their agents in the U.S.
authorized to receive service of legal process, it does provide a safe
harbor if a covered financial institution uses the model certifications
in Appendix A and Appendix B for these purposes. A covered financial
institution that does not obtain, from a foreign bank or otherwise, the
information necessary to fulfill its obligations under section
5318(k)(3)(B)(i) must terminate its correspondent account relationship
with the concerned foreign bank.

**III. Submission of Comments**

All comments will be available for public inspection and copying, and no
material in any comments, including the name of any person submitting
comments, will be recognized as confidential. Material not intended to
be disclosed to the public should not be submitted.

**IV. Regulatory Flexibility Act**

It is hereby certified that this proposed rule is not likely to have a
significant economic impact on a substantial number of small entities.
Covered financial institutions that are subject to the recordkeeping
requirements in the statute and the proposed rule tend to be large
institutions. Moreover, any economic consequences that might result from
the prohibition on dealings with foreign shell banks, or from the
failure of a foreign bank to provide the information necessary for a
covered financial institution to fulfill its recordkeeping obligations,
flow directly from the underlying statute. Accordingly, the analysis
provisions of the Regulatory Flexibility Act (5 U.S.C. 601 *et seq.*) do
not apply.

## V. Executive Order 12866

## 

This proposed rule is not a significant regulatory action as defined
in Executive Order 12866. Accordingly, a regulatory assessment is not
required.

## VI. Paperwork Reduction Act

## 

The collec­tions of infor­mation contained in Appendix A to proposed 31
CFR Part 104 rulemaking have been previously reviewed and approved by
the Office of Management and Budget (OMB) in accordance with the
requirements of the Paperwork Reduction Act (44 U.S.C. 3501 *et seq*.),
and assigned OMB Control Number 1505-0184.

The collection of information contained in Appendix B to proposed 31 CFR
Part 104 and the recordkeeping requirement in proposed 31 CFR 104.40(e)
have been submitted to OMB for review in accordance with the
requirements of the Paperwork Reduction Act. An agency may not conduct
or sponsor, and a person is not required to respond to, a collection of
information unless it displays a currently valid OMB control number.

Comments concerning the collection of information should be directed to
OMB, Attention: Desk Officer for the Department of the Treasury, Office
of Information and Regulatory Affairs, New Executive Office Building,
Washington, DC 20503, and to the Department of the Treasury at the
address previously specified in the ADDRESS portion of this preamble.
Any such comments should be submitted not later than \[INSERT 60 DAYS
AFTER THE DATE OF PUBLICATION IN THE FEDERAL REGISTER\].

Comments are specifically requested concerning:

Whether the collection of information is necessary for the proper
performance of the functions of the Department of the Treasury,
including whether the information will have practical utility;

The accuracy of the estimated burden associated with the collection of
information (see below), which was developed in part on the basis of
discussions with industry representatives. The Department is
particularly interested in comments concerning the number of covered
financial institutions and the number of foreign banks for which
correspondent accounts are maintained.

How to enhance the quality, utility, and clarity of the information to
be collected;

How to minimize the burden of complying with the collection of
information, including the application of automated collection
techniques or other forms of information technology; and

Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.

This information will enable financial institutions to comply with the
requirements of sections 31 U.S.C. 5318(j) and (k), and will be used by
Federal agencies to verify compliance by covered financial institutions
with these provisions. The respondents are foreign banks that establish
or maintain correspondent accounts with U.S. financial institutions. The
reporting of this information by foreign banking institutions is
voluntary; however failure to provide the information may preclude the
establishment or the continuation of correspondent accounts with U.S.
financial institutions. The recordkeepers are covered financial
institutions. The recordkeeping requirement concerning owners and agents
of foreign banks is required by statute.

Estimated total annual reporting burden for Appendix B: 45,000 hours.

Estimated number of respondents (foreign banks): 9,000.

Estimated average annual reporting burden per respondent: 5 hours

Estimated frequency of responses: Once every 2 years.

Estimated total annual recordkeeping burden: 18,000 hours.

Estimated number of recordkeepers (covered financial institutions):
2000.

Estimated average annual recordkeeping burden per recordkeeper: 9 hours

## List of Subjects in 31 CFR Part 104

## 

> Banks, banking; brokers; counter money laundering; counter-terrorism;
> currency; foreign banking; reporting and recordkeeping requirements.

DATED: December 19, 2001

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

David D. Aufhauser

General Counsel

## Authority and Issuance

## 

For the reasons set forth in the preamble, the Treasury is amending 31
CFR subtitle B, chapter I by adding part 104 to read as follows:

## PART 104COUNTER MONEY LAUNDERING REQUIREMENTS

## 

## Subpart A\--Definitions

## 

Sec.

104.10 Definitions.

## Subpart BAnti Money Laundering Programs \[Reserved\]

## 

## Subpart C\--Special Due Diligence for Correspondent Accounts

## 

##  and Private Banking Accounts

## 

## 

## 

104.40 Records concerning owners of foreign banks and agents designated
to receive service of legal process; prohibition on correspondent
accounts for foreign shell banks.

104.50 \[Reserved\]

## Subpart D\--Law Enforcement Access to Foreign Bank Records

## 

104.60 Summons or subpoena of foreign bank records.

104.70 Termination of correspondent relationship.

**Subpart ECooperative Efforts to Deter Money Laundering \[Reserved\]**

**Appendix A to Part 104  Certification Regarding Correspondent
Accounts**

**Appendix B to Part 104  Recertification Regarding Correspondent
Accounts**

**Authority:** 31 U.S.C. 5318, 5318A; title III, secs 311, 313, 319,
352, Pub. L. 107-56, 115 Stat. 298, 306, 311, 322.

**Subpart ADefinitions**

** 104.10 Definitions.**

For purposes of Subparts C and D:

\(a\) *[Attorney General]{.underline}* means the Attorney General of the
United States.

\(b\) *[Correspondent account]{.underline}* means an account established
to receive deposits from, make payments on behalf of a foreign bank, or
handle other financial transactions related to such bank.

\(c\) *[Covered financial institution]{.underline}* means:

\(1\) An insured bank (as defined in section 3(h) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(h)) and any foreign branch of an insured
bank;

\(2\) A commercial bank or trust company;

\(3\) A private banker;

\(4\) An agency or branch of a foreign bank in the United States;

\(5\) A credit union;

\(6\) A thrift institution;

\(7\) A corporation organized under section 25A of the Federal Reserve
Act (12 U.S.C. 611 *et seq.*); and

\(8\) A broker or dealer registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934 (15 U.S.C. 78a *et
seq*.).

\(d\) *[Foreign bank]{.underline}*. (1) The term *[foreign
bank]{.underline}* means any organization that:

\(i\) is organized under the laws of a foreign country;

\(ii\) engages in the business of banking;

\(iii\) is recognized as a bank by the bank supervisory or monetary
authority of the country of its organization or principal banking
operations; and

\(iv\) receives deposits in the regular course of its business.

\(2\) For purposes of this definition:

\(i\) The term *[foreign bank]{.underline}* includes a branch of a
foreign bank in a territory of the United States, Puerto Rico, Guam,
American Samoa, or the Virgin Islands.

\(ii\) The term *[foreign bank]{.underline}* does not include:

\(A\) A U.S. agency or branch of a foreign bank;

\(B\) An insured bank organized under the laws of a territory of the
United States, Puerto Rico, Guam, American Samoa, or the Virgin Islands;

\(C\) A foreign central bank or foreign monetary authority that
functions as a central bank; and

\(D\) the African Development Bank, Asian Development Bank, Bank for
International Settlements, European Bank for Reconstruction and
Development, Inter-American Development Bank, International Bank for
Reconstruction and Development (the World Bank), International Finance
Corporation, International Monetary Fund, North American Development
Bank, African Development Bank, International Development Association,
Multilateral Investment Guarantee Agency, and similar international
financial institutions of which the United States is a member or as
otherwise designated by the Secretary.

\(e\) *[Foreign shell bank]{.underline}* means a foreign bank without a
physical presence in any country.

\(f\) *[Majority-owned]{.underline}* means a person who is owned 50
percent or more by another person.

\(g\) *[Owner]{.underline}* means any large direct owner, indirect
owner, and reportable small direct owner. For purposes of this
definition:

\(1\) *[Large direct owner]{.underline}* means a person who:

\(i\) Owns, controls, or has power to vote 25 percent or more of any
class of voting shares or other voting interests of the foreign bank; or

\(ii\) Controls in any manner the election of a majority of the
directors (or individuals exercising similar functions) of the foreign
bank.

\(2\) *[Small direct owner]{.underline}* means a person who owns,
controls, or has power to vote less than 25 percent of any class of
voting shares or other voting interests of the foreign bank.

\(3\) *[Reportable small direct owner]{.underline}*. (i) Subject to
paragraph (g)(3)(ii) of this section, the term *[reportable small direct
owner]{.underline}* means:

\(A\) Each of two or more small direct owners who in the aggregate own
25 percent or more of any class of voting shares or other voting
interests of the foreign bank and are majority-owned by the same person,
or by the same chain of majority-owned persons; and

\(B\) Each of one or more small direct owners who are majority-owned by
another small direct owner and in the aggregate all such small direct
owners own 25 percent or more of any class of voting shares or other
voting interests of the foreign bank.

\(ii\) In determining who is a reportable small direct owner for
purposes of paragraph

(g)(3)(i) of this section, a small direct owner who owns or controls
less than 5 percent of the voting shares or other voting interests of
the foreign bank need not be taken into account.

\(4\) *[Indirect owner]{.underline}*. (i) The term *[indirect
owner]{.underline}* means:

\(A\) Any person in the ownership chain of any large direct owner who is
not majority-owned by another person.

\(B\) Any person, including a small direct owner who is a majority-owner
as described in paragraph (g)(3)(i)(B) of this section, in the ownership
chain of any reportable small direct owner who is not majority-owned by
another person.

\(iii\) A person who is a reportable small direct owner as defined in
paragraph (g)(3) of this section need not also be reported as an
indirect owner under this paragraph (g)(4).

\(5\) *[Person]{.underline}* means any individual, bank, corporation,
partnership, limited liability company, or any other legal entity. For
purposes of this definition:

\(i\) Members of the same family shall be considered to be one person.

\(ii\) The term *[same family]{.underline}* means parents, spouses,
children, siblings, uncles, aunts, grandparents, grandchildren, first
cousins, second cousins, stepchildren, stepsiblings, parents-in-law and
spouses of any of the foregoing.

\(iii\) Each member of the same family who has an ownership interest in
a foreign bank must be identified if the family is an owner because of
the aggregate ownership interests of the members of the family. In
determining the ownership interests of the same family, any voting
interest of any family member shall be taken into account.

\(6\) *[Voting shares or other voting interests]{.underline}* means
shares or other interests that entitle the holder to vote for or select
directors (or individuals exercising similar functions).

\(h\) *[Person]{.underline}*. Except with respect to paragraph (g) of
this section, the term *[person]{.underline}* shall have the same
meaning as provided in section 103.11(z).

\(i\) *[Physical presence]{.underline}* means a place of business that:

\(1\) Is maintained by a foreign bank;

\(2\) Is located at a fixed address (other than solely an electronic
address or a post-office box) in a country in which the foreign bank is
authorized to conduct banking activities, at which location the foreign
bank:

\(i\) Employs 1 or more individuals on a full-time basis; and

\(ii\) Maintains operating records related to its banking activities;
and

\(3\) Is subject to inspection by the banking authority that licensed
the foreign bank to conduct banking activities.

\(j\) *[Regulated affiliate]{.underline}*. (1) The term *[regulated
affiliate]{.underline}* means a foreign shell bank that:

\(i\) Is an affiliate of a depository institution, credit union, or
foreign bank that maintains a physical presence in the United States or
a foreign country, as applicable; and

\(ii\) Is subject to supervision by a banking authority in the country
regulating such affiliated depository institution, credit union, or
foreign bank.

\(2\) For purposes of this definition:

\(i\) *[Affiliat]{.underline}e* means any company that controls, is
controlled by, or is under common control with another company.

\(ii\) *[Control]{.underline}* means:

\(A\) Ownership, control, or power to vote 25 percent or more of any
class of voting shares

or other voting interests of another company; or

\(B\) Control in any manner the election of a majority of the directors
(or individuals

exercising similar functions) of another company.

\(k\) *[Secretary]{.underline}* means the Secretary of the Treasury.

## Subpart BAnti Money Laundering Programs \[Reserved\]

## 

## Subpart C\--Special Due Diligence for Correspondent Accounts

## 

##  and Private Banking Accounts

## 

** 104.40 Records concerning owners of foreign banks and agents
designated to receive service of legal process; prohibition on
correspondent accounts for foreign shell banks.**

\(a\) *[Requirements for covered financial institutions]{.underline}.*
(1) *[Records of owners and agents]{.underline}*. A covered financial
institution that maintains a correspondent account in the United States
for a foreign bank shall maintain records in the United States
identifying the owners of each such foreign bank and the name and
address of a person who resides in the United States and is authorized,
and has agreed to be an agent to accept service of legal process for
records regarding each such account. For purposes of this section, any
correspondent account maintained by a foreign branch of a covered
financial institution for a foreign bank shall be deemed to be
maintained in the United States.

\(2\) *[Prohibition on correspondent accounts for foreign shell
banks]{.underline}*. (i) A covered financial institution shall not
establish, maintain, administer, or manage a correspondent account in
the United States for, or on behalf of, a foreign shell bank.

\(ii\) A covered financial institution shall take reasonable steps to
ensure that any correspondent account established, maintained,
administered, or managed by that covered financial institution in the
United States for a foreign bank is not being used by that foreign bank
to indirectly provide banking services to a foreign shell bank.

\(iii\) Nothing in this paragraph (a)(2) prohibits a covered financial
institution from providing a correspondent account or banking services
to a regulated affiliate.

\(iv\) For purposes of this paragraph (a)(2), any correspondent account
established, maintained, administered, or managed by a foreign branch of
a covered financial institution shall be deemed to be established,
maintained, administered, or managed in the United States.

\(b\) *[Safe harbor]{.underline}.* Subject to paragraph (d) of this
section, a covered financial institution will be deemed to be in
compliance with the requirements of paragraph (a) of this section with
respect to a foreign bank if the covered financial institution obtains
from the foreign bank the certification described in Appendix A to this
part (including all annexes thereto).

\(c\) *[Verification requirements]{.underline}*. (1) *[Biennial
verification]{.underline}*. At least once every 2 years, a covered
financial institution shall verify the information previously provided
by each foreign bank for which it maintains a correspondent account, or
otherwise relied upon by the covered financial institution for purposes
of this section.

\(2\) *[Interim verification]{.underline}*. If at any time a covered
financial institution has reason to believe that any information
provided by a foreign bank or otherwise relied upon by the covered
financial institution for purposes of this section is no longer correct,
the covered financial institution shall request that the foreign bank
verify such information.

\(3\) *[Safe harbor]{.underline}.* Subject to paragraph (d) of this
section, a covered financial institution will be deemed to continue to
be in compliance with the requirements of this paragraph (c) and
paragraph (a) of this section if the covered financial institution
obtains from the foreign bank:

\(i\) A revised Appendix A certification (including all annexes
thereto); or

\(ii\) The recertification described in Appendix B to this part.

\(d\) *[Closure of correspondent accounts]{.underline}*. (1) *[Accounts
existing on \[the date that is 30 days after the date of publication of
the final rule in the Federal Register\]]{.underline}*. In the case of a
foreign bank with respect to which a covered financial institution
maintains a correspondent account that was in existence on \[the date
that is 30 days after the date of publication of the final rule in the
Federal Register\], the covered financial institution shall close all
correspondent accounts with such foreign bank not later than \[the date
that is 90 days after the date of publication of the final rule in the
Federal Register\] if the covered financial institution has not
obtained, from the foreign bank or otherwise, the information described
in Appendix A to this part (including all annexes thereto).

\(2\) *[Accounts established after \[the date that is 30 days after the
date of publication of the final rule in the Federal
Register\]]{.underline}*. In the case of a foreign bank with respect to
which a covered financial institution establishes a correspondent
account after \[the date that is 30 days after the date of publication
of the final rule in the Federal Register\], the covered financial
institution shall close such account if the covered financial
institution has not obtained, from the foreign bank or otherwise, the
information described in Appendix A to this part (including all annexes
thereto), or the information described in Appendix B to this part, not
later than the date that is:

\(i\) In the case of an account established before January 1, 2003, 60
calendar days after the date the account is established; or

\(ii\) In the case of an account established after December 31, 2002, 30
calendar days after the date the account is established.

\(3\) *[Verification of previously provided information]{.underline}*.
In the case of a foreign bank from which a covered financial institution
requests a verification of information or with respect to which the
covered financial institution otherwise undertakes to verify information
pursuant to paragraph (c)(1) or (2) of this section, the covered
financial institution shall close all correspondent accounts with such
foreign bank if the covered financial institution has not obtained, from
the foreign bank or otherwise, the information described in Appendix A
to this part (including all annexes thereto) or the information
described in Appendix B to this part, not later than the date that is:

\(i\) In the case of a verification initiated before January 1, 2003, 90
calendar days after the date of the request or otherwise undertaking the
verification; or

\(ii\) In the case of a verification initiated after December 31, 2002,
60 calendar days after the date of the request or otherwise undertaking
the verification.

\(4\) *[Reestablishment of closed accounts and establishment of new
accounts]{.underline}*. A covered financial institution shall not
reestablish any account closed pursuant to this paragraph, and shall not
establish any other correspondent account with the concerned foreign
bank, until it obtains, from the foreign bank or otherwise, the
information described in Appendix A to this part (including all annexes
thereto) or the information described in Appendix B to this part, as
appropriate.

\(5\) *[Limitation on liability]{.underline}*. A covered financial
institution shall not be liable to any person in any court or
arbitration proceeding for terminating a correspondent relationship in
accordance with this paragraph (d).

\(e\) [Recordkeeping requirement]{.underline}. A covered financial
institution shall retain the original of any document provided by a
foreign bank, and the original or a copy of any document otherwise
relied upon by the covered financial institution, for purposes of this
section, for at least 5 years after the date that the covered financial
institution no longer maintains any account for such foreign bank. A
covered financial institution shall retain such records with respect to
any foreign bank for such longer period as the Secretary may direct.

\(f\) *[Special rules concerning information requested prior to (the
date that is 30 days after the date of publication of the final rule in
the Federal Register)]{.underline}*. (1) *[Definition]{.underline}*. For
purposes of this paragraph (f) the term Interim Guidance means:

\(i\) the Interim Guidance of the Department of the Treasury dated
November 20, 2001[^4] and published in the *Federal Register* on
November 27, 2001; or

\(ii\) the provisions of this part as published in the *Federal
Register* on \[INSERT DATE OF PUBLICATION OF THIS NOTICE OF PROPOSED
RULEMAKING\].

\(2\) *[Safe harbors]{.underline}*. (i) For purposes of paragraph (b) of
this section, a covered financial institution that requested a foreign
bank to provide the information described in the Interim Guidance prior
to \[the date that is 30 days after the date of publication of the final
rule in the Federal Register\] will be deemed to be in compliance with
the requirements of paragraph (a) of this section with respect to such
foreign bank if the foreign bank provides such information to the
covered financial institution on or before \[the date that is 90 days
after the date of publication of the final rule in the Federal
Register\].

\(ii\) Nothing in this section shall be construed to cause any
information obtained pursuant to the Interim Guidance to be considered
incorrect for purposes of paragraph (c)(2) of this section if such
information was obtained pursuant to a request to a foreign bank made
prior to \[the date that is 30 days after the date of publication of the
final rule in the Federal Register\] and received on or before \[the
date that is 90 days after the date of publication of the final rule\].

\(iii\) For purposes of paragraph (d)(1) of this section, the reference
in paragraph (d)(1) of this section to the information described in
Appendix A to this (including all annexes thereto) shall be deemed to
refer to such information as described in the Interim Guidance if such
information was obtained pursuant to a request to a foreign bank made
prior to \[the date that is 30 days after the date of publication of the
final rule in the Federal Register\] and received on or before \[the
date that is 90 days after the date of publication of the final rule\].

\(3\) *[Verification of information]{.underline}*. For purposes of
paragraph (c)(1) of this section, information obtained pursuant to a
request to a foreign bank made prior to \[the date that is 30 days after
the date of publication of the final rule in the Federal Register\] and
received on or before \[the date that is 90 days after the date of
publication of the final rule\] shall be verified in accordance with the
definitions and requirements of this section.

\(4\) *[Recordkeeping requirement]{.underline}*. Paragraph (e) of this
section shall apply to any document provided by a foreign bank, or
otherwise relied upon by a covered financial institution, for purposes
of the Interim Guidance.

** 104.50 \[Reserved\]**

**Subpart D\--Law Enforcement Access to Foreign Bank Records**

** 104.60 Summons or subpoena of foreign bank records.**

\(a\) *[Issuance to foreign banks]{.underline}*. The Secretary or the
Attorney General may issue a summons or subpoena to any foreign bank
that maintains a correspondent account in the United States and request
records related to such correspondent account, including records
maintained outside of the United States relating to the deposit of funds
into the foreign bank. The summons or subpoena may be served on the
foreign bank in the United States if the foreign bank has a
representative in the United States, or in a foreign country pursuant to
any mutual legal assistance treaty, multilateral agreement, or other
request for international law enforcement assistance.

\(b\) *[Issuance to covered financial institutions]{.underline}*. Upon
receipt of a written request from a Federal law enforcement officer for
information required to be maintained by a covered financial institution
under  104.40, the covered financial institution shall provide the
information to the requesting officer not later than 7 days after
receipt of the request.

** 104.70 Termination of correspondent relationship.**

\(a\) *[Termination upon receipt of notice]{.underline}.* A covered
financial institution shall terminate any correspondent relationship
with a foreign bank not later than 10 business days after receipt of
written notice from the Secretary or the Attorney General (in each case,
after consultation with the other) that the foreign bank has failed:

\(1\) To comply with a summons or subpoena issued under  104.60(a); or

\(2\) To initiate proceedings in a United States court contesting such
summons or subpoena.

\(b\) *[Limitation on liability]{.underline}*. A covered financial
institution shall not be liable to any person in any court or
arbitration proceeding for terminating a correspondent relationship in
accordance with paragraph (a) of this section.

\(c\) *[Failure to terminate relationship]{.underline}.* Failure to
terminate a correspondent relationship in accordance with this section
shall render the covered financial institution liable for a civil
penalty of up to \$10,000 per day until the correspondent relationship
is so terminated.

**Subpart ECooperative Efforts to Deter Money Laundering \[Reserved\]**

## APPENDIX A -- CERTIFICATION REGARDING CORRESPONDENT ACCOUNTS

**CERTIFICATION FOR PURPOSES OF SECTIONS 5318(j) AND 5318(k)**

**OF TITLE 31, UNITED STATES CODE**

\[OMB Control Number 1505-0184\]

***The information contained in this Certification is sought pursuant to
Sections 5318(j) and 5318(k) of Title 31 of the United States Code, as
added by sections 313 and 319(b) of the USA PATRIOT Act of 2001 (Public
Law 107-56).***

The undersigned financial institution,

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
(a "Foreign bank" as defined in 31 CFR 104.10(d)), has established one
or more accounts with \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
(a "Covered Financial Institution") to receive deposits from, make
payments on behalf of, or handle other financial transactions related to
Foreign Bank (the "correspondent accounts"). Foreign Bank hereby
certifies, by an individual authorized to make such certification, as
follows:

> 1\. Foreign Bank (check appropriate box and complete Annex I):

(a) Maintains a place of business that (i) is located at a fixed address
    (other than solely an electronic address or a post office box) in a
    country in which Foreign Bank is authorized by such country to
    conduct banking activities, at which location Foreign Bank employs
    one or more individuals on a full-time basis and maintains operating
    records related to its banking activities; and (ii) is subject to
    inspection by the banking authority that licensed Foreign Bank to
    conduct banking activities (hereinafter referred to as a **"physical
    presence"**); ![](media/image1.wmf){width="0.25972222222222224in"
    height="0.25972222222222224in"}

(b) Does not have a **physical presence** in any country, but the
    Foreign Bank (i) is an affiliate of a U.S. depository institution,
    U.S. credit union, or a Foreign bank that maintains a **physical
    presence** in a country; and (ii) is also subject to supervision by
    the same banking authority in the country that regulates such
    affiliated depository institution, credit union, or foreign bank
    (the Foreign Bank is thus a **"regulated affiliate"**);
    or![](media/image2.wmf){width="0.25972222222222224in"
    height="0.25972222222222224in"}

> ![](media/image1.wmf){width="0.25972222222222224in"
> height="0.25972222222222224in"}
>
> \(c\) Does not have a **physical presence** in a country and is not a
> **regulated affiliate**.

2\. Foreign Bank does not use any correspondent account with the Covered
Financial

> Institution to indirectly provide banking services to any foreign bank
> that does not
>
> have a **physical presence** in any country, and that is not a
> **regulated affiliate**.
>
> 3\. Foreign Bank has no **owner(s)** (as defined below) except as set
> forth in Annex II. For
>
> purposes of this Certification, an **owner** means any **large direct
> owner**, any **indirect**
>
> **owner**, and any **reportable small direct owner** as these terms
> are defined 31 CFR
>
> 104.10(g). Generally:
>
> A **large direct owner** is a **person** who: (1) owns, controls, or
> has power to vote 25 percent or more of any class of voting shares or
> other voting interests of the foreign bank; or (2) controls in any
> manner the election of a majority of the directors (or individuals
> exercising similar functions) of the foreign bank.
>
> A **small direct owner** is a **person** who owns, controls, or has
> power to vote less than 25 percent of any class of voting shares or
> other voting interests of the foreign bank. A small direct owner need
> not be reported on Annex II unless it is a reportable small direct
> owner.
>
> A **reportable small direct owner** means: (1) each of two or more
> small direct owners who in the aggregate own 25 percent or more of any
> class of voting shares or other voting interests of the foreign bank
> and are majority-owned by the same indirect owner; or
>
> \(2\) each of any one or more small direct owners who are
> majority-owned by another small direct owner and in the aggregate all
> such small direct owners own 25 percent or more of any class of voting
> shares or other voting interests of the foreign bank. In determining
> who is a reportable small direct owner, a small direct owner that owns
> or controls less than 5 percent of the voting shares or other voting
> interests of the foreign bank need not be taken into account.
>
> An **indirect owner** means: Any person in the ownership chain of any
> large direct owner or reportable small direct owner who is not
> majority-owned by another person.
>
> For purposes of this Certification, (i) **"person"** means any
> individual, bank, corporation, partnership, limited liability company
> or any other legal entity; (ii) **voting securities or other voting
> interests** means securities or other interests that entitle the
> holder to vote for or select directors (or individuals exercising
> similar functions); and (iii) members of the same family[^5] shall be
> considered one **person**.

4.  The individual or entity ("Agent") identified in Annex III, resident
    in the United

> States at the address (not a post office box) set forth in Annex III,
> is authorized to
>
> accept service of legal process from the Secretary of the Treasury or
> the Attorney
>
> General of the United States pursuant to Section 5318(k) of title 31,
> United States
>
> Code.

5.  Foreign Bank shall notify in writing within 30 calendar days each
    financial institution

> in the United States at which it maintains a correspondent account of
> any change in
>
> facts or circumstances as reported in this Certification and the
> Annexes hereto.

6.  Foreign Bank understands that each financial institution in the
    United States at which it maintains a correspondent account may
    provide a copy of this Certification to the Secretary of the
    Treasury and the Attorney General of the United States.

> I, ­­­­­­­­­­­\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
> (name), certify that I have read and understand this Certification and
> the Annexes hereto and that the statements made in this Certification
> and the Annexes hereto are true and correct.
>
> This Certification is made on behalf of
> \_\_\_­­­­\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
> (name of Foreign Bank), a banking institution organized under the laws
> of
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
> (specify country).
>
> I understand that the statements contained in this Certification and
> the Annexes hereto may be transmitted to one or more departments or
> agencies of the United States of America for purpose of fulfilling
> such departments and agencies governmental functions.
>
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
>
> \[Signature\]
>
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
>
> \[Title\]
>
> Executed on this \_\_\_\_\_\_\_ day of \_\_\_\_\_\_\_\_\_\_, 200\_\_.
>
> **Received, reviewed and accepted by:**
>
> Name: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
>
> Title:
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
>
> For:
>
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
>
> \[Name of Covered Financial Institution\]
>
> ­­­­­­­­­­\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
>
> Date
>
> Annex I
>
> **1. To be completed if Foreign** **Bank checked paragraph 1(a) of
> the**
>
> **Certification:**

(A) Foreign Bank maintains a place of business at

> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
>
> \[Street Address\]
>
> in
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ .
>
> \[Country\]

\(B\) The banking authority that has the right to inspect the place of
business

> referred to in (A) is
>
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
> .
>
> \[Name of Banking Authority\]

**2. To be completed if Foreign Bank checked paragraph 1(b) of the**

**Certification:**

(A) Foreign Bank's affiliate that is regulated is

> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
> which maintains a **physical presence** at
>
> \[Name of Affiliate\]
>
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
>
> \[Street Address\]
>
> in
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
> .
>
> \[Country\]
>
> \(B\) The banking authority that supervises both the Foreign Bank and
> its affiliate is
>
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
> .
>
> \[Name of Banking Authority\]
>
> Annex II

Name and Address

[of Owner(s)]{.underline}

+----------------------------------+-----------------------------------+
| **[Name]{.underline}**           | # Address                         |
|                                  |                                   |
|                                  | (No Post Office Boxes)            |
+----------------------------------+-----------------------------------+
|                                  |                                   |
+----------------------------------+-----------------------------------+
|                                  |                                   |
+----------------------------------+-----------------------------------+
|                                  |                                   |
+----------------------------------+-----------------------------------+
|                                  |                                   |
+----------------------------------+-----------------------------------+
|                                  |                                   |
+----------------------------------+-----------------------------------+
|                                  |                                   |
+----------------------------------+-----------------------------------+
|                                  |                                   |
+----------------------------------+-----------------------------------+
|                                  |                                   |
+----------------------------------+-----------------------------------+

Attach Additional Sheets if Necessary

Annex III

Name and Address

[of Agent Designated to Accept Service of Legal Process]{.underline}

+----------------+----------------------+--------+--------+----------+
| **[Name]       | # Address            | # Pho  | # F    | # E-mail |
| {.underline}** |                      | ne No. | ax No. |  Address |
|                | # (N                 |        |        |          |
|                | o Post Office Boxes) |        |        |          |
+----------------+----------------------+--------+--------+----------+
| #              |                      |        |        |          |
+----------------+----------------------+--------+--------+----------+

> **APPENDIX B -- RECERTIFICATION REGARDING CORRESPONDENT ACCOUNTS**

**FOR PURPOSES OF SECTIONS 5318(j) AND 5318(k) OF**

**TITLE 31, UNITED STATES CODE**

\[OMB CONTROL NUMBER 1505-\_\_\_\_\_\]

***The information contained in this Certification is sought pursuant to
Sections 5318(j) and 5318(k) of Title 31 of the United States Code, as
added by sections 313 and 319(b) of the USA PATRIOT Act of 2001 (Public
Law 107-56).***

The undersigned financial institution,
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_(a
"Foreign Bank" as defined in 31 CFR 104.10(d)), has established one or
more accounts with \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
(a "Covered Financial Institution") to receive deposits from, make
payments on behalf of, or handle other financial transactions related to
Foreign Bank (the "correspondent accounts"). Foreign Bank hereby
certifies, by an individual authorized to make such certification, as
follows:

> ![](media/image1.wmf){width="0.25972222222222224in"
> height="0.25972222222222224in"}
>
> The information contained in the certification to the Covered
> Financial Institution
>
> dated \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
> remains true and correct.
>
> ![](media/image1.wmf){width="0.25972222222222224in"
> height="0.25972222222222224in"}
>
> The information contained in the certification to the Covered
> Financial Institution

dated \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_is
revised by the information provided with

this certification (attach a statement describing the information that
is no longer

correct and indicating the correct information).

I,
­­­­­­­­­­­\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
(name), certify that I have read and

understand this Certification and that the statements made in this
Certification is true and

correct.

This Certification is made on behalf of
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
(name of Foreign Bank), a

banking institution organized under the laws
of\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.

(Specify Country)

I understand that the statements contained in this Certification may be
transmitted to one or more departments or agencies of the United States
of America for purpose of fulfilling such departments and agencies
governmental functions.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\[Signature\]

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\[Title\]

Executed on this \_\_\_\_\_\_\_ day of \_\_\_\_\_\_\_\_\_\_, 200\_\_.

**Received, reviewed and accepted by:**

Name: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Title: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

For:

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\[Name of Covered Financial Institution\]

­­­­­­­­­­\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Date

[^1]: Treasury issued the interim guidance after consultation with the
    Department of Justice, the Office of the Comptroller of the
    Currency, the Office of Thrift Supervision, the staff of the Board
    of Governors of the Federal Reserve System, the Federal Deposit
    Insurance Corporation, the Commodity Futures Trading Commission, and
    the Securities and Exchange Commission. Treasury also consulted with
    these agencies in preparing this proposed rule.

[^2]: 12 CFR 204.2(e).

[^3]: ^?^ The same family means parents, spouses, children, siblings,
    uncles, aunts, grandparents, grandchildren, first cousins, second
    cousins, stepchildren, stepsiblings, parents-in-law and spouses of
    any of the foregoing.

[^4]:
    > 1 The November 20, 2001 Interim Guidance may be found on the
    > Treasury Internet site at
    > [http://www.treas.gov/press/releases/po813.htm]{.underline}.

[^5]:
    > \* The same family means parents, spouses, children, siblings,
    > uncles, aunts, grandparents, grandchildren, first cousins, second
    > cousins, stepchildren, stepsiblings, parents-in-law and spouses of
    > any of the foregoing. In determining the ownership interests of
    > the same family, any voting interest of any family member shall be
    > taken into account. Each family member with an ownership interest
    > must be reported.