Federal Register / Vol. 69, No. 163 / Tuesday, August 24, 2004 / Proposed Rules 51973

1Available special measures include requiring: 

(1) Recordkeeping and reporting of certain financial 

transactions; (2) collection of information relating to 

beneficial ownership; (3) collection of information 

relating to certain payable-through accounts; (4) 

collection of information relating to certain 

correspondent accounts; and (5) prohibition or 

conditions on the opening or maintaining of 

correspondent or payable-through accounts. 31 

U.S.C. 5318A(b)(1)–(5). For a complete discussion 

of the range of possible countermeasures, see 68 FR 

18917 (April 17, 2003) (proposing to impose special 

measures against Nauru).

purposes occurring after December 31, 

2000, see § 26.2642–6.

Deborah M. Nolan, 

Acting Deputy Commissioner for Services and 

Enforcement.

[FR Doc. 04–19352 Filed 8–23–04; 8:45 am] 

BILLING CODE 4830–01–P

DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506–AA67

Financial Crimes Enforcement 

Network; Amendment to the Bank 

Secrecy Act Regulations—Imposition 

of Special Measure Against Infobank 

as a Financial Institution of Primary 

Money Laundering Concern

AGENCY: Financial Crimes Enforcement 

Network (FinCEN), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: FinCEN is issuing this notice 

of proposed rulemaking to impose a 

special measure against Infobank as a 

financial institution of primary money 

laundering concern, pursuant to the 

authority contained in 31 U.S.C. 5318A 

of the Bank Secrecy Act.

DATES: Written comments on the notice 

of proposed rulemaking must be 

submitted on or before September 23, 

2004.

ADDRESSES: You may submit comments, 

identified by RIN 1506–AA67, by any of 

the following methods: 

• Federal e-rulemaking portal: http://

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: 

regcomments@fincen.treas.gov. Include 

RIN 1506–AA67 in the subject line of 

the message. 

• Mail: FinCEN, P.O. Box 39, Vienna, 

VA 22183. Include RIN 1506–AA67 in 

the body of the text. 

Instructions: It is preferable for 

comments to be submitted by electronic 

mail because paper mail in the 

Washington, DC, area may be delayed. 

Please submit comments by one method 

only. All submissions received must 

include the agency name and the 

Regulatory Information Number (RIN) 

for this rulemaking. All comments 

received will be posted without change 

to http://www.fincen.gov, including any 

personal information provided. 

Comments may be inspected at FinCEN 

between 10 a.m. and 4 p.m., in the 

FinCEN reading room in Washington, 

DC. Persons wishing to inspect the 

comments submitted must request an 

appointment by telephoning (202) 354–

6400 (not a toll-free number).

FOR FURTHER INFORMATION CONTACT:

Office of Regulatory Programs, FinCEN, 

(202) 354–6400; and Office of Chief 

Counsel, FinCEN, at (703) 905–3590 

(not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Statutory Provisions 

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) Act of 2001 (the USA Patriot Act), 

Pub. L. 107–56. Title III of the USA 

Patriot Act amends the anti-money 

laundering provisions of the Bank 

Secrecy Act (BSA), codified at 12 U.S.C. 

1829b, 12 U.S.C. 1951–1959, and 31 

U.S.C. 5311–5314, 5316–5332, to 

promote the prevention, detection, and 

prosecution of international money 

laundering and the financing of 

terrorism. Regulations implementing the 

BSA appear at 31 CFR part 103. The 

authority of the Secretary of the 

Treasury (Secretary) to administer the 

BSA and its implementing regulations 

has been delegated to the Director of 

FinCEN. 

Section 311 of the USA Patriot Act 

(section 311) added section 5318A to 

the BSA, granting the Secretary the 

authority, upon finding that reasonable 

grounds exist for concluding that a 

foreign jurisdiction, institution, class of 

transactions, or type of account is of 

‘‘primary money laundering concern,’’

to require domestic financial 

institutions and financial agencies to 

take certain ‘‘special measures’’ against 

the primary money laundering concern. 

Section 311 identifies factors for the 

Secretary to consider and agencies to 

consult before the Secretary may 

conclude that a jurisdiction, institution, 

or transaction is of primary money 

laundering concern. The statute also 

provides similar procedures, i.e., factors 

and consultation requirements, for 

selecting the imposition of specific 

special measures against the primary 

money laundering concern. 

Taken as a whole, section 311 

provides the Secretary with a range of 

options that can be adapted to target 

specific money laundering and terrorist 

financing concerns most effectively. 

These options give the Secretary the 

authority to bring additional and useful 

pressure on those jurisdictions and 

institutions that pose money laundering 

threats. Through the imposition of 

various special measures, the Secretary 

can gain more information about the 

concerned jurisdictions, institutions, 

transactions, and accounts; can more 

effectively monitor the respective 

jurisdictions, institutions, transactions, 

and accounts; and/or can protect U.S. 

financial institutions from involvement 

with jurisdictions, institutions, 

transactions, or accounts that pose a 

money laundering concern. Before 

making a finding that reasonable 

grounds exist for concluding that a 

foreign financial institution is of 

primary money laundering concern, the 

Secretary is required to consult with 

both the Secretary of State and the 

Attorney General.

In addition to these consultations, the 

Secretary, when finding that a foreign 

financial institution is of primary 

money laundering concern, is required 

by statute to consider ‘‘such information 

as the Secretary determines to be 

relevant, including the following 

potentially relevant factors’’: 

• The extent to which such financial 

institution is used to facilitate or 

promote money laundering in or 

through the jurisdiction; 

• The extent to which such financial 

institution is used for legitimate 

business purposes in the jurisdiction; 

and 

• The extent to which the finding that 

the institution is of primary money 

laundering concern is sufficient to 

ensure, with respect to transactions 

involving the institution operating in 

the jurisdiction, that the purposes of the 

BSA continue to be fulfilled, and to 

guard against international money 

laundering and other financial crimes. 

If the Secretary determines that a 

foreign financial institution is of 

primary money laundering concern, the 

Secretary must determine the 

appropriate special measure(s) to 

address the specific money laundering 

risks. Section 311 provides a range of 

special measures that can be imposed, 

individually, jointly, in any 

combination, and in any sequence.1 The 

Secretary’s imposition of special 

measures follows procedures similar to 

those for designations, but carries with 

it additional consultations to be made 

and factors to consider. The statute 

requires the Secretary to consult with 

appropriate Federal agencies and other 

51974 Federal Register / Vol. 69, No. 163 / Tuesday, August 24, 2004 / Proposed Rules 

2Section 5318A(a)(4)(A) requires the Secretary to 

consult with the Chairman of the Board of 

Governors of the Federal Reserve System, any other 

appropriate Federal banking agency, the Secretary 

of State, the Securities and Exchange Commission 

(SEC), the Commodity Futures Trading Commission 

(CFTC), the National Credit Union Administration 

(NCUA), and, in the sole discretion of the Secretary, 

‘‘such other agencies and interested parties as the 

Secretary may find to be appropriate.’’ The 

consultation process must also include the Attorney 

General, if the Secretary is considering prohibiting 

or imposing conditions on domestic financial 

institutions maintaining correspondent account 

relationships with the designated entity.

3Classified information used in support of a 

section 311 finding and measure(s) may be 

submitted by Treasury to a reviewing court ex parte

and in camera. See section 376 of the Intelligence 

Authorization Act for Fiscal Year 2004, Pub. L. 

108–177 (amending 31 U.S.C. 5318A by adding new 

paragraph (f)).

4 In addition, activity indicative of money 

laundering has been reported transiting the Moscow 

branch’s correspondent accounts in the U.S., which 

were subsequently closed by the U.S. 

correspondent.

5UNSCR 1483 requires Member States in which 

there are funds or other financial assets of the 

previous Government of Iraq or its state bodies, 

corporations, or agencies, located outside Iraq, to 

freeze those assets and, unless they are the subject 

of prior judicial, administrative, or arbitral lien or 

judgment, to transfer them to the Development 

Fund of Iraq.

interested parties 2 and to consider the 

following specific factors:

• Whether similar action has been or 

is being taken by other nations or 

multilateral groups; 

• Whether the imposition of any 

particular special measure would create 

a significant competitive disadvantage, 

including any undue cost or burden 

associated with compliance, for 

financial institutions organized or 

licensed in the United States; 

• The extent to which the action or 

the timing of the action would have a 

significant adverse systemic impact on 

the international payment, clearance, 

and settlement system, or on legitimate 

business activities involving the 

particular institution; and 

• The effect of the action on United 

States national security and foreign 

policy.3

B. Infobank 

In this rulemaking, FinCEN proposes 

to impose the fifth special measure (31 

U.S.C. 5318A(b)(5)) against Infobank. 

The fifth special measure prohibits or 

conditions the opening or maintaining 

of correspondent or payable-through 

accounts. This special measure may be 

imposed only through the issuance of a 

regulation. 

Infobank was established in 1994, in 

Minsk, Belarus, and is one of the 

country’s ten largest banks. Infobank 

maintains four domestic branches. It 

had operated two additional branches in 

Russia until 2001 when they were 

closed by the Central Bank of Russia.4

Infobank is a national commercial bank 

licensed by the National Bank of the 

Republic of Belarus (NBRB) to engage in 

foreign trade including foreign exchange 

transactions. As of 2003, the NBRB 

expanded Infobank’s license to enable it 

to carry out banking operations in gems 

and precious metals. It maintains 

correspondent accounts with several 

European banks and at least one bank in 

New York City. Infobank is a joint-stock 

bank. Shareholders of Infobank include 

many private Belarusian companies. 

The government of Belarus is a 

principal shareholder of the bank’s 

capital. In 2001, Infobank sold a 35 

percent share of its shares to the Libyan 

Arab Foreign Bank (LAFB), which is 

fully owned by the Central Bank of 

Libya.

In addition to banking operations, 

Infobank is actively involved in a 

number of business ventures through a 

network of affiliated entities, joint 

ventures, and its subsidiary. These 

concerns include Bel-Cel, a cellular 

telecommunications corporation, 

Systems Business Management, a joint 

venture that specializes in project 

finance in the Middle East and Eastern 

Europe, and MAZ–MAN, a tractor 

manufacturing company. Infobank, 

however, is widely reported to be a bank 

specializing in financial transactions 

related to arms exports because of the 

activities of its subsidiary corporation, 

Belmetalnergo. Infobank and 

Belmetalnergo have procured and 

financed weapons and military 

equipment for several nations deemed 

by the United States to be State 

Sponsors of Terrorism. Until the 

collapse of the former Iraqi regime, 

Belmetalnergo brokered various 

contracts with the former Iraqi 

government for the provision of, among 

other things, military equipment and 

training for Iraqi armed forces in 

violation of relevant United Nations 

(U.N.) resolutions. In addition, 

Infobank’s Chairman, Victor Shevstov, 

reportedly had close ties with the 

former Iraqi regime. Shevstov served as 

Chairman of the Iraqi-Belarus 

Friendship Society. Despite the collapse 

of the former Iraqi regime, Infobank 

continues to maintain funds in accounts 

established for the Central Bank of Iraq.5

At this time, the government of Belarus 

has not taken steps to transfer the funds 

at Infobank in compliance with UNSCR 

1483.

The Republic of Belarus has a weak 

anti-money laundering regime. Drug or 

nondrug related money laundering is 

criminalized, but not explicitly, in the 

anti-money laundering legislation. 

Additionally, the money laundering 

legislation is not consistent with 

international standards as set forth in 

the Financial Action Task Force’s 40 

Recommendations on Money 

Laundering. There is no time frame for 

the reporting of suspicious transactions 

to government authorities and there are 

no penalties for non-compliance. 

Further, Belarus has failed to implement 

effectively the anti-money laundering 

legislation that has been adopted. 

Belarus’ banking system is particularly 

vulnerable to money laundering because 

it suffers from a general lack of 

transparency and the role of the primary 

regulatory authority, the NBRB, is 

overshadowed by the Presidential 

Administration, which, in practice, 

maintains significant influence over the 

central and commercial banking 

operations of the country. Belarus also 

is a major exporter of arms. It is widely 

reported to be involved in supplying 

arms, equipment services, and training 

to Libya, Syria, and Iraq.

II. Imposition of Special Measure 

Against Infobank as a Financial 

Institution of Primary Money 

Laundering Concern 

A. Finding 

Based upon a review and analysis of 

relevant information, consultations with 

relevant agencies and departments, and 

after consideration of the factors 

enumerated in section 311, the 

Secretary, through his delegate, the 

Director of FinCEN, has determined that 

Infobank is a financial institution of 

primary money laundering concern. 

Infobank is well positioned to 

coordinate illicit activity using its 

subsidiary and network of affiliated 

entities and to launder the proceeds of 

those activities directly through its 

banking operations. FinCEN has reason 

to believe that Infobank actively 

laundered funds for the former Iraqi 

regime of Saddam Hussein. In addition 

to this money laundering activity 

described in detail below, Infobank’s 

high risk activities noted above, 

including the sale of military equipment 

and weapons to a jurisdiction that was 

embargoed by the United Nations and to 

jurisdictions deemed to be sponsors of 

terrorism by the United States, 

exacerbate the risk it presents to the 

U.S. financial system. A discussion of 

the section 311 factors relevant to this 

finding follows. 

Federal Register / Vol. 69, No. 163 / Tuesday, August 24, 2004 / Proposed Rules 51975

6 In 1995, the U.N. Security Council adopted 

Resolution 986, establishing the Oil-for-Food 

Program. The Program provided Iraq with an 

opportunity to sell oil to finance the purchase of 

medicines, health supplies, food, and other 

humanitarian goods, notwithstanding the U.N.-

imposed sanctions then in effect with respect to 

Iraq. The first Iraqi oil under the Program was 

exported in December 1996 and the first shipments 

of food arrived in March 1997.

7The Department of the Treasury’s Office of 

Foreign Assets Control (OFAC) implemented the 

U.N. sanctions program governing transactions with 

Iraq under regulations contained in 31 CFR 575 et 

seq. Among other things, the OFAC regulations 

required U.S. persons interested in engaging in 

contracts under the UN OFF program to obtain a 

license from OFAC once the contract had been 

approved by the U.N. overseers and prior to 

performance, and required that all payments be 

made only to the escrow account controlled by the 

U.N. See 31 CFR 575.523.

8United Nations Security Council Resolution 

(UNSCR) 661, dating back to 1990, imposed a full 

trade embargo barring all imports or exports to Iraq 

with limited exceptions for humanitarian goods. 

Although the United Nations has lifted most 

sanctions against Iraq with the passage of UNSCR 

1483 following the collapse of the Hussein regime, 

certain prohibitions on arms and weapons transfers 

to Iraq are still in place.

9 In connection with this action, FinCEN 

consulted with staff of the Federal functional 

regulators, the Department of Justice, and the State 

Department.

10For purposes of the proposed rule, a 

correspondent account is defined as an account 

established to receive deposits from, or make 

payments or other disbursements on behalf of, a 

foreign bank, or handle other financial transactions 

related to the foreign bank.

1. The Extent to Which Infobank Has 

Been Used To Facilitate or Promote 

Money Laundering in or Through the 

Jurisdiction 

FinCEN has reason to believe, based 

upon a variety of sources, that Infobank 

is used to facilitate or promote money 

laundering. The U.S. Government has 

information through classified and other 

sources that Infobank has laundered 

funds for the former Iraqi regime of 

Saddam Hussein. Specifically, Infobank 

laundered funds illegally paid to the 

former regime in order to obtain 

contracts to purchase Iraqi oil in 

violation of comprehensive United 

Nations sanctions and programs. Under 

the United Nations’ Oil-for-Food 

program (UN OFF),6 substantial controls 

were placed on Iraq’s ability to export 

oil and import humanitarian goods. The 

Iraqi State Oil Marketing Organization 

(SOMO) negotiated contracts with 

international oil companies to sell Iraqi 

oil. U.N. overseers approved the 

contracts and the funds paid under the 

contract were deposited by the 

purchasers directly into an escrow 

account controlled by the U.N. 

Contracts to supply the Iraqi people 

with humanitarian goods also were 

approved by the U.N. and paid from the 

escrow account. However, around 2001, 

to defraud the governments enforcing 

the sanctions regime,7 Iraq’s SOMO 

began demanding the payment of a 

surcharge from potential buyers of oil to 

be paid directly into Iraqi bank 

accounts. Public information shows that 

in 2001, Infobank’s subsidiary, 

Belmetalnergo, entered into contracts to 

purchase Iraqi oil. Information from a 

variety of sources further indicates that 

Belmetalnergo agreed to pay the illegal 

surcharges and deposited those funds 

into Infobank accounts for the benefit of 

the Iraqi government. Additional 

information suggests that Belmetalnergo 

entered into contracts for the provision 

of humanitarian goods to Iraq; these 

contracts inflated the value of the goods 

that Belmetalnergo actually provided. 

The excess funds paid under the 

contract were placed in Infobank 

accounts held for the benefit of the 

former Iraqi government. These 

fraudulently obtained funds derived 

from the illegal surcharges and the 

inflated UN OFF contracts were 

laundered through several other foreign 

banks and shell corporations. Finally, 

proceeds from the illegal surcharges and 

inflated contracts either were returned 

to the Iraqi government, in violation of 

the UN OFF program conditions, or 

were used to purchase weapons or 

finance military training through 

Infobank and Belmetalnergo.8

2. The Extent to Which Infobank Is Used 

for Legitimate Business Purposes in the 

Jurisdiction 

It is difficult to determine the extent 

to which Infobank is used for legitimate 

purposes. Most banking transactions 

within Belarus are conducted by the 

country’s six largest banks, while 

Infobank ranks as the tenth largest. 

Infobank likely engages in some 

legitimate activity given its participation 

through its partnerships and affiliated 

entities in such business ventures as 

cellular telecommunications and project 

finance. Given the weak anti-money 

laundering regime in Belarus, however, 

the activities of Infobank are not subject 

to meaningful scrutiny or oversight, and 

there is little information about its 

legitimate activities available to the 

public. 

In any event, Infobank’s involvement 

in laundering funds for the former Iraqi 

regime and in illicit and black market 

arms trade significantly outweighs any 

legitimate use of its banking operations. 

As stated earlier, Infobank is well 

positioned both to direct and coordinate 

illegal activity and to launder funds 

through its banking operations, making 

it a significant money laundering risk. 

3. The Extent to Which Such Action Is 

Sufficient To Ensure, With Respect to 

Transactions Involving Infobank, That 

the Purposes of the BSA Continue To Be 

Fulfilled, and To Guard Against 

International Money Laundering and 

Other Financial Crimes 

As detailed above, FinCEN has 

reasonable grounds to believe that 

Infobank is being used to promote or 

facilitate money laundering. At the 

moment, there are no protective 

measures that specifically target 

Infobank. Thus, finding Infobank to be 

a financial institution of primary money 

laundering concern and prohibiting the 

maintenance of correspondent accounts 

for that institution are necessary steps to 

ensure that Infobank is not able to 

access the U.S. financial system to 

facilitate money laundering or to engage 

in any other criminal purpose. 

B. Imposition of Special Measure 

As a result of the finding that 

Infobank is a financial institution of 

primary money laundering concern, and 

based upon the additional consultations 

and the consideration of all relevant 

factors, the Secretary, through his 

delegate, the Director of FinCEN, has 

determined that reasonable grounds 

exist for the imposition of the special 

measure authorized by section 

5318A(b)(5).9 That special measure 

authorizes the prohibition of the 

opening or maintaining of 

correspondent accounts 10 by any 

domestic financial institution or agency 

for or on behalf of a targeted financial 

institution. A discussion of the 

additional section 311 factors relevant 

to imposing this particular special 

measure follows.

1. Whether Similar Actions Have Been 

or Will Be Taken by Other Nations or 

Multilateral Groups Against Infobank

Infobank’s Russian branches have 

been closed by Russia’s Central Bank. 

Other countries have not, as yet, taken 

an action similar to the one proposed in 

this rulemaking that would prohibit 

domestic financial institutions and 

agencies from opening or maintaining a 

correspondent account for or on behalf 

of Infobank. The U.S. Government 

hopes that other countries will take 

similar action based on the findings 

contained in this rulemaking. In the 

meantime, lack of similar action by 

other countries makes it even more 

imperative that the fifth special measure 

be imposed in order to prevent access 

by Infobank to the U.S. financial system. 

51976 Federal Register / Vol. 69, No. 163 / Tuesday, August 24, 2004 / Proposed Rules 

11See 67 FR 60562 (September 26, 2002), codified 

at 31 CFR 103.175(d)(1).

2. Whether the Imposition of the Fifth 

Special Measure Would Create a 

Significant Competitive Disadvantage, 

Including Any Undue Cost or Burden 

Associated With Compliance, for 

Financial Institutions Organized or 

Licensed in the United States 

The fifth special measure sought to be 

imposed by this rulemaking would 

prohibit covered financial institutions 

from opening and maintaining 

correspondent accounts for, or on behalf 

of, Infobank. As a corollary to this 

measure, covered financial institutions 

also would be required to apply special 

due diligence to all of their 

correspondent accounts to ensure that 

no such account is being used indirectly 

to provide services to Infobank. The 

burden associated with these 

requirements is not expected to be 

significant, given that few U.S. banks 

currently maintain correspondent 

accounts for Infobank. In addition, all 

U.S. financial institutions currently 

apply some degree of due diligence to 

the transactions or accounts subject to 

sanctions administered by the Office of 

Foreign Assets Control (OFAC) of the 

Department of the Treasury. As 

explained in more detail in the sectionby-section analysis below, financial 

institutions should be able to adapt their 

current screening procedures for OFAC 

sanctions to comply with this special 

measure. Thus, the special due 

diligence that would be required by this 

rulemaking is not expected to impose a 

significant additional burden upon U.S. 

financial institutions. 

3. The Extent to Which the Proposed 

Action or Timing of the Action Will 

Have a Significant Adverse Systemic 

Impact on the International Payment, 

Clearance, and Settlement System, or on 

Legitimate Business Activities of 

Infobank 

This rulemaking targets Infobank 

specifically; it does not target a class of 

financial transactions (such as wire 

transfers) or a particular jurisdiction or 

jurisdictions. Infobank is not a major 

participant in the international payment 

system and is not relied upon by the 

international banking community for 

clearance or settlement services. Thus, 

the imposition of the fifth special 

measure against Infobank will not have 

a significant adverse systemic impact on 

the international payment, clearance, 

and settlement system. As noted above, 

there is little information available 

about Infobank’s legitimate business 

activities, but in light of the reasons for 

imposing this special measure, FinCEN 

does not believe it will impose undue 

burden on legitimate business activities, 

and notes that the presence of nine 

larger banks in Belarus will alleviate the 

burden on legitimate business activities 

within that jurisdiction. 

4. The Effect of the Proposed Action on 

United States National Security and 

Foreign Policy 

The exclusion from the U.S. financial 

system of banks that serve as conduits 

for significant money laundering 

activity and other financial crimes 

enhances national security, making it 

more difficult for criminals to access the 

substantial resources of the U.S. 

financial system. More generally, the 

imposition of the fifth special measure 

would complement diplomatic actions 

undertaken by the U.S. Government to 

curb Belarus’ involvement in 

international arms trafficking. 

Therefore, after conducting the 

required consultations and weighing the 

relevant factors, FinCEN has determined 

that reasonable grounds exist for 

concluding that Infobank is a financial 

institution of primary money laundering 

concern and for imposing the special 

measure authorized by 31 U.S.C. 

5318A(b)(5). 

III. Section-by-Section Analysis 

The proposed rule would prohibit 

covered financial institutions from 

establishing, maintaining, 

administering, or managing in the 

United States any correspondent 

account for, or on behalf of, Infobank. 

Infobank is defined specifically in the 

proposed notice to include 

Belmetalnergo. Although Belmetalnergo 

is not a banking institution, its activities 

are controlled and directed by Infobank, 

and it has been a substantial participant 

in the money laundering activity 

transiting Infobank. Therefore, FinCEN 

is defining Infobank to include 

Belmetalnergo under the proposed 

notice to ensure that Infobank cannot 

indirectly access the U.S. financial 

system through Belmetalnergo. As a 

corollary to this prohibition, covered 

financial institutions would be required 

to apply special due diligence to their 

correspondent accounts to guard against 

their indirect use by Infobank. At a 

minimum, that special due diligence 

must include two elements. First, a 

covered financial institution must notify 

its correspondent account holders that 

they may not provide Infobank with 

access to the correspondent account 

maintained at the covered financial 

institution. Second, a covered financial 

institution must take reasonable steps to 

identify any indirect use of its 

correspondent accounts by Infobank, to 

the extent that such indirect use can be 

determined from transactional records 

maintained by the covered financial 

institution in the normal course of 

business. A covered financial institution 

should take a risk-based approach when 

deciding what, if any, additional due 

diligence measures it should adopt to 

guard against the indirect use of its 

correspondent accounts by Infobank, 

based on risk factors such as the type of 

services it offers and geographic 

locations of its correspondents. 

A. 103.190(a)—Definitions 

1. Correspondent Account 

Section 103.190(a)(1) defines the term 

‘‘correspondent account’’ by reference to 

the definition contained in 31 CFR 

103.175(d)(1)(ii). Section 

103.175(d)(1)(ii) defines a 

correspondent account to mean an 

account established to receive deposits 

from, or make payments or other 

disbursements on behalf of, a foreign 

bank, or handle other financial 

transactions related to the foreign bank. 

In the case of a U.S. depository 

institution, this broad definition would 

include most types of banking 

relationships between a U.S. depository 

institution and a foreign bank, including 

payable-through accounts. 

In the case of securities brokerdealers, futures commission merchants, 

introducing brokers, and investment 

companies that are open-end companies 

(mutual funds), a correspondent account 

would include any account that permits 

the foreign bank to engage in (1) trading 

in securities and commodity futures or 

options, (2) funds transfers, or (3) other 

types of financial transactions. 

FinCEN is using the same definition 

for purposes of the proposed rule as that 

established in the final rule 

implementing sections 313 and 319(b) 

of the USA Patriot Act 11 except that the 

term is being expanded to cover such 

accounts maintained by futures 

commission merchants, introducing 

brokers, and mutual funds.

2. Covered Financial Institution

Section 103.190(a)(2) of the proposed 

rule defines covered financial 

institution to mean all of the following: 

any insured bank (as defined in section 

3(h) of the Federal Deposit Insurance 

Act (12 U.S.C. 1813(h)); a commercial 

bank or trust company; a private banker; 

an agency or branch of a foreign bank 

in the United States; a credit union; a 

thrift institution; a corporation acting 

under section 25A of the Federal 

Reserve Act (12 U.S.C. 611 et seq.); a 

broker or dealer registered or required to 

register with the SEC under the 

Federal Register / Vol. 69, No. 163 / Tuesday, August 24, 2004 / Proposed Rules 51977

12Again, for purposes of the proposed rule, a 

correspondent account is defined as an account 

established to receive deposits from, or make 

payments or other disbursements on behalf of, a 

foreign bank, or handle other financial transactions 

related to the foreign bank.

Securities Exchange Act of 1934 (15 

U.S.C. 78a et seq.); a futures commission 

merchant or an introducing broker 

registered, or required to register, with 

the CFTC under the Commodity 

Exchange Act (7 U.S.C. 1 et seq.); and 

an investment company (as defined in 

section 3 of the Investment Company 

Act of 1940 (15 U.S.C. 80a-3)) that is an 

open-end company (as defined in 

section 5 of the Investment Company 

Act of 1940 (15 U.S.C. 80a–5)) that is 

registered, or required to register, with 

the SEC under Section 8 of the 

Investment Company Act of 1940 (15 

U.S.C. 80a–8). 

3. Infobank 

Section 103.190(a)(3) of the proposed 

rule defines Infobank to include all 

headquarters, branches, and offices of 

Infobank operating in Belarus or in any 

jurisdiction. All subsidiaries of 

Infobank, including Belmetalnergo, are 

included in the definition, although 

FinCEN understands that Infobank 

currently only has one subsidiary, 

Belmetalnergo. FinCEN will provide 

updated information as it is available; 

however, covered financial institutions 

should take commercially reasonable 

measures to determine whether a 

customer is a subsidiary of Infobank. 

B. 103.190(b)—Requirements for 

Covered Financial Institutions 

1. Prohibition on Direct Use of 

Correspondent Accounts 

Section 103.190(b)(1) of the proposed 

rule prohibits all covered financial 

institutions from establishing, 

maintaining, administering, or 

managing a correspondent or payablethrough account in the United States 

for, or on behalf of, Infobank. The 

prohibition would require all covered 

financial institutions to review their 

account records to ensure that they 

maintain no accounts directly for, or on 

behalf of, Infobank. 

2. Special Due Diligence of 

Correspondent Accounts To Prohibit 

Indirect Use 

As a corollary to the prohibition on 

maintaining correspondent accounts 

directly for Infobank, section 

103.190(b)(2) requires a covered 

financial institution to apply special 

due diligence to its correspondent 

accounts 12 that is reasonably designed 

to guard against their indirect use by 

Infobank. At a minimum, that special 

due diligence must include notifying 

correspondent account holders that they 

may not provide Infobank with access to 

the correspondent account maintained 

at the covered financial institution. For 

example, a covered financial institution 

may satisfy this requirement by 

transmitting the following notice to all 

of its correspondent account holders:

Notice: Pursuant to U.S. regulations issued 

under section 311 of the USA PATRIOT Act, 

31 CFR 103.190, we are prohibited from 

establishing, maintaining, administering or 

managing a correspondent account for, or on 

behalf of, Infobank or any of its subsidiaries 

(including Belmetalnergo). The regulations 

also require us to notify you that you may not 

provide Infobank or any of its subsidiaries 

with access to the correspondent account you 

hold at our financial institution. If we 

become aware that Infobank or any of its 

subsidiaries is indirectly using the 

correspondent account you hold at our 

financial institution, we will be required to 

take appropriate steps to block such access, 

including by terminating your account.

The purpose of the notice requirement 

is to help ensure cooperation from 

correspondent account holders in 

denying Infobank access to the U.S. 

financial system, as well as to increase 

awareness within the international 

financial community of the risks and 

deficiencies of Infobank. However, 

FinCEN does not require or expect a 

covered financial institution to obtain a 

certification from its correspondent 

account holders that indirect access will 

not be provided in order to comply with 

this notice requirement. Instead, 

methods of compliance with the notice 

requirement could include, for example, 

transmitting a one-time notice by mail, 

fax, or e-mail to a covered financial 

institution’s correspondent account 

customers, informing them that they 

may not provide Infobank with access to 

the covered financial institution’s 

correspondent account, or including 

such information in the next regularly 

occurring transmittal from the covered 

financial institution to its correspondent 

account holders. FinCEN specifically 

solicits comments on the appropriate 

form and scope of the notice that would 

be required under the rule. 

A covered financial institution also 

would be required under this 

rulemaking to take reasonable steps to 

identify any indirect use of its 

correspondent accounts by Infobank, to 

the extent that such indirect use can be 

determined from transactional records 

maintained by the covered financial 

institution in the normal course of 

business. For example, a covered 

financial institution would be expected 

to apply an appropriate screening 

mechanism to be able to identify a funds 

transfer order that on its face listed 

Infobank as the originator’s or 

beneficiary’s financial institution, or 

otherwise referenced Infobank. An 

appropriate screening mechanism could 

be the mechanism used by a covered 

financial institution to comply with 

sanctions programs administered by 

OFAC. FinCEN specifically solicits 

comments on the requirement under the 

proposed rule that a covered financial 

institution take reasonable steps to 

screen its correspondent accounts in 

order to identify any indirect use of 

such accounts by Infobank.

Notifying its correspondent account 

holders and taking reasonable steps to 

identify any indirect use of its 

correspondent accounts by Infobank in 

the manner discussed above are the 

minimum due diligence requirements 

under the proposed rule. Beyond these 

minimum steps, a covered financial 

institution should adopt a risk-based 

approach for determining what, if any, 

additional due diligence measures it 

should implement to guard against the 

indirect use of its correspondents 

accounts by Infobank, based on risk 

factors such as the type of services it 

offers and the geographic locations of its 

correspondent account holders. 

A covered financial institution that 

obtains knowledge that a correspondent 

account is being used by a foreign bank 

to provide indirect access to Infobank 

must take all appropriate steps to block 

such indirect access, including, where 

necessary, terminating the 

correspondent account. A covered 

financial institution may afford the 

foreign bank a reasonable opportunity to 

take corrective action prior to 

terminating the correspondent account. 

Should the foreign bank refuse to 

comply, or if the covered financial 

institution cannot obtain adequate 

assurances that the account will no 

longer be used for impermissible 

purposes, the covered financial 

institution must terminate the account 

within a commercially reasonable time. 

This means that the covered financial 

institution should not permit the foreign 

bank to establish any new positions or 

execute any transactions through the 

account, other than those necessary to 

close the account. A covered financial 

institution may reestablish an account 

closed under the proposed rule if it 

determines that the account will not be 

used to provide banking services 

indirectly to Infobank. FinCEN 

specifically solicits comment on the 

requirement under the proposed rule 

that a covered financial institution block 

indirect access to Infobank, once such 

indirect access is identified. 

51978 Federal Register / Vol. 69, No. 163 / Tuesday, August 24, 2004 / Proposed Rules 

3. Reporting Not Required 

Section 103.190(b)(3) of the proposed 

rule clarifies that the rule does not 

impose any reporting requirement upon 

any covered financial institution that is 

not otherwise required by applicable 

law or regulation. A covered financial 

institution must, however, document its 

compliance with the requirement that it 

notify its correspondent account holders 

that they may not provide Infobank with 

access to the correspondent account 

maintained at the covered financial 

institution. 

IV. Request for Comments 

FinCEN invites comments on all 

aspects of the proposal to prohibit the 

opening or maintaining of 

correspondent accounts for or on behalf 

of Infobank, and specifically invites 

comments on the following matters: 

1. The appropriate form and scope of 

the notice to correspondent account 

holders that would be required under 

the rule; 

2. The appropriate scope of the 

proposed requirement for a covered 

financial institution to take reasonable 

steps to identify any indirect use of its 

correspondent accounts by Infobank; 

3. The appropriate steps a covered 

financial institution should take once it 

identifies an indirect use of one of its 

correspondent accounts by Infobank; 

and 

4. The impact of the proposed special 

measure upon legitimate transactions 

with Infobank. 

V. Regulatory Flexibility Act 

It is hereby certified that this 

proposed rule will not have a significant 

economic impact on a substantial 

number of small entities. FinCEN 

understands that Infobank currently 

maintains only a handful of 

correspondent accounts in the United 

States, and that those accounts are 

maintained at very large banks. Thus, 

the prohibition on maintaining such 

accounts will not have a significant 

impact on a substantial number of small 

entities. In addition, all U.S. persons, 

including U.S. financial institutions, 

currently exercise some degree of due 

diligence in order to comply with U.S. 

sanctions programs administered by 

OFAC, which can easily be modified to 

monitor for the use of correspondent 

accounts by Infobank. Thus, the special 

due diligence that would be required by 

this rulemaking—i.e., the one-time 

transmittal of notice to correspondent 

account holders—is not expected to 

impose a significant additional 

economic burden upon small U.S. 

financial institutions. FinCEN invites 

comments from members of the public 

who believe there will be a significant 

economic impact on small entities. 

VI. Paperwork Reduction Act 

The collection of information 

contained in this proposed rule is being 

submitted to the Office of Management 

and Budget for review in accordance 

with the Paperwork Reduction Act of 

1995 (44 U.S.C. 3507(d)). Comments on 

the collection of information should be 

sent (preferably by fax (202) 395–6974) 

to Desk Officer for the Department of the 

Treasury, Office of Information and 

Regulatory Affairs, Office of 

Management and Budget, Paperwork 

Reduction Project (1506), Washington, 

DC 20503 (or by e-mail to 

jlackeyj@omb.eop.gov), with a copy to 

FinCEN by mail or e-mail at the 

addresses previously specified. 

Comments on the collection of 

information should be received by 

September 23, 2004. In accordance with 

the requirements of the Paperwork 

Reduction Act of 1995, 44 U.S.C. 

3506(c)(2)(A), and its implementing 

regulations, 5 CFR 1320, the following 

information concerning the collection of 

information as required by 31 CFR 

103.190 is presented to assist those 

persons wishing to comment on the 

information collection. 

The collection of information in this 

proposed rule is in 31 CFR 

103.190(b)(2)(i) and 31 CFR 

103.190(b)(3)(i). The disclosure 

requirement in 31 CFR 103.190(b)(2)(i) 

is intended to ensure cooperation from 

correspondent account holders in 

denying access to the U.S. financial 

system, as well as to increase awareness 

within the international financial 

community of the risks and deficiencies 

of Infobank. The information required to 

be maintained by 31 CFR 

103.190(b)(3)(i) will be used by Federal 

agencies and certain self-regulatory 

organizations to verify compliance by 

covered financial institutions with the 

provisions of 31 CFR 103.190. The class 

of financial institutions affected by the 

disclosure requirement is identical to 

the class of financial institutions 

affected by the recordkeeping 

requirement. The collection of 

information is mandatory. 

Description of Affected Financial 

Institutions: Banks, broker-dealers in 

securities, futures commission 

merchants and introducing brokers, and 

mutual funds maintaining 

correspondent accounts. 

Estimated Number of Affected 

Financial Institutions: 5,000. 

Estimated Average Annual Burden 

Hours per Affected Financial 

Institution: The estimated average 

burden associated with the collection of 

information in this proposed rule is 1 

hour per affected financial institution.

Estimated Total Annual Burden:

5,000 hours. 

FinCEN specifically invites comments 

on: (a) Whether the proposed collection 

of information is necessary for the 

proper performance of the mission of 

FinCEN, including whether the 

information shall have practical utility; 

(b) the accuracy of FinCEN’s estimate of 

the burden of the proposed collection of 

information; (c) ways to enhance the 

quality, utility, and clarity of the 

information required to be maintained; 

(d) ways to minimize the burden of the 

required collection of information, 

including through the use of automated 

collection techniques or other forms of 

information technology; and (e) 

estimates of capital or start-up costs and 

costs of operation, maintenance, and 

purchase of services to maintain the 

information. 

VII. Executive Order 12866

This proposed rule is not a significant 

regulatory action for purposes of 

Executive Order 12866, ‘‘Regulatory 

Planning and Review.’’

List of Subjects in 31 CFR Part 103

Administrative practice and 

procedure, Banks and banking, Brokers, 

Counter-money laundering, Counterterrorism, and Foreign banking.

Authority and Issuance 

For the reasons set forth in the 

preamble, part 103 of title 31 of the 

Code of Federal Regulations is proposed 

to be amended as follows:

PART 103—FINANCIAL 

RECORDKEEPING AND REPORTING 

OF CURRENCY AND FINANCIAL 

TRANSACTIONS 

1. The authority citation for part 103 

is revised to read as follows:

Authority: 12 U.S.C. 1829b and 1951–1959; 

31 U.S.C. 5311–5314, 5316–5332; title III, 

secs. 311, 312, 313, 314, 319, 326, 352, Pub. 

L. 107–56, 115 Stat. 307.

2. Subpart I of part 103 is proposed 

to be amended by adding new § 103.190 

to read as follows:

§ 103.190 Special measures against 

Infobank. 

(a) Definitions. For purposes of this 

section: 

(1) Infobank means all headquarters, 

branches, offices, and subsidiaries of 

Infobank operating in Belarus or in any 

jurisdiction, including Belmetalnergo. 

(2) Correspondent account has the 

same meaning as provided in 

§ 103.175(d)(1)(ii). 

Federal Register / Vol. 69, No. 163 / Tuesday, August 24, 2004 / Proposed Rules 51979

(3) Covered financial institution has 

the same meaning as provided in 

§ 103.175(f)(2) and also includes: 

(i) A futures commission merchant or 

an introducing broker registered, or 

required to register, with the 

Commodity Futures Trading 

Commission under the Commodity 

Exchange Act (7 U.S.C. 1 et seq.); and 

(ii) An investment company (as 

defined in section 3 of the Investment 

Company Act of 1940 (15 U.S.C. 80a–5)) 

that is an open-end company (as defined 

in section 5 of the Investment Company 

Act (15 U.S.C. 80a–5)) and that is 

registered, or required to register, with 

the Securities and Exchange 

Commission under section 8 of the 

Investment Company Act (15 U.S.C. 

80a–8). 

(4) Subsidiary means a company of 

which more than 50 percent of the 

voting stock or analogous equity interest 

is owned by another company. 

(b) Requirements for covered financial 

institutions—(1) Prohibition on direct 

use of correspondent accounts. A 

covered financial institution shall 

terminate any correspondent account 

that is established, maintained, 

administered, or managed in the United 

States for, or on behalf of, Infobank. 

(2) Special due diligence of 

correspondent accounts to prohibit 

indirect use. (i) A covered financial 

institution shall apply special due 

diligence to its correspondent accounts 

that is reasonably designed to guard 

against their indirect use by Infobank. 

At a minimum, that special due 

diligence must include: 

(A) Notifying correspondent account 

holders that they may not provide 

Infobank with access to the 

correspondent account maintained at 

the covered financial institution; and 

(B) Taking reasonable steps to identify 

any indirect use of its correspondent 

accounts by Infobank, to the extent that 

such indirect use can be determined 

from transactional records maintained 

in the covered financial institution’s 

normal course of business. 

(ii) A covered financial institution 

shall take a risk-based approach when 

deciding what, if any, additional due 

diligence measures it should adopt to 

guard against the indirect use of its 

correspondent accounts by Infobank. 

(iii) A covered financial institution 

that obtains knowledge that a 

correspondent account is being used by 

the foreign bank to provide indirect 

access to Infobank, shall take all 

appropriate steps to block such indirect 

access, including, where necessary, 

terminating the correspondent account. 

(3) Recordkeeping and reporting. (i) A 

covered financial institution is required 

to document its compliance with the 

notice requirement set forth in 

paragraph (b)(2)(i)(A) of this section. 

(ii) Nothing in this section shall 

require a covered financial institution to 

report any information not otherwise 

required to be reported by law or 

regulation.

Dated: August 18, 2004. 

William J. Fox, 

Director, Financial Crimes Enforcement 

Network.

[FR Doc. 04–19266 Filed 8–23–04; 8:45 am] 

BILLING CODE 4810–02–P

DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506–AA65

Financial Crimes Enforcement 

Network; Amendment to the Bank 

Secrecy Act Regulations—Imposition 

of Special Measure Against First 

Merchant Bank OSH Ltd, Including Its 

Subsidiaries, FMB Finance Ltd, First 

Merchant International Inc, First 

Merchant Finance Ltd, and First 

Merchant Trust Ltd, as a Financial 

Institution of Primary Money 

Laundering Concern

AGENCY: Financial Crimes Enforcement 

Network (FinCEN), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: FinCEN is issuing this notice 

of proposed rulemaking to impose a 

special measure against First Merchant 

Bank OSH Ltd as a financial institution 

of primary money laundering concern, 

pursuant to the authority contained in 

31 U.S.C. 5318A of the Bank Secrecy 

Act.

DATES: Written comments on the notice 

of proposed rulemaking must be 

submitted on or before September 23, 

2004.

ADDRESSES: You may submit comments, 

identified by RIN 1506–AA65, by any of 

the following methods: 

• Federal e-rulemaking portal: http://

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: 

regcomments@fincen.treas.gov. Include 

RIN 1506–AA65 in the subject line of 

the message. 

• Mail: FinCEN, P.O. Box 39, Vienna, 

VA 22183. Include RIN 1506–AA65 in 

the body of the text. 

Instructions: It is preferable for 

comments to be submitted by electronic 

mail because paper mail in the 

Washington, DC, area may be delayed. 

Please submit comments by one method 

only. All submissions received must 

include the agency name and the 

Regulatory Information Number (RIN) 

for this proposed rulemaking. All 

comments received will be posted 

without change to http://

www.fincen.gov, including any personal 

information provided. Comments may 

be inspected at FinCEN between 10 a.m. 

and 4 p.m., in the FinCEN reading room 

in Washington, DC. Persons wishing to 

inspect the comments submitted must 

request an appointment by telephoning 

(202) 354–6400 (not a toll-free number).

FOR FURTHER INFORMATION CONTACT:

Office of Regulatory Programs, FinCEN, 

at (202) 354–6400 or Office of Chief 

Counsel, FinCEN, at (703) 905–3590 

(not toll-free numbers).

SUPPLEMENTARY INFORMATION:

I. Background 

A. Statutory Provisions 

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) Act of 2001 (the USA Patriot Act), 

Pub. L. 107–56. Title III of the USA 

Patriot Act amends the anti-money 

laundering provisions of the Bank 

Secrecy Act (BSA), codified at 12 U.S.C. 

1829b, 12 U.S.C. 1951–1959, and 31 

U.S.C. 5311–5314, 5316–5332, to 

promote the prevention, detection, and 

prosecution of international money 

laundering and the financing of 

terrorism. Regulations implementing the 

BSA appear at 31 CFR Part 103. The 

authority of the Secretary of the 

Treasury (Secretary) to administer the 

BSA and its implementing regulations 

has been delegated to the Director of 

FinCEN. 

Section 311 of the USA Patriot Act 

(section 311) added section 5318A to 

the BSA, granting the Secretary the 

authority, upon finding that reasonable 

grounds exist for concluding that a 

foreign jurisdiction, institution, class of 

transactions, or type of account is of 

‘‘primary money laundering concern,’’

to require domestic financial 

institutions and financial agencies to 

take certain ‘‘special measures’’ against 

the primary money laundering concern. 

Section 311 identifies factors for the 

Secretary to consider and Federal 

agencies to consult before the Secretary 

may find that reasonable grounds exist 

for concluding that a jurisdiction, 

institution, or transaction is of primary 

money laundering concern. The statute 

also provides similar procedures, i.e., 

factors and consultation requirements, 

for selecting the imposition of specific 

special measures against the primary 

money laundering concern.