(BILLING CODE: 4810-02-P)

DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA43

Financial Crimes Enforcement Network; Imposition of Special Measures Against 

the Country of Nauru

AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: The Department of the Treasury and FinCEN are issuing this proposed 

rule, pursuant to the provisions of section 311 of the Uniting and Strengthening America 

by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 

2001 (Public Law 107-56), to impose “special measures” against Nauru. Nauru was 

previously designated as a country of primary money laundering concern pursuant to 

section 311 on December 20, 2002, a pre-requisite for the imposition of special measures. 

DATES: Written comments may be submitted on or before [INSERT DATE THAT IS 

30 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER].

ADDRESSES: Commenters are encouraged to submit comments by electronic mail 

because paper mail in the Washington, DC, area may be delayed. Comments submitted 

by electronic mail may be sent to regcomments@fincen.treas.gov with the caption in the 

body of the text, “Attention: Section 311 Special Measures Regulations.” Comments 

may also be submitted by paper mail to FinCEN, P.O. Box 39, Vienna, VA 22183, Attn: 

Section 311 Special Measures Regulations. Comments should be sent by one method 

only. 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 
2

must request an appointment by telephoning (202) 354-6400 (not a toll-free number).

FOR FURTHER INFORMATION CONTACT: Office of the General Counsel, 

Department of the Treasury, (202) 622-1925; Office of the Assistant General Counsel for 

Banking and Finance (Treasury), (202) 622-0480; or the Office of Chief Counsel 

(FinCEN), (703) 905-3590 (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 

Act of 2001 (USA PATRIOT Act) (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) that are codified in subchapter II of chapter 53 of title 31, United 

States Code. These amendments are intended to promote the prevention, detection, and 

prosecution of international money laundering and the financing of terrorism.

Section 311 of the Act added section 5318A to the BSA. Section 5318A gives the 

Secretary of the Treasury (Secretary) the authority to designate a foreign jurisdiction, 

institution(s), class(es) of transactions, or type(s) of account(s) as a “primary money 

laundering concern” and to impose certain “special measures” with respect to such 

jurisdiction, institution(s), class(es) of transactions, or type(s) of account(s). On 

December 20, 2002, the Secretary designated Nauru as a jurisdiction of primary money 

laundering concern pursuant to section 5318A. 1

Section 5318A identifies the factors that the Secretary must consider and the 

agencies with which he must consult before designating a primary money laundering 

 

1

 67 FR 78859 (December 26, 2002).
3

concern. Upon designation, section 5318A sets forth five potential special measures, the 

factors to be considered in selecting these measures, and the agencies with which the 

Secretary must consult before imposing special measures on the designee.

Section 5318A gives the Secretary the authority to bring additional and useful 

pressure on those jurisdictions and institutions that pose money laundering concerns to 

encourage them to eliminate the bases for these concerns. 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 institutions, transactions, and accounts, and can protect U.S. financial 

institutions from involvement with jurisdictions, institutions, transactions, or accounts 

that pose a money laundering concern.

A. Required Consultations, and Statutory Factors to Consider, Prior to 

Designating a Primary Money Laundering Concern

Prior to making a finding that a foreign jurisdiction, institution(s), class(es) of 

transactions, or type(s) of account(s) is a 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 is required by the statute to 

consider “such information as the Secretary determines to be relevant,” including the 

following “potentially relevant [jurisdictional] factors”:

• Evidence that organized criminal groups, international terrorists, or both, have 

transacted business in the jurisdiction;
4

• The extent to which the jurisdiction or financial institutions operating in the 

jurisdiction offer bank secrecy or special regulatory advantages to non-residents 

or non-domiciliaries of the jurisdiction;

• The substance and quality of administration of the bank supervisory and countermoney laundering laws of the jurisdiction;

• The relationship between the volume of financial transactions occurring in the 

jurisdiction and the size of the economy of the jurisdiction;

• The extent to which the jurisdiction is characterized as an offshore banking or 

secrecy haven by credible international organizations or multilateral expert 

groups;

• Whether the United States has a mutual legal assistance treaty with the 

jurisdiction, and the experience of United States law enforcement officials and 

regulatory officials in obtaining information about transactions originating in or 

routed through or to such jurisdiction; and

• The extent to which the jurisdiction is characterized by high levels of official or 

institutional corruption.

Once the Secretary, after having consulted with the Secretary of State and the 

Attorney General and having considered the factors set forth immediately above, has 

made a finding that reasonable grounds exist for concluding that a jurisdiction, etc., is a 

primary money laundering concern, one or more of the five statutorily permitted “special 

measures” may be imposed following the appropriate consultations as described below. 2

 

2

 For the purposes of this action, the required consultation was performed at the staff level. 
5

B. Special Measures

There are five specific “special measures” that can be imposed, either 

individually, jointly, or in any combination:

1. Recordkeeping and reporting of certain financial transactions.

The Secretary may require domestic financial institutions and domestic financial 

agencies to maintain and/or to file reports concerning the aggregate amount of 

transactions or the specifics of each transaction with the primary money laundering 

concern. The records and reports shall include whatever information the Secretary deems 

to be relevant, including, but not limited to:

• The identity and address of the participants in a transaction or relationship;

• The legal capacity in which the participant is acting;

• The identity of the beneficial owner of the funds involved; and

• A description of the transaction.

2. Information relating to beneficial ownership.

The Secretary may require domestic financial institutions and domestic financial 

agencies “to take such steps as the Secretary may determine to be reasonable and 

practicable to obtain and retain information concerning the beneficial ownership of any 

account opened or maintained in the United States by a foreign person (other than a 

foreign entity whose shares are subject to public reporting requirements or are listed and 

traded on a regulated exchange or trading market)” involving the primary money 

laundering concern.

3. Information relating to certain payable-through accounts.
6

The Secretary may require domestic financial institutions and domestic financial 

agencies that open or maintain a payable-through account in the United States involving 

the primary money laundering concern to: (1) identify each customer (and representative) 

who is permitted to use the account or whose transactions are routed through the account; 

and (2) obtain information about each such customer (and representative) that is 

substantially comparable to that which a U.S. depository institution obtains in the 

ordinary course of business with respect to its customers residing in the United States.

4. Information relating to certain correspondent accounts.

The Secretary can require domestic financial institutions and domestic financial 

agencies that open or maintain a correspondent account in the United States involving the 

primary money laundering concern to: (1) identify each customer (and representative) 

who is permitted to use the account or whose transactions are routed through the account; 

and (2) obtain information about each such customer (and representative) that is 

substantially comparable to that which a U.S. depository institution obtains in the 

ordinary course of business with respect to its customers residing in the United States.

5. Prohibitions or conditions on opening or maintaining certain correspondent or 

payable-through accounts.

The Secretary, after the respective consultations, can prohibit, or can impose 

conditions on, domestic financial institutions and financial agencies opening or 

maintaining in the United States any correspondent account or payable-through account 

for or on behalf of a foreign financial institution if the account involves the primary 

money laundering concern.
7

C. Additional Required Consultations, and Statutory Factors to be 

Considered, in Advance of Imposing Any of the Special Measures

Prior to determining which special measure(s) to impose, the Secretary must 

consult with the Chairman of the Board of Governors of the Federal Reserve, 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.”

In determining generally which special measures to select and to impose, the 

Secretary, in consultation with the agencies and “interested parties” set forth above, must 

consider the following 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 jurisdiction, 

institution, or class of transactions; and

• The effect of the action on United States national security and foreign policy.
8

In addition to (1) the consultations for the designation of a primary money 

laundering concern, and (2) the consultations with the larger group of agencies for 

determining which of the special measures to impose, the Secretary, in determining 

specifically whether to impose the fifth special measure, must consult with the Secretary 

of State, the Attorney General, and the Chairman of Board of Governors of the Federal 

Reserve.

Last, the Secretary, in determining whether to apply one or more special measures 

only to a foreign institution(s), transaction(s), class(es) of transactions, or type(s) of 

account(s) within a particular jurisdiction – as opposed to applying the special measure 

more generally to the foreign jurisdiction itself – must consult with the Secretary of State 

and the Attorney General, and shall take into consideration the following “institutional 

factors”:

• The extent to which such financial institution(s), transaction(s), class(es) of 

transactions, or type(s) of account(s) are used to facilitate or promote money 

laundering in or through the jurisdiction;

• The extent to which such institutions, transaction(s), class(es) of transaction(s), or 

type(s) of account(s) are used for legitimate business purposes in the jurisdiction; 

and

• The extent to which such action is sufficient to ensure, with respect to transactions 

involving the jurisdiction and institutions 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.
9

D. Procedures for Imposing Special Measures

Pursuant to section 5318A, any of the first four “special measures” can be 

imposed by order, regulation, or as otherwise “permitted by law.” If an order is 

issued, it can remain in effect for 120 days, unless authorized by a regulation 

promulgated before the end of the 120-day period. The fifth “special measure” can 

only be imposed through the issuance of a regulation.

II. Nauru

A. Background

Nauru is a small island of approximately 10 square miles that has a population of 

only approximately 12,000 people. At one point in time, the island had one of the highest 

per capita incomes in the developing world due to the mining and export of phosphates, a 

funding source expected to be completely depleted within five to ten years. As a result of 

the phosphate mining, the central part of the island, once thriving with vegetation and 

wildlife, has become uninhabitable and only the perimeter of the island remains available 

for habitation. This perimeter itself is vulnerable to storms and the movement of the 

ocean.

Although Nauru at one point in time was relatively wealthy, most of the funds 

emanating from the phosphate mining and originally contained in the country’s trust 

funds have been depleted through waste, poor investments, and fraud. As a result, the 

country has been borrowing heavily to finance fiscal deficits. Currently, the basic 

infrastructure of the island is so poor that electric, water, and phone service is available 

only on a limited and sporadic basis.
10

B. Offshore Shell Banks in Nauru

In an effort to raise funds, the island has resorted to the selling of passports (or 

“economic citizenships”) to non-resident foreigners, and, of greater concern, the selling 

of offshore banking licenses. Nauru is notorious for permitting the establishment of 

offshore shell banks with no physical presence in Nauru or in any other country. The 

evidence indicates tha t the entities that obtain these offshore banking licenses are subject 

to cursory and wholly inadequate review by the country’s officials, lack any credible ongoing supervision, and maintain no banking records that Nauru or any other jurisdiction 

can review. In addition, one of the common requirements imposed by Nauru on these 

offshore banks is that they not engage in economic transactions involving either the 

currency of Nauru (currently the Australian dollar) or its citizens or residents. 

Consequently, these offshore shell banks have no apparent legitimate connection with the 

economy or business activity of Nauru. Indeed, only one bank appears to be physically 

located in Nauru, the “Bank of Nauru.” It is a local community bank that also serves as 

the Central Bank.

In 2000, FinCEN reported that 400 offshore banks had been granted licenses by 

Nauru. 3 It has been verified by on-site reports that a 1,000 square foot wooden structure 

is “home” to these banks that have no physical or legal residence anywhere in the world. 

The United States Government has been able to verify the names of 161 of the 

institutions licensed by Nauru. 4 These are institutions for which the limited information 

available indicates that there is a strong likelihood that they are she ll banks that are not 

subject to effective banking supervision.

 

3

 FinCEN Advisory Issue 21 (July 2000).

4

 A list of these institutions was presented as Appendix A to the December 20, 2002, designation of Nauru 

as a jurisdiction of primary money laundering concern.
11

C. FATF Designation

As a consequence of the current practices of Nauru, the Financial Action Task 

Force on Money Laundering (FATF) placed Nauru on the “Non-Cooperative Countries 

and Territories” (NCCT) list in June 2000 for maintaining an inadequate anti-money 

laundering regime. According to FATF, Nauru’s anti-money laundering weaknesses 

included, but were not limited to, the following: money laundering was not a criminal 

offense; offshore banks licensed by Nauru were not required to maintain customer 

identification or transaction records; Nauruan financial institutions were under no 

obligation to report suspicious transactions; and Nauru maintained strong bank secrecy 

laws. In July 2000, FinCEN issued an advisory to U.S. financial institutions, warning 

them to give enhanced scrutiny to all financial transactions originating in or routed to or 

through Nauru, or involving entities organized or domiciled, or persons maintaining 

accounts, in Nauru. In addition, the Office of the Comptroller of the Currency has issued 

15 Alerts concerning offshore shell banks located in Nauru that were potentially 

attempting to engage in the business of banking in the United States without authority.

In June of 2001, FATF determined that Nauru had made insufficient progress 

towards remedying deficiencies in its anti-money laundering regime and warned Nauru 

that FATF would impose countermeasures by September 30, 2001, if Nauru failed to 

address these deficiencies.

On August 28, 2001, Nauru passed the Anti- Money Laundering Act of 2001 (the 

AML Act). On September 7, 2001, however, FATF indicated that the AML Act was not 

consistent with international standards because it did not apply to the numerous offshore 

banks licensed by Nauru. In response to FATF pressure, on December 6, 2001, Nauru 
12

passed amendments to its AML Act. Nonetheless, according to FATF, the revised antimoney laundering law that now exists provides for a wholly inadequate anti-money 

laundering (AML) legislative and regulatory regime. In addition, Nauru has not yet 

addressed the remaining and most important deficiency of its AML legislation, that is, the 

inadequate procedures for licensing, regulating, and supervising its offshore banks. Thus, 

despite repeated warnings by FATF of its concern with Nauru’s practices, and the clear 

consequences of not amending its practices, Nauru has not shouldered its responsibility to 

establish a sufficient AML regime.

On July 22, 2002, FATF wrote Nauruan officials to express FATF’s concern 

about the practice in Nauru of issuing licenses to offshore shell banks and asked Nauru to 

cease licensing such entities. Nauru, however, has not ceased this activity.

D. Designation of Nauru as a Primary Money Laundering Concern and 

Imposition of Counter-measures

After reviewing Nauru in light of the statutory factors set forth above, on 

December 20, 2002, the Treasury designated Nauru as a country of primary money 

laundering concern under section 5318A of the BSA. 5 As a result of this designation, and 

based upon an analysis of the entirety of circumstances in Nauru, Treasury has 

determined that grounds exist for the imposition of a special measure upon Nauru. Based 

upon its consideration of the following factors, Treasury intends to impose on Nauru the 

fifth special measure authorized by section 5318A.

E. Factors to Consider in Imposing Special Measures under Section 5318A

1. Whether similar action has been or is being taken by other nations or 

multilateral groups.

 

5

Supra n1.
13

As a result of FATF’s call on December 5, 2001, for the imposition of countermeasures against Nauru, 27 FATF member countries, including all G-7 countries, have 

taken action against Nauru. 6

2. 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.

Imposing sanctions against Nauru under section 5318A should not result in any 

competitive disadvantage, including any undue compliance cost or burden, to financial 

institutions in the United States. First, FATF member countries and the G-7 countries 

have already responded to FATF’s call for the imposition of counter-measures against 

Nauru. Second, BSA section 5318(j) already requires the termination of correspondent 

accounts maintained by U.S. depository institutions and securities broker-dealers for 

foreign shell banks.7 As a result, since we understand that most, if not all, Naurulicensed banks are shells (other than the Central Bank of Nauru), most transactions 

between Nauru and U.S. financial institutions have or should already have ceased.

3. 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 

jurisdiction, institution, or class of transactions.

 

6

 Specifically, the countries have imposed stringent requirements for identifying clients and beneficial 

owners before business relationships are established with individuals or companies from Nauru. In 

addition, the countries have required enhanced and systematic reporting of financial transactions involving 

Nauru. Also, the countries have required that, in considering requests for approving the establishment in 

FATF member countries of subsidiaries or branches or representative offices of banks from Nauru, the 

country take into account the fact that the applicant bank is from an NCCT. Last, the countries have issued 

warnings to non-financial sector businesses that transactions with entities within NCCTs might run the risk 

of money laundering. (Source: FATF Reports). 

7

See Part III.A. infra.
14

The action against Nauru should have no significant adverse systemic impact on 

the international payment system or on legitimate business activities because of the small 

size of the economy and the absence of any meaningful, legitimate international business.

4. The effect of the action on United States national security and foreign policy.

The action is expected to have virtually no effect on United States national 

security or foreign policy.

The Secretary intends to impose the fifth special measure against Nauru pursuant 

to section 5318A. That special measure will prohibit covered U.S. financial institutions 

from opening or maintaining in the United States any correspondent account, or payablethrough account, for a foreign financial institution if that account is maintained for, or on 

behalf of, a Nauru financ ial institution.

III. Section-by-Section Analysis

A. Overview

This proposed rule is designed to deny Nauru financial institutions access to the 

U.S. financial system through correspondent accounts. The proposed rule would prohibit 

certain U.S. financial institutions from maintaining correspondent accounts for, or on 

behalf of, a Nauru financial institution. Furthermore, if a U.S. financial institution 

covered by this proposed rule learns that a correspondent account that it maintains for a 

foreign bank is being used to provide services indirectly to a Nauru financial institution, 

the U.S. financial institution must terminate the correspondent account of the foreign 

bank.
15

On September 26, 2002, Treasury published in the Federal Register a final rule 

implementing sections 313 and 319(b) of the Act (the Section 313/319 Rule).8 That rule, 

among other things, prohibits certain financial institutions from providing correspondent 

accounts to foreign shell banks, and requires such financial institutions to take reasonable 

steps to ensure that correspondent accounts provided to foreign banks are not being used 

to provide banking services indirectly to foreign shell banks. There will be significant 

overlap between the Section 313/319 Rule and this proposed rule for those financial 

institutions covered by the Section 313/319 Rule, although they are quite distinct, as 

described below.

B. Section 103.184 Definitions

Correspondent account. Section 103.184(a)(1) of the proposed rule’s definition of

correspondent account is the definition contained in 31 U.S.C. 5138A(e) (as added by 

section 311 of the Act). Section 5138A(e) defines the term to mean 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 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 financial institution, 

including payable-through accounts. In the case of securities broker-dealers, futures 

commission merchants, introducing brokers, and mutual funds, a correspondent account 

would include any account that permits the foreign financial institution to engage in: 

trading in securities and futures, funds transfers, or other types of financial transactions. 

Treasury is using the same definition for purposes of the proposed rule as that established 

in the Section 313/319 Rule with two notable exceptions: (1) the term also applies to 

 

8

 67 FR 60562 (September 26, 2002) (codified at 31 CFR 103.177).
16

such accounts maintained by futures commission merchants and introducing brokers as 

well as mutual funds; and (2) the definition applies to such accounts maintained for any 

Nauru financial institution, as opposed to just Nauru banks.

Covered financial institution. Section 103.184(a)(2) of the proposed rule defines 

covered financial institution to include those financial institutions included in the

definition under the Section 313/319 Rule, as well as futures commission merchants, 

introducing brokers, and mutual funds. The term is therefore defined 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 be registered with the SEC under the 

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 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 pursuant to that Act. 

Futures commission merchants, introducing brokers, and mutual funds are being added in 

recognition of their offering of correspondent accounts within the meaning of 31 U.S.C. 

5318A(e).

Nauru financial institution. Section 103.184(a)(3) of the proposed rule defines 

Nauru financial institution to include all foreign banks licensed by Nauru (other than the

Central Bank of Nauru) and any other person organized under the law of Nauru who 
17

conducts as a business one or more of the following activities or operations on behalf of 

customers: trading in (1) money market instruments; (2) exchange, interest rate, and 

index instruments; (3) transferable securities; and (4) commodity futures. The definition 

of foreign bank is that contained in 31 CFR 103.11(o). The inclusion in this definition of 

financial institutions other than depository institutions is done in recognition that these 

activities are alternate viable routes for money laundering activity.

C. Requirements for covered financial institutions

Prohibition on correspondent accounts. Section 103.184(b)(1) of the proposed 

rule would prohibit all covered financial institutions from establishing, maintaining, 

administering, or managing a correspondent account in the United States for, or on behalf 

of, a Nauru financial institution. Based on Treasury’s understanding that the only banks 

in Nauru (other than the Central Bank) are shell banks, depository institutions and 

securities broker-dealers are already subject to essentially this same prohibition under the 

Section 313/319 Rule, subject to the inclusion in the proposed rule of certain additional 

Nauru financial institutions. The prohibition would require the additional covered 

financial institutions to review their account records to determine that they have no 

customers that are Nauru financial institutions.

Termination of known indirect accounts. In addition, section 103.184(b)(2) of the

proposed rule would require a covered financial institution to terminate immediately any 

correspondent account which it currently establishes, maintains, administers, or manages 

for, or on behalf of, a foreign bank, if it obtains actual knowledge that the foreign bank is 

using this account to provide banking services indirectly to a Nauru financial institution. 

The proposed rule would not require covered financial institutions to review or 
18

investigate every account they maintain for foreign banks to ascertain whether such 

foreign banks are providing services to Nauru financial institutions. Instead, covered 

financial institutions must terminate such an account only if they become aware that a 

foreign bank is using its correspondent account to provide banking services indirectly to a 

Nauru financial institution. This distinction is significant and in contrast to the obligation 

under the Section 313/319 Rule, which imposed a new due diligence requirement on 

covered financial institutions to take reasonable steps to ensure that their foreign bank 

customers were not providing services to shell banks. This proposed rule would rely on 

existing due diligence procedures and not require covered financial institutions to make a 

separate inquiry of their foreign bank customers concerning Nauru financial institutions. 

Reporting and recordkeeping not required. Section 103.184(b)(3) of the proposed 

rule states that nothing in the proposed rule imposes any reporting or recordkeeping 

requirement upon any covered financial institution that is not otherwise required by 

applicable law or regulation. If a covered financial institution that is subject to the 

Section 313/319 Rule (depository institution or securities broker-dealer) has previously 

received a certification or other information from a Nauru bank pursuant to that Rule in 

which it purports not to be a shell bank, this proposed rule would still require the 

termination of the account. More specifically, the safe harbor provisions of the Section 

313/319 Rule will have no application to the measures that would be imposed under this 

proposed rule.

Section 5318A authorizes Treasury to prohibit a broad range of financial dealings 

with a country of primary money laundering concern. Indeed, the statute affords 

Treasury the authority to require the termination of any correspondent account that 
19

involves the primary money laundering concern. In the proposed rule, Treasury has 

taken a relatively conservative approach to this countermeasure by requiring only the 

termination of direct correspondent accounts with a Nauru financial institution and the 

termination of accounts for other foreign banks only when the U.S. institution has actual 

knowledge that the account is being used to provide services to a Nauru financial 

institution indirectly. In view of all the facts and circumstances, this more limited 

application is appropriate. Treasury notes, however, that the circumstances surrounding 

future designations may warrant the imposition of countermeasures that reach much 

further into nested financial relationships with the primary money laundering concern.

IV. Public Comments Requested

The Department of the Treasury invites comments from all interested persons, on 

all aspects of this rulemaking, and specifically seeks comments from the financial sector, 

including domestic financial institutions and domestic financial agencies, concerning the 

appropriateness and effectiveness of this particular special measure, the ability to comply 

with special measure five on Nauru, and any competitive disadvantage, cost, or burden 

associated with compliance.

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. Financial institutions described in 

section 103.175(f)(2) are currently prohibited from establishing or maintaining 

correspondent accounts in the United States for, or on behalf of, a foreign shell bank. 

This rule would make it clear that all banks licensed by Nauru (other than the Central 
20

Bank of Nauru) are shell banks notwithstanding that such a bank may have provided a 

certification that it is not a shell bank.

With respect to futures commission merchants, introducing brokers, and open-end 

investment companies, Treasury and FinCEN believe that few, if any, such businesses are 

likely to maintain a correspondent relationship with a bank licensed by Nauru. Treasury 

and FinCEN specifically request comments on the extent to which the prohibition 

contained in the proposed rule would affect such businesses.

VI. Executive Order 12866

This final rule is not a “significant regulatory action” as defined in Executive 

Order 12866. Accordingly, a regulatory assessment is not required.

List of Subjects in 31 CFR Part 103

Banks and banking, Brokers, Counter-money laundering, Counter-terrorism, 

Currency, Foreign banking, Reporting and recordkeeping requirements.

For the reasons set forth in the preamble, 31 CFR part 103 is proposed to be

amended as follows:

PART 103-FINANCIAL RECORDKEEPING AND REPORTING OF 

CURRENCY AND FOREIGN 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 and 5316-

5332; title III, secs. 311, 312, 313, 314, 319, 326, 352, Pub. L. 107-56, 115 Stat. 307, 12 

U.S.C. 1818, 12 U.S.C. 1786(q).
21

 2. Subpart I of part 103 is proposed to be amended by adding § 103.184 under the 

undesignated centerheading “SPECIAL DUE DILIGENCE FOR CORRESPONDENT 

ACCOUNTS AND PRIVATE BANKING ACCOUNTS” to read as follows:

§ 103.184 Special measures against Nauru.

(a) Definitions. For purposes of this section:

(1) Correspondent account has the same meaning as provided in § 

103.175(d)(1)(ii) and (2).

(2) Covered financial institution has the same meaning as provided in § 

103.175(f)(2) and also includes the following: 

(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 that is an open-end company (as defined in 

section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a-5) that is 

registered, or required to register, with the Securities and Exchange Commission 

pursuant to that Act.

(3) Nauru financial institution means the following:

(i) Any foreign bank, as that term is defined in § 103.11(o), licensed by Nauru, 

but does not include the Central Bank of Nauru: and

(ii) Any other person organized under the law of Nauru who conducts as a 

business one or more of the following activities or operations on behalf of customers: 

(A) Trading in money market instruments; 

(B) Trading in exchange, interest rate, and index instruments; 
22

(C) Trading in transferable securities; or

(D) Trading in commodity futures trading. 

(b) Requirements for covered financial institutions.

(1) Prohibition on correspondent accounts. A covered financial institution shall 

not establish, maintain, administer, or manage a correspondent account in the United 

States for, or on behalf of, a Nauru financial institution.

(2) Termination of correspondent accounts. A covered financial institution shall 

terminate any correspondent account established, maintained, administered, or managed 

by that covered financial institution in the United States for a foreign bank upon actual 

knowledge that the correspondent account is being used by the foreign bank to provide 

banking services indirectly to a Nauru financial institution.

(3) Reporting and recordkeeping not required. Nothing in this section shall 

require a covered financial institution to maintain any records, obtain any certification, or 

to report any information not otherwise required by applicable law or regulation.

Dated: __________________________

__________________________

James F. Sloan

Director,

Financial Crimes Enforcement Network