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. 

51980 Federal Register / Vol. 69, No. 163 / Tuesday, August 24, 2004 / Proposed Rules 

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).

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 upon the opening or 

maintaining of a correspondent account by any 

domestic financial institution or domestic financial 

agency for the foreign financial institution of 

primary money laundering concern.

3Classified information used in support of a 

section 311 designation 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)).

4Because the United States does not recognize 

the ‘‘Turkish Republic of Northern Cyprus,’’ all 

references to the country or government in this 

proposed rulemaking are placed within quotation 

marks.

5See U.S. Department of State, 2003 International 

Narcotics Control Strategy Report, issued March 1, 

2004 (INCSR).

6 INCSR, supra note 11.

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; monitor 

more effectively the respective 

jurisdictions, institutions, transactions, 

and accounts; and/or 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 section 311 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 such action 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 

reasonable grounds exist for concluding 

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 In 

the imposition of special measures, the 

Secretary follows procedures similar to 

those for finding a foreign financial 

institution to be of primary money 

laundering concern, but performs 

additional consultations and considers 

additional factors. Section 311 requires 

the Secretary to consult with other 

appropriate Federal agencies and 

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

A. ‘‘Turkish Republic of Northern 

Cyprus’’

In this proposed rulemaking, FinCEN 

proposes to impose the fifth special 

measure (31 U.S.C. 5318A(b)(5)) against 

First Merchant Bank OSH Ltd (First 

Merchant Bank or the Bank). The fifth 

special measure prohibits or imposes 

conditions upon the opening or 

maintaining of correspondent or 

payable-through accounts for the foreign 

financial institution of primary money 

laundering concern. This special 

measure may be imposed only through 

the issuance of a regulation. 

Cyprus was divided in 1974 when a 

coup d’etat directed from Greece 

induced the Turkish military to 

intervene. Since then, the southern part 

of the country has been under the 

control of the Government of the 

Republic of Cyprus. The northern part is 

controlled by a Turkish Cypriot 

administration that in 1983 proclaimed 

itself the ‘‘Turkish Republic of Northern 

Cyprus’’ (‘‘TRNC’’).4 Turkey is the only 

country that recognizes the ‘‘TRNC.’’

The ‘‘TRNC’’ has a sizeable offshore 

sector that is not subject to effective 

anti-money laundering regulation. The 

offshore sector consists of 33 banks and 

approximately 54 international business 

companies. Under Turkish Cypriot law, 

the offshore banks may not conduct 

business with ‘‘TRNC’’ residents and 

may not deal in cash. The offshore 

entities are audited by the Turkish 

Cypriot ‘‘Central Bank’’ and are required 

to submit a yearly report on their 

activities. However, the ‘‘Central Bank’’

has no regulatory authority over the 

offshore banks and can neither grant nor 

revoke licenses. Instead, the Turkish 

Cypriot ‘‘Ministry of the Interior’’

performs this function, which leaves the 

process open to politicization and 

possible corruption. Although a recently 

proposed law would have restricted the 

granting of new bank licenses to only 

those banks already having licensees in 

an OECD country, the law never passed. 

The Turkish Cypriot anti-money 

laundering law became effective in 

1999. Although the law, on paper, is a 

significant improvement over the money 

laundering controls previously in place, 

the Government of the ‘‘TRNC’’ has 

received few suspicious activity reports 

from financial institutions and has been 

lax in enforcing the law.5 The fact that 

the ‘‘TRNC’’ is recognized only by 

Turkey prevents ‘‘TRNC’’ officials from 

receiving training or funding from 

international organizations with 

experience in combating money 

laundering.

There continues to be evidence that 

narcotics trade with Turkey and Britain 

and money laundering are conducted in 

or through the ‘‘TRNC.’’ 6 Criminals 

reportedly use casinos operating in the 

Federal Register / Vol. 69, No. 163 / Tuesday, August 24, 2004 / Proposed Rules 51981

7 Id.

8 Id.

9See http://www.firstmerchantbank.com.

10The Bankers’ Almanac, Reed Business 

Information Ltd (2003).

11 Id.

12 Id.

13 Jarson operated through his company Concorde 

Wyvern Atlantic, a/k/a Wyvern Anstalt, located in 

London and registered in Liechtenstein.

14 Indictment S1 02 Cr. 679 (MGC); Southern 

District of New York, United States of America, 

versus Ralph Jarson and Hakki Yaman Namli.

‘‘TRNC’’ and Turkish Cypriot banks 

licensed to operate offshore to launder 

money from their illegal activities. The 

jurisdiction’s 21 primarily Turkishmainland owned casinos are essentially 

unregulated. ‘‘TRNC’’ officials believe 

that much of the currency generated by 

these casinos is transported directly to 

Turkey without entering the ‘‘TRNC’’

banking system.7 And, as noted above, 

the licensing process and supervision of 

offshore banks by the Government of the 

‘‘TRNC’’ is not rigorous. Although 

Turkish Cypriot law prohibits 

individuals entering or leaving the 

‘‘TRNC’’ from transporting more than 

the equivalent of $10,000 in currency, 

Central Bank officials note that this law 

is difficult to enforce, given the large 

volume of travelers between Turkey and 

the ‘‘TRNC’’ and the growing number of 

individuals crossing the U.N.-patrolled 

buffer zone since travel restrictions were 

relaxed between north and south Cyprus 

in 2003.8

B. First Merchant Bank OSH Ltd 

First Merchant Bank operates out of 

offices in Lefkosa/Nicosia, ‘‘TRNC,’’ and 

has 21 employees. First Merchant Bank 

was licensed in the ‘‘TRNC’’ in 1993 as 

an offshore bank. It is a privately owned 

commercial bank specializing in the 

provision of commercial and investment 

banking services to individual and 

corporate offshore customers. On its 

Web site, the Bank repeatedly advertises 

the ‘‘private’’ and ‘‘discreet’’ nature of 

its services, stressing that customers 

receive the ‘‘highest confidentiality’’

from and ‘‘a close relationship’’ with the 

Bank.9 First Merchant Bank maintains 

correspondent accounts with banks in 

countries all over the world, including 

several U.S. and foreign banks located 

in New York City.10 According to 

published reports, Dr. Hakki Yaman 

Namli is President, Chairman, and 

General Manager of First Merchant 

Bank.11 First Merchant Bank is owned 

by Standard Finance Ltd. (Ireland) and 

private shareholders (98% and 2%, 

respectively).12 Standard Finance Ltd., 

in turn, is owned by Provincial & Allied 

Funding Corp. (Bahamas) and Millvale 

Holdings Inc. (British Virgin Islands). 

As stated on its Web site, First Merchant 

Bank has four wholly owned 

subsidiaries: FMB Finance Ltd (British 

Virgin Islands), First Merchant 

International Inc (Bahamas), First 

Merchant Finance Ltd (Ireland), and 

First Merchant Trust Ltd (Ireland). For 

the purposes of this document, unless 

the context dictates otherwise, 

references to First Merchant Bank 

include FMB Finance Ltd, First 

Merchant International Inc, First 

Merchant Finance Ltd, and First 

Merchant Trust Ltd, and any other 

branch, office, or subsidiary of First 

Merchant Bank operating in the 

‘‘TRNC’’ or in any other jurisdiction.

II. Imposition of Special Measure 

Against First Merchant Bank, 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 

A. Finding 

Based upon a review and analysis of 

relevant information, consultations with 

relevant Federal agencies and 

departments, and after consideration of 

the factors enumerated in section 311, 

the Secretary, through his delegate, the 

Director of FinCEN, has found that 

reasonable grounds exist for concluding 

that First Merchant Bank is a financial 

institution of primary money laundering 

concern. FinCEN has found First 

Merchant Bank to be of primary money 

laundering concern based on a number 

of factors, including: (1) It is licensed as 

an offshore bank in the ‘‘TRNC,’’ a 

jurisdiction with inadequate anti-money 

laundering controls, particularly those 

applicable to its offshore sector; (2) it is 

involved in the marketing and sale of 

fraudulent financial products and 

services; (3) it has been used as a 

conduit for the laundering of 

fraudulently obtained funds; and (4) the 

individuals who own, control, and 

operate First Merchant Bank have links 

with organized crime and apparently 

have used First Merchant Bank to 

launder criminal proceeds. A discussion 

of the section 311 factors relevant to this 

finding follows.

1. The Extent to Which First Merchant 

Bank Has Been Used To Facilitate or 

Promote Money Laundering in or 

Through the Jurisdiction 

FinCEN has determined, based on a 

variety of sources, that First Merchant 

Bank is used to facilitate or promote 

money laundering in or through the 

‘‘TRNC.’’ Indeed, some of the money 

laundering occurring at First Merchant 

Bank appears to involve the proceeds of 

First Merchant Bank’s own fraudulent 

activity, as further described below. In 

addition, the proceeds of alleged illicit 

activity have been transferred to or 

through accounts held by First 

Merchant Bank at U.S. financial 

institutions. 

In January 2003, a Federal grand jury 

sitting in the Southern District of New 

York indicted First Merchant Bank’s 

President, Chairman, and General 

Manager, Dr. Hakki Yaman Namli, as a 

co-conspirator with an associate, Ralph 

Jarson,13 in a scheme to market ‘‘credit 

enhancement’’ products, which 

consisted of deceptive bank documents 

showing that a customer had assets that 

did not exist, and to sell worthless 

‘‘credit facilities’’ to investors.14

Allegedly, the conspirators worked with 

First Merchant Bank to produce and 

market the deceptive bank documents 

and worthless credit facilities. Because 

Dr. Hakki Yaman Namli became a 

fugitive from justice he was not tried on 

the indictment; however, his associate, 

Ralph Jarson, was convicted on six 

felony counts, including one count of 

conspiring with Dr. Hakki Yaman Namli 

to engage in wire fraud, and five counts 

of committing wire fraud, on October 

30, 2003.

The indictment on which Ralph 

Jarson was tried describes two different 

schemes perpetrated by Ralph Jarson, 

Dr. Hakki Yaman Namli, and First 

Merchant Bank. First, Ralph Jarson and 

Dr. Hakki Yaman Namli negotiated the 

sale of a fraudulent ‘‘special account 

statement’’ issued by First Merchant 

Bank to an FBI undercover agent posing 

as a representative of a brokerage firm 

for a fee of $2 million. The ‘‘special 

account statement’’ showed that the 

brokerage firm had $20 million in 

immediately available assets when, in 

fact, no assets existed. Second, in 

exchange for $1 million, First Merchant 

Bank issued a worthless letter of credit 

with a face value of $100 million to an 

investor for the purchase of discounted 

medium term bank notes that the 

investor later discovered were nonexistent. 

A review of records obtained from a 

number of financial institutions in the 

U.S. shows a pattern of fraudulent 

conduct similar to that described in the 

indictment by Dr. Hakki Yaman Namli 

and First Merchant Bank that began as 

early as 1997 and continued through at 

least the end of 2002. Several different 

U.S. banks were approached by First 

Merchant Bank customers attempting to 

use fraudulent letters of credit or 

fraudulent loan guarantees issued or 

provided by First Merchant Bank as 

51982 Federal Register / Vol. 69, No. 163 / Tuesday, August 24, 2004 / Proposed Rules 

15The persons promoting these fraudulent 

schemes often claim that an innocent investor’s 

funds will be used to purchase and trade financial 

instruments issued by well-regarded and financially 

sound institutions (‘‘prime banks’’) on clandestine 

overseas markets to generate huge returns in which 

the investor will share. However, neither the 

instruments, nor the markets on which they 

allegedly trade, exist.

16The Susurluk scandal began with an 

automobile accident in Susurluk, Turkey, on 

November 3, 1996. Four people occupied the 

automobile: The deputy police chief of Istanbul; an 

alleged ‘‘extreme nationalist hit man’’ previously 

convicted of heroin trafficking and wanted for 

terrorism; the hit man’s girlfriend, who couriered 

drugs and had been the mistress of several 

prominent members of the Turkish mafia; and a 

member of the Turkish Parliament, whose private 

militia had helped the army fight Kurdish militants. 

The member of Parliament was the only survivor of 

the crash and claimed to have lost his memory. The 

trunk of the car was full of weapons. The incident 

received national notoriety and served as the basis 

for Parliamentary investigations into links among 

politicians, the arms trade, and organized crime.

17 In connection with this action, FinCEN 

consulted with the Federal functional regulators, 

the Department of Justice, and the Department of 

State.

18For 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.

collateral to obtain funds from the U.S. 

banks. 

In addition, it appears that First 

Merchant Bank has used its 

correspondent accounts with banks in 

the U.S. as conduits for the transfer of 

fraudulently obtained funds. In one 

case, $4 million in proceeds of a ‘‘prime 

bank’’ fraud 15 were transferred through 

one of First Merchant Bank’s 

correspondent accounts in the U.S. to 

the perpetrator’s account in the 

‘‘TRNC.’’ In another case, a former 

officer of a third bank wired $700,000 to 

the same correspondent account for the 

benefit of First Merchant Bank. The 

third bank suspected that the funds 

derived from the former officer’s misuse 

of position or self-dealing while 

employed at the bank.

Domestic and foreign newspapers and 

magazines report that First Merchant 

Bank has been used for illicit 

transactions since its founding in 1993. 

Apparently, First Merchant Bank was 

established, at least in part, to facilitate 

the movement of funds between 

organized crime rings and corrupt 

politicians. The earliest indicators of 

illicit activity on the part of First 

Merchant Bank or its principals 

involved the original shareholders or 

partners of the Bank. One of the original 

partners of First Merchant Bank is 

reported to be a former KGB employee 

identified as Vladimir Kobarel, who 

allegedly involved First Merchant Bank 

in transferring underground money to 

Russian banks. Another original partner, 

Tarik Umit, was a former Turkish 

National Intelligence Organization 

(MIT) member who was believed killed 

in connection with a well-known 

Turkish investigation into links between 

the Turkish mafia, the MIT, and right 

wing politicians (the Susurluk 

scandal).16 First Merchant Bank, Tarik 

Umit, and Dr. Hakki Yaman Namli are 

alleged to have been involved with the 

laundering of $450 million in narcotics 

proceeds for the ‘‘Susurluk gang.’’

2. The Extent to Which First Merchant 

Bank Is Used for Legitimate Business 

Purposes in the Jurisdiction 

Because First Merchant Bank is 

located in the ‘‘TRNC,’’ which is not 

recognized by the United States and has 

weak anti-money laundering laws, and 

is an offshore bank subject to limited 

government oversight, the extent of First 

Merchant Bank’s legitimate activities is 

ultimately difficult to quantify. FinCEN 

has identified several instances in 

which First Merchant Bank and its 

Chairman have engaged in fraudulent 

activity and money laundering and in 

which illicit funds have passed through 

First Merchant Bank or one of its 

subsidiaries. Considering this evidence 

and the lack of evidence showing that 

the Bank is used for legitimate business 

purposes, FinCEN believes that First 

Merchant Bank is rarely, if ever, used 

for legitimate business transactions and 

any legitimate use of First Merchant 

Bank and its subsidiaries is significantly 

outweighed by their use to promote or 

facilitate money laundering. 

Nevertheless, FinCEN specifically 

solicits comment on the impact of the 

proposed special measure upon the any 

legitimate transactions conducted with 

First Merchant Bank involving, for 

example, United States businesses, 

United Nations agencies, and nongovernmental and private voluntary 

organizations doing business in or 

operating in the ‘‘TRNC.’’

3. The Extent to Which Such Action Is 

Sufficient To Ensure, With Respect to 

Transactions Involving First Merchant 

Bank, 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 conclude that 

First Merchant Bank is being used to 

promote or facilitate money laundering, 

including the transmission of fraudulent 

bank instruments through the U.S. 

financial system and the international 

laundering of the proceeds of fraudulent 

activity. Currently, there are no 

protective measures that specifically 

target First Merchant Bank or otherwise 

serve to notify U.S. and foreign financial 

institutions of the money laundering 

risks associated with First Merchant 

Bank. Thus, finding First Merchant 

Bank to be a financial institution of 

primary money laundering concern and 

prohibiting the opening or maintaining 

of correspondent accounts for that 

institution, is a necessary step to ensure 

that First Merchant Bank is not able to 

access the U.S. financial system to 

facilitate money laundering or any other 

criminal activity. The finding of primary 

money laundering concern and the 

imposition of the special measure also 

bring the Bank’s criminal conduct to the 

attention of the international financial 

community and hopefully further limit 

the Bank’s ability to conduct 

transactions.

B. Imposition of Special Measure 

As a result of the finding that First 

Merchant Bank is a financial institution 

of primary money laundering concern, 

and based upon additional 

consultations with certain Federal 

agencies and departments and 

consideration of additional relevant 

factors, the Secretary, through his 

delegate, the Director of FinCEN, 

proposes imposition of the special 

measure authorized by 31 U.S.C. 

5318A(b)(5).17 That special measure 

authorizes the prohibition of the 

opening or maintaining of 

correspondent or payable-through 

accounts 18 by any domestic financial 

institution or domestic financial agency 

for, or on behalf of, a foreign financial 

institution found to be of primary 

money laundering concern. A 

discussion of the additional section 311 

factors relevant to the imposition of this 

particular special measure follows.

1. Whether Similar Actions Have Been 

or Will Be Taken by Other Nations or 

Multilateral Groups Against First 

Merchant Bank 

Other countries have not taken any 

action similar to the one proposed in 

this proposed rulemaking that would 

prohibit domestic financial institutions 

and domestic financial agencies from 

opening or maintaining a correspondent 

account for or on behalf of First 

Merchant Bank. The United States 

hopes that other countries will take 

similar action based on the findings 

contained in this proposed rulemaking. 

In the meantime, lack of similar action 

by other countries makes it even more 

imperative that the fifth special measure 

be imposed to prevent access by First 

Merchant Bank to the U.S. financial 

system. 

Federal Register / Vol. 69, No. 163 / Tuesday, August 24, 2004 / Proposed Rules 51983

19See 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 proposed rulemaking 

would prohibit covered financial 

institutions from opening or 

maintaining correspondent accounts for, 

or on behalf of, First Merchant Bank. 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 

First Merchant Bank. The burden 

associated with these requirements is 

not expected to be significant, given that 

only a few domestic banks currently 

maintain correspondent accounts for 

First Merchant Bank. 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 

proposed 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 the 

Bank 

This proposed rulemaking targets 

First Merchant Bank specifically; it does 

not target a class of financial 

transactions (such as wire transfers) or 

a particular jurisdiction. First Merchant 

Bank 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. Moreover, as an offshore bank, 

it is prohibited from offering banking 

services to the residents of its home 

jurisdiction. Thus, the imposition of the 

fifth special measure against First 

Merchant Bank will not have a 

significant adverse systemic impact on 

the international payment, clearance, 

and settlement system. In addition, as 

discussed above, FinCEN believes that 

First Merchant Bank is rarely, if ever, 

used for legitimate business transactions 

and any legitimate use of First Merchant 

Bank and its subsidiaries is significantly 

outweighed by their use to promote or 

facilitate money laundering. 

4. The Effect of the Proposed Action on 

the 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 participate in other 

financial crime enhances national 

security, by making it more difficult for 

criminals to access the substantial 

resources of the U.S. financial system. 

In addition, the imposition of the fifth 

special measure against First Merchant 

Bank would complement the U.S. 

Government’s overall foreign policy 

strategy of making the entry into the 

U.S. financial system more difficult for 

high-risk financial institutions located 

in jurisdictions with lax anti-money 

laundering controls. 

Therefore, after conducting the 

required consultations and weighing the 

relevant factors, FinCEN has determined 

that reasonable grounds exist for 

concluding that First Merchant Bank 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, First 

Merchant Bank. 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 First Merchant 

Bank. 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 First 

Merchant Bank 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 First Merchant Bank, 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 

must take a risk-based approach when 

deciding what, if any, other due 

diligence measures it should adopt to 

guard against the indirect use of its 

correspondent accounts by First 

Merchant Bank, based on risk factors 

such as the type of services it offers and 

geographic locations of its 

correspondents. 

A. 103.189(a)—Definitions 

1. Correspondent Account

Section 103.189(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,19 except that the 

term is being expanded to cover such 

accounts maintained by mutual funds, 

futures commission merchants, and 

introducing brokers.

2. Covered Financial Institution 

Section 103.189(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 

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 

51984 Federal Register / Vol. 69, No. 163 / Tuesday, August 24, 2004 / Proposed Rules 

20Again, 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.

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. First Merchant Bank 

Section 103.189(a)(3) of the proposed 

rule defines First Merchant Bank to 

include all subsidiaries, branches, and 

offices of First Merchant Bank operating 

in the ‘‘TRNC’’ or in any other 

jurisdiction. FMB Finance Ltd. (British 

Virgin Islands), First Merchant 

International Inc. (Bahamas), First 

Merchant Finance Ltd. (Ireland), and 

First Merchant Trust Ltd. (Ireland), and 

their branches, are included in the 

definition, although FinCEN 

understands that First Merchant Bank 

currently has only the four subsidiaries 

mentioned here. FinCEN will provide 

information regarding the existence or 

establishment of any other subsidiaries 

as it becomes available; however, 

covered financial institutions should 

take commercially reasonable measures 

to determine whether a customer is a 

subsidiary of First Merchant Bank. 

B. 103.189(b)—Requirements for 

Covered Financial Institutions 

For purposes of complying with the 

proposed rule’s prohibition on the 

opening or maintaining of 

correspondent accounts for, or on behalf 

of, First Merchant Bank, FinCEN 

expects that a covered financial 

institution will take such steps that a 

reasonable and prudent financial 

institution would take to protect itself 

from loan or other fraud or loss based 

on misidentification of a person’s status. 

1. Prohibition on Direct Use of 

Correspondent Accounts 

Section 103.189(b)(1) of the proposed 

rule prohibits all covered financial 

institutions from establishing, 

maintaining, administering, or 

managing a correspondent account in 

the United States for, or on behalf of, 

First Merchant Bank. 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, 

First Merchant Bank. 

2. Special Due Diligence of 

Correspondent Accounts To Prohibit 

Indirect Use 

As a corollary to the prohibition on 

the opening or maintaining of 

correspondent accounts directly for 

First Merchant Bank, section 

103.189(b)(2) requires a covered 

financial institution to apply special 

due diligence to its correspondent 

accounts 20 that is reasonably designed 

to guard against their indirect use by 

First Merchant Bank. At a minimum, 

that special due diligence must include 

notifying correspondent account holders 

that they may not provide First 

Merchant Bank 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 103.189, we are prohibited from 

establishing, maintaining, administering, or 

managing a correspondent account for, or on 

behalf of, First Merchant Bank or any of its 

subsidiaries (including FMB Finance Ltd. 

First Merchant International Inc. First 

Merchant Finance Ltd. and First Merchant 

Trust Ltd.). The regulations also require us to 

notify you that you may not provide First 

Merchant Bank or any of its subsidiaries with 

access to the correspondent account you hold 

at our financial institution. If we become 

aware that First Merchant Bank 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 First Merchant Bank access to 

the U.S. financial system, as well as to 

increase awareness within the 

international financial community of 

the risks and deficiencies of First 

Merchant Bank. 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 First Merchant Bank 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, scope, and timing 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 First 

Merchant Bank, 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 First Merchant Bank as the 

originator’s or beneficiary’s financial 

institution, or otherwise referenced First 

Merchant Bank. 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 to identify any 

indirect use of such accounts by First 

Merchant Bank. 

Notifying its correspondent account 

holders and taking reasonable steps to 

identify any indirect use of its 

correspondent accounts by First 

Merchant Bank 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 riskbased approach for determining what, if 

any, additional due diligence measures 

it should implement to guard against the 

indirect use of its correspondent 

accounts by First Merchant Bank, 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 First Merchant Bank must 

take all appropriate steps to block such 

indirect access, including, when 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 

Federal Register / Vol. 69, No. 163 / Tuesday, August 24, 2004 / Proposed Rules 51985

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 First Merchant Bank. 

FinCEN specifically solicits comment on the 

requirement under the proposed rule that a 

covered financial institution block indirect 

access to First Merchant Bank, once such 

indirect access is identified.

3. Reporting Not Required 

Section 103.189(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 First 

Merchant Bank 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 First Merchant Bank, and specifically 

invites comments on the following 

matters: 

1. The appropriate form, scope, and 

timing 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 First 

Merchant Bank; 

3. The appropriate steps a covered 

financial institution should take once it 

identifies an indirect use of one of its 

correspondent accounts by First 

Merchant Bank; and 

4. The impact of the proposed special 

measure upon any legitimate 

transactions conducted with First 

Merchant Bank by United States 

businesses, United Nations agencies, 

and non-governmental and private 

voluntary organizations doing business 

in or operating in the ‘‘TRNC.’’

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 First Merchant Bank 

currently maintains only a few 

correspondent accounts in the United 

States, and that those accounts are 

maintained at 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 be easily modified to 

monitor for the use of correspondent 

accounts by First Merchant Bank. Thus, 

the special due diligence that would be 

required by this proposed rulemaking—

i.e., the one-time transmittal of notice to 

correspondent account holders and 

screening of transactions to identify any 

indirect use of a correspondent 

account—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 

103.189 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 

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

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

requirement in 31 CFR 103.189(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 First Merchant Bank. The information 

required to be maintained by 31 CFR 

103.189(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 103.189. 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 

51986 Federal Register / Vol. 69, No. 163 / Tuesday, August 24, 2004 / Proposed Rules 

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. The undesignated center heading 

preceding §103.185 is removed. 

3. Subpart I of part 103 is proposed 

to be amended by adding new § 103.189 

as follows:

§ 103.189 Special measures against First 

Merchant Bank. 

(a) Definitions. For purposes of this 

section: 

(1) Correspondent account has the 

same meaning as provided in 

§ 103.175(d)(1)(ii). 

(2) 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 (15 U.S.C. 80a–3)) 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). 

(3) First Merchant Bank means any 

headquarters, branch, office, or 

subsidiary of First Merchant Bank OSH 

Ltd operating in the ‘‘Turkish Republic 

of Northern Cyprus’’ (‘‘TRNC’’) or in any 

other jurisdiction, including FMB 

Finance Ltd (British Virgin Islands), 

First Merchant International Inc 

(Bahamas), First Merchant Finance Ltd 

(Ireland), and First Merchant Trust Ltd 

(Ireland). 

(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, First 

Merchant Bank. 

(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 First 

Merchant Bank. At a minimum, that 

special due diligence must include: 

(A) Notifying correspondent account 

holders that they may not provide First 

Merchant Bank 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 First Merchant Bank, 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 First 

Merchant Bank. 

(iii) A covered financial institution 

that obtains knowledge that a 

correspondent account is being used by 

the foreign bank to provide indirect 

access to First Merchant Bank, 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. 04–19267 Filed 8–23–04; 8:45 am] 

BILLING CODE 4810–02–P

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52

[R07–OAR–2004–MO–0002; FRL–7805–2] 

Approval and Promulgation of 

Implementation Plans; State of 

Missouri

AGENCY: Environmental Protection 

Agency (EPA).

ACTION: Proposed rule.

SUMMARY: EPA proposes to approve a 

revision to the Missouri State 

Implementation Plan (SIP) which 

pertains to a state rule and maintenance 

plan applicable to the Doe Run Resource 

Recycling Lead Facility at Buick, 

Missouri. This revision revises certain 

furnace production limits at the facility, 

which are contained in the state rule 

and maintenance plan. 

Approval of this revision will ensure 

consistency between the state and 

federally-approved rule and 

maintenance plan, and ensure Federal 

enforceability of the revised state rule 

and maintenance plan.

DATES: Comments on this proposed 

action must be received in writing by 

September 23, 2004.

ADDRESSES: Comments may be mailed to 

Judith Robinson, Environmental 

Protection Agency, Air Planning and 

Development Branch, 901 North 5th 

Street, Kansas City, Kansas 66101. 

Comments may also be submitted 

electronically or through hand delivery/

courier; please follow the detailed 

instructions in the ADDRESSES section of 

the direct final rule which is located in 

the rules section of this Federal 

Register.

FOR FURTHER INFORMATION CONTACT:

Judith Robinson at (913) 551–7825, or 

by e-mail at robinson.judith@epa.gov.

SUPPLEMENTARY INFORMATION: In the 

final rules section of the Federal 

Register, EPA is approving the state’s 

SIP revision as a direct final rule 

without prior proposal because the 

Agency views this as a noncontroversial 

revision amendment and anticipates no 

relevant adverse comments to this 

action. A detailed rationale for the 

approval is set forth in the direct final 

rule. If no relevant adverse comments 

are received in response to this action, 

no further activity is contemplated in 

relation to this action. If EPA receives 

relevant adverse comments, the direct 

final rule will be withdrawn and all 

public comments received will be 

addressed in a subsequent final rule 

based on this proposed action. EPA will 

not institute a second comment period 

on this action. Any parties interested in 

commenting on this action should do so 

at this time. Please note that if EPA 

receives adverse comment on part of 

this rule and if that part can be severed 

from the remainder of the rule, EPA may 

adopt as final those parts of the rule that 

are not the subject of an adverse 

comment. For additional information, 

see the direct final rule which is located 

in the rules section of this Federal 

Register.