[Federal Register Volume 70, Number 181 (Tuesday, September 20, 2005)]
[Proposed Rules]
[Pages 55217-55222]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-18657]



Federal Register / Vol. 70, No. 181 / Tuesday, September 20, 2005 / 
Proposed Rules

[[Page 55217]]


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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-A83


Financial Crimes Enforcement Network; Amendment to the Bank 
Secrecy Act Regulations--Imposition of Special Measure Against Banco 
Delta Asia SARL

AGENCY: Financial Crimes Enforcement Network, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: In a notice of finding published elsewhere in this issue of 
the Federal Register, the Secretary of the Treasury, through his 
delegate, the Director of the Financial Crimes Enforcement Network, 
found that reasonable grounds exist for concluding that Banco Delta 
Asia SARL (Banco Delta Asia) is a jurisdiction of primary money 
laundering concern pursuant to 31 U.S.C. 5318A. The Financial Crimes 
Enforcement Network is issuing this notice of proposed rulemaking to 
impose a special measure against Banco Delta Asia.

DATES: Written comments on the notice of proposed rulemaking must be 
submitted on or before October 20, 2005.

ADDRESSES: You may submit comments, identified by RIN 1506-A83 by any 
of the following methods:
    <bullet> Federal e-rulemaking portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#addfc8cacec2c0c0c8c3d9deedcbc4c3cec8c383cac2db"><span class="__cf_email__" data-cfemail="3d4f585a5e5250505853494e7d5b54535e5853135a524b">[email protected]</span></a>. Include RIN 1506-A83 in 
the subject line of the message.
    <bullet> Mail: The Financial Crimes Enforcement Network, P.O. Box 
39, Vienna, VA 22183. Include RIN 1506-A83 in the body of the text.
    Instructions. It is preferable for comments to be submitted by 
electronic mail because paper mail in the Washington, DC area may be 
delayed. Please submit comments by one method only. All submissions 
received must include the agency name and the Regulatory Information 
Number (RIN) for this rulemaking. All comments received will be posted 
without change to http://www.fincen.gov, including any personal 
information provided. Comments may be inspected at the Financial Crimes 
Enforcement Network between 10 a.m. and 4 p.m., in the Financial Crimes 
Enforcement Network 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: Regulatory Policy and Programs 
Division, the Financial Crimes Enforcement Network, (800) 949-2732.

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 Act of 2001 (the USA PATRIOT Act), 
Public Law 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 (``the Secretary'') to 
administer the BSA and its implementing regulations has been delegated 
to the Director of the Financial Crimes Enforcement Network.\1\
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    \1\ Therefore, references to the authority of the Secretary of 
the Treasury under section 311 of the USA PATRIOT Act apply equally 
to the Director of the Financial Crimes Enforcement Network.
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    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 transaction, 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 conclude that a jurisdiction, 
institution, class of transaction, or type of account is of primary 
money laundering concern. The statute also provides similar procedures, 
i.e., factors and consultation requirements, for selecting the specific 
special measures to be imposed against the primary money laundering 
concern.
    Taken as a whole, section 311 provides the Secretary with a range 
of options that can be adapted to target specific money laundering and 
terrorist financing concerns most effectively. These options give the 
Secretary the authority to bring additional 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 jurisdictions, institutions, 
transactions, or accounts of concern; can more effectively monitor the 
respective jurisdictions, institutions, transactions, or accounts; or 
can protect U.S. financial institutions from involvement with 
jurisdictions, institutions, transactions, or accounts that pose a 
money laundering concern.
    Before making a finding that reasonable grounds exist for 
concluding that a foreign financial institution is of primary money 
laundering concern, the Secretary is required to consult with the both 
the Secretary of State and the Attorney General. The Secretary is also 
required by section 311 to consider ``such information as the Secretary 
determines to be relevant, including the following potentially relevant 
factors:
    <bullet> The extent to which such financial institution is used to 
facilitate or promote money laundering in or through the jurisdiction;
    <bullet> The extent to which such financial institution is used for 
legitimate business purposes in the jurisdiction; and
    <bullet> The extent to which the finding that the institution is of 
primary money laundering concern is sufficient to ensure, with respect 
to transactions involving the institution operating in the 
jurisdiction, that the purposes of the BSA continue to be fulfilled, 
and to guard against international money laundering and other financial 
crimes.
    If the Secretary determines that a foreign financial institution is 
of primary money laundering concern, the Secretary must determine the 
appropriate special measure(s) to address the specific money laundering 
risks. Section 311 provides a range of special measures that can be 
imposed individually, jointly, in any combination, and in any 
sequence.\2\ The Secretary's imposition of special measures requires 
additional consultations to be made and factors to be considered. The 
statute requires the Secretary to consult with appropriate federal 
agencies and other interested

[[Page 55218]]

parties \3\ and to consider the following specific factors:
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    \2\ Available 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 special measures against Nauru).
    \3\ Section 5318A(a)(4)(A) requires the Secretary to consult 
with the Chairman of the Board of Governors of the Federal Reserve 
System, any other appropriate Federal banking agency, the Secretary 
of State, the Securities and Exchange Commission (SEC), the 
Commodity Futures Trading Commission (CFTC), the National Credit 
Union Administration (NCUA), and, in the sole discretion of the 
Secretary, ``such other agencies and interested parties as the 
Secretary may find to be appropriate.'' The consultation process 
must also include the Attorney General, if the Secretary is 
considering prohibiting or imposing conditions on domestic financial 
institutions opening or maintaining correspondent account 
relationships with the designated entity.
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    <bullet> Whether similar action has been or is being taken by other 
nations or multilateral groups;
    <bullet> Whether the imposition of any particular special measures 
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;
    <bullet> 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
    <bullet> The effect of the action on the United States national 
security and foreign policy.\4\

B. Banco Delta Asia
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    \4\ Classified information used in support of a section 311 
finding and measure(s) may be submitted by Treasury to a reviewing 
court ex parte and in camera. See section 376 of the Intelligence 
Authorization Act for fiscal year 2004, Pub. L. 108-177 (amending 31 
U.S.C. 5318A by adding new paragraph (f)).
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    In this rulemaking, the Financial Crimes Enforcement Network 
proposes to impose the fifth special measure (31 U.S.C. 5318A(b)(5)) 
against Banco Delta Asia. The fifth special measure prohibits or 
conditions the opening or maintaining of correspondent or payable-
through accounts for the designated institution by U.S. financial 
institutions. This special measure may be imposed only through the 
issuance of a regulation.
    Banco Delta Asia, located and licensed in the Macau Special 
Administrative Region, China, is the commercial banking arm of its 
parent company, Delta Asia Group (Holdings) Ltd. (Delta Asia Group).\5\ 
In addition to commercial banking, Delta Asia Group engages in 
investment banking and insurance activities. Banco Delta Asia was 
originally established in 1935 as Banco Hang Sang,\6\ and its name 
changed to Banco Delta Asia in December 1993. With approximately 340 
employees and a total equity of approximately $35 million at the close 
of 2003, Banco Delta Asia is the fourth smallest commercial bank in 
Macau. Banco Delta Asia operates eight branches in Macau (including a 
branch at a casino) and is served by a representative office in Japan. 
In addition, Banco Delta Asia maintains correspondent accounts in 
Europe, Asia, Australia, Canada, and the United States, and has two 
wholly owned subsidiaries: Delta Asia Credit Ltd., and Delta Asia 
Insurance Limited.\7\
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    \5\ The Bankers Almanac (2004). For purposes of this rulemaking, 
The Financial Crimes Enforcement Network's designation of primary 
money laundering concern and imposition of special measures shall 
apply exclusively to Banco Delta Asia and its branches, offices, and 
subsidiaries, and not to Delta Asia Group (Holdings) Ltd., or any of 
its other subsidiaries.
    \6\ Banco Delta Asia's historical name, Banco Hang Sang, is not 
to be confused with Hang Seng Bank, a Hong Kong bank, nor the Hang 
Seng Index, an index of certain shares traded on the Hong Kong Stock 
Exchange.
    \7\ The Banker's Almanac (2004).
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II. Imposition of Special Measure Against Banco Delta Asia as a 
Financial Institution of Primary Money Laundering Concern

    As a result of the finding on September 20, 2005 by the Secretary, 
through his delegate, the Director of the Financial Crimes Enforcement 
Network, that reasonable grounds exist for concluding that Banco Delta 
Asia is a financial institution of primary money laundering concern 
(see the notice of this finding published elsewhere today in the 
Federal Register), and based upon the additional consultations and the 
consideration of all relevant factors discussed in the finding and in 
this notice of proposed rulemaking, the Secretary, through the 
Financial Crimes Enforcement Network, has determined that reasonable 
grounds exist for the imposition of the special measure authorized by 
section 5318A(b)(5).\8\ That special measure authorizes the prohibition 
against the opening or maintaining of correspondent accounts \9\ by any 
domestic financial institution or agency for or on behalf of a targeted 
financial institution. A discussion of the section 311 factors relevant 
to imposing this particular special measure follows.
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    \8\ In connection with this action, the Financial Crimes 
Enforcement Network consulted with staff of the Federal functional 
regulators, the Department of Justice, and the Department of State.
    \9\ 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.
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1. Whether Similar Actions Have Been or Will Be Taken by Other Nations 
or Multilateral Groups Against Banco Delta Asia
    Other countries or multilateral groups have not yet taken action 
similar to the one proposed in this rulemaking that would prohibit 
domestic financial institutions and agencies from opening or 
maintaining a correspondent account for or on behalf of Banco Delta 
Asia, and to require those domestic financial institutions and agencies 
to screen their correspondents for nested correspondent accounts held 
by Banco Delta Asia. The Financial Crimes Enforcement Network 
encourages other countries to take similar action based on the findings 
contained in this rulemaking.
2. Whether the Imposition of the Fifth Special Measure Would Create a 
Significant Competitive Disadvantage, Including Any Undue Cost or 
Burden Associated With Compliance, for Financial Institutions Organized 
or Licensed in the United States
    The fifth special measure sought to be imposed by this rulemaking 
would prohibit covered financial institutions from opening and 
maintaining correspondent accounts for, or on behalf of, Banco Delta 
Asia. As a corollary to this measure, covered financial institutions 
also would be required to take reasonable steps to apply special due 
diligence, as set forth below, to all of their correspondent accounts 
to help ensure that no such account is being used indirectly to provide 
services to Banco Delta Asia. The Financial Crimes Enforcement Network 
does not expect the burden associated with these requirements to be 
significant, given its understanding that few U.S. financial 
institutions currently maintain a correspondent account for Banco Delta 
Asia. There is a minimal burden involved in transmitting a one-time 
notice to all correspondent account holders concerning the prohibition 
on indirectly providing services to Banco Delta Asia. In addition, U.S. 
financial institutions generally apply some degree of due diligence in 
screening their transactions and accounts, often through the use of 
commercially available software such as that used for compliance with 
the economic sanctions programs administered by the Office of Foreign 
Assets Control (OFAC) of the Department of the Treasury. As explained 
in more detail in the section-by-section analysis below, financial 
institutions should, if necessary, be able to easily adapt their 
current screening procedures to comply with this special

[[Page 55219]]

measure. Thus, the special due diligence that would be required by this 
rulemaking is not expected to impose a significant additional burden 
upon U.S. financial institutions.
3. The Extent to Which the Proposed Action or Timing of the Action Will 
Have a Significant Adverse Systemic Impact on the International 
Payment, Clearance, and Settlement System, or on Legitimate Business 
Activities of Banco Delta Asia
    This proposed rulemaking targets Banco Delta Asia specifically; it 
does not target a class of financial transactions (such as wire 
transfers) or a particular jurisdiction. Banco Delta Asia is not a 
major participant in the international payment system and is not relied 
upon by the international banking community for clearance or settlement 
services. Thus, the imposition of the fifth special measure against 
Banco Delta Asia will not have a significant adverse systemic impact on 
the international payment, clearance, and settlement system. In light 
of the reasons for imposing this special measure, the Financial Crimes 
Enforcement Network does not believe that it will impose an undue 
burden on legitimate business activities, and notes that the presence 
of approximately ten larger banks in Macau will alleviate the burden on 
legitimate business activities within that jurisdiction.
4. The Effect of the Proposed Action on United States National Security 
and Foreign Policy
    The exclusion from the U.S. financial system of banks that serve as 
conduits for significant money laundering activity and other financial 
crimes enhances national security, making it more difficult for 
terrorists and money launderers to access the substantial resources of 
the U.S. financial system. To the extent that this prevents North 
Korean front companies engaged in illicit activities from accessing the 
U.S. financial system, the proposed action supports and upholds U.S. 
national security and foreign policy goals. More generally, the 
imposition of the fifth special measure would complement the U.S. 
Government's worldwide efforts to expose and disrupt international 
money laundering.
    Therefore, pursuant to the finding of the Secretary of the Treasury 
that Banco Delta Asia is an institution of primary money laundering 
concern, and after conducting the required consultations and weighing 
the relevant factors, the Financial Crimes Enforcement Network has 
determined that reasonable grounds exist for imposing the special 
measure authorized by 31 U.S.C. 5318A(b)(5) against Banco Delta Asia.

III. Section-by-Section Analysis

    The proposed rule would prohibit covered financial institutions 
from establishing, maintaining, or managing in the United States any 
correspondent account for, or on behalf of, Banco Delta Asia. 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 Banco Delta Asia. 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 Banco Delta Asia 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 Banco Delta 
Asia, to the extent that such indirect use can be determined from 
transactional records maintained by the covered financial institution 
in the normal course of business. A covered financial institution 
should take a risk-based approach when deciding what, if any, 
additional due diligence measures it should adopt to guard against the 
indirect use of its correspondent accounts by Banco Delta Asia, based 
on risk factors such as the type of services it offers and geographic 
locations of its correspondents.

A. Section 103.193(a)--Definitions

1. Banco Delta Asia
    Section 103.193(a)(1) of the proposed rule defines Banco Delta Asia 
to include all branches, offices, and subsidiaries of Banco Delta Asia 
operating in Macau or in any jurisdiction. These branches, offices, and 
subsidiaries include, but are not necessarily limited to, the Amaral, 
Antonio, Barca, Campo, Ioa Hon, Lisboa, Outubro, and Tap Sac branches 
in Macau, the Airport Service Centre, Financial Services Centre, Macao 
Administrative Centre, The Bank Centre, Delta Asia Credit Ltd., Delta 
Asia Insurance Limited, and the Tokyo Representative Office. The 
Financial Crimes Enforcement Network will provide updated information, 
as it is available; however, covered financial institutions should take 
commercially reasonable measures to determine whether a customer is a 
branch, office, or subsidiary of Banco Delta Asia.
2. Correspondent Account
    Section 103.193(a)(2) 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 broker-dealers, 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, commodity futures, or options, (2) funds transfers, or (3) 
other types of financial transactions.
    For purposes of the proposed rule, the Financial Crimes Enforcement 
Network is using the same definition of correspondent account as that 
established in the final rule implementing sections 313 and 319(b) of 
the USA PATRIOT Act \10\ except that the term is being expanded to 
cover such accounts maintained by futures commission merchants, 
introducing brokers, and mutual funds.
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    \10\ See 67 FR 60562 (September 26, 2002) codified at 31 CFR 
103.175 (d)(1).
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3. Covered Financial Institution
    Section 103.193(a)(3) 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 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

[[Page 55220]]

Investment Company Act of 1940 (15 U.S.C. 80a-8).

B. Section 103.193(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, Banco Delta Asia, the Financial Crimes Enforcement Network expects 
that a covered financial institution will take such steps that a 
reasonable and prudent financial institution would take to protect 
itself from loan fraud or other fraud or loss based on 
misidentification of a person's status.
1. Prohibition on Direct Use of Correspondent Accounts
    Section 103.193(b)(1) of the proposed rule prohibits all covered 
financial institutions from establishing, maintaining, administering, 
or managing a correspondent or payable-through account in the United 
States for, or on behalf of, Banco Delta Asia. 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, Banco Delta Asia.
2. Special Due Diligence of Correspondent Accounts To Prohibit Indirect 
Use
    As a corollary to the prohibition on maintaining correspondent 
accounts directly for Banco Delta Asia, section 103.193(b)(2) requires 
a covered financial institution to apply special due diligence to its 
correspondent accounts \11\ that is reasonably designed to guard 
against their indirect use by Banco Delta Asia. At a minimum, that 
special due diligence must include notifying correspondent account 
holders that they may not provide Banco Delta Asia 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:
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    \11\ Again, 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.

    Notice: Pursuant to U.S regulations issued under section 311 of 
the USA PATRIOT Act, 31 CFR 103.193, we are prohibited from 
establishing, maintaining, administering or managing a correspondent 
account for, or on behalf of, Banco Delta Asia or any of its 
subsidiaries (including, but not limited to, Delta Asia Credit Ltd., 
and Delta Asia Insurance Limited). The regulations also require us 
to notify you that you may not provide Banco Delta Asia or any of 
its subsidiaries with access to the correspondent account you hold 
at our financial institution. If we become aware that Banco Delta 
Asia 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 prevent such access, 
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including terminating your account.

    The purpose of the notice requirement is to help ensure cooperation 
from correspondent account holders in denying Banco Delta Asia access 
to the U.S. financial system, as well as to increase awareness within 
the international financial community of the risks and deficiencies of 
Banco Delta Asia. However, the Financial Crimes Enforcement Network 
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 Banco Delta 
Asia 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. The Financial Crimes Enforcement Network specifically 
solicits comments on the appropriate form and scope of the notice that 
would be required under the rule.
    A covered financial institution also would be required under this 
rulemaking to take reasonable steps to identify any indirect use of its 
correspondent accounts by Banco Delta Asia, 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 Banco Delta Asia as the originator's or 
beneficiary's financial institution, or otherwise referenced Banco 
Delta Asia in a manner detectable under the financial institution's 
normal screening processes. An appropriate screening mechanism could be 
the mechanism used by a covered financial institution to comply with 
various legal requirements, such as the commercially available software 
programs used to comply with the economic sanctions programs 
administered by OFAC. The Financial Crimes Enforcement Network 
specifically solicits comments on the requirement under the proposed 
rule that covered financial institutions take reasonable steps to 
screen its correspondent accounts in order to identify any indirect use 
of such accounts by Banco Delta Asia.
    Notifying its correspondent accounts holders and taking reasonable 
steps to identify any indirect use of its correspondent accounts by 
Banco Delta Asia in the manner discussed above are the minimum due 
diligence requirements under the proposed rule. Beyond these minimum 
steps, a covered financial institution should adopt a risk-based 
approach for determining what, if any, additional due diligence 
measures it should implement to guard against the indirect use of its 
correspondent accounts by Banco Delta Asia, 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 Banco Delta Asia must take all appropriate steps to 
prevent such indirect access, including, where necessary, terminating 
the correspondent account. A covered financial institution may afford 
the foreign bank a reasonable opportunity to take corrective action 
prior to terminating the correspondent account. Should the foreign bank 
refuse to comply, or if the covered financial institution cannot obtain 
adequate assurances that the account will no longer be available to 
Banco Delta Asia, 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 Banco Delta Asia. The Financial 
Crimes Enforcement Network specifically solicits comments on the 
requirement under the proposed rule that covered financial institutions 
prevent indirect access to Banco Delta Asia, once such indirect access 
is identified.
3. Reporting Not Required
    Section 103.193(b)(3) of the proposed rule clarifies that the rule 
does not

[[Page 55221]]

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 must not provide Banco Delta Asia with access to the 
correspondent account maintained at the covered financial institution.

IV. Request for Comments

    The Financial Crimes Enforcement Network invites comments on all 
aspects of the proposal to prohibit the opening or maintaining of 
correspondent accounts for or on behalf of Banco Delta Asia, and 
specifically invites comments on the following matters:
    1. The appropriate form and scope of the notice to correspondent 
account holders that would be required under the rule;
    2. The appropriate scope of the proposed requirement for a covered 
financial institution to take reasonable steps to identify any indirect 
use of its correspondent accounts by Banco Delta Asia;
    3. The appropriate steps a covered financial institution should 
take once it identifies an indirect use of one of its correspondent 
accounts by Banco Delta Asia; and
    4. The impact of the proposed special measure upon legitimate 
transactions with Banco Delta Asia involving, in particular, U.S. 
persons and entities; foreign persons, entities, and governments; and 
multilateral organizations doing legitimate business with persons, 
entities, or the government of Macau, or operating in Macau.

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. 
The Financial Crimes Enforcement Network understands that Banco Delta 
Asia maintains few correspondent accounts in the United States. 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 must exercise some degree of due diligence in order to comply 
with various legal requirements. The tools used for such purposes, 
including commercially available software used to comply with the 
economic sanctions programs administered by OFAC, can easily be 
modified to monitor for the use of correspondent accounts by Banco 
Delta Asia. Thus, the special due diligence that would be required by 
this rulemaking--i.e., the one-time transmittal of notice to 
correspondent account holders and the screening of transactions to 
identify any indirect use of correspondent accounts, is not expected to 
impose a significant additional economic burden upon small U.S. 
financial institutions. The Financial Crimes Enforcement Network 
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 the Desk Officer for the 
Department of Treasury, Office of Information and Regulatory Affairs, 
Office of Management and Budget, Paperwork Reduction Project (1506), 
Washington, DC 20503 (or by e-mail to <a href="/cdn-cgi/l/email-protection#ecad8089948d8288899eb3b8c2b3a4998298ac83818ec289839cc28b839a"><span class="__cf_email__" data-cfemail="5918353c2138373d3c2b060d7706112c372d1936343b773c3629773e362f">[email protected]</span></a>) 
with a copy to the Financial Crimes Enforcement Network by mail or e-
mail at the addresses previously specified. Comments on the collection 
of information should be received by October 20, 2005. In accordance 
with the requirements of the Paperwork Reduction Act of 1995, 44 U.S.C. 
3506c)(2)(A), and its implementing regulations, 5 CFR part 1320, the 
following information concerning the collection of information as 
required by 31 CFR 103.193 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 
103.193(b)(2)(i) and 31 CFR 103.193(b)(3)(i). The disclosure 
requirement in 31 CFR 103.193(b)(2)(i) is intended to ensure 
cooperation from correspondent account holders in denying Banco Delta 
Asia access to the U.S. financial system, as well as to increase 
awareness within the international financial community of the risks and 
deficiencies of Banco Delta Asia. The information required to be 
maintained by 31 CFR 103.193(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 103.193. 
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 
Institutions: The estimated average burden associated with the 
collection of information in this proposed rule is one hour per 
affected financial institution.
    Estimated Total Annual Burden: 5,000 hours.
    The Financial Crimes Enforcement Network specifically invites 
comments on: (a) Whether the proposed collection of information is 
necessary for the proper performance of the mission of the Financial 
Crimes Enforcement Network, including whether the information shall 
have practical utility; (b) the accuracy of the Financial Crimes 
Enforcement Network'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

    The 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, Counter-terrorism, Foreign banking.

Authority and Issuance

    For the reasons set forth in the preamble, part 103 of title 31 of 
the Code of Federal Regulations is proposed to be amended as follows:

PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND 
FINANCIAL TRANSACTIONS

    1. The authority citation for part 103 is revised to read as 
follows:

    Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314, 
5316-5332; Title III,

[[Page 55222]]

secs. 311, 312, 313, 314, 319, 326, 352, Pub. L. 107-56, 115 Stat. 
307.

    2. Subpart I of part 103 is proposed to be amended by adding new 
Sec.  103.193 to read as follows:


Sec.  103.193  Special measures against Banco Delta Asia.

    (a) Definitions. For purposes of this section:
    (1) Banco Delta Asia means all branches, offices, and subsidiaries 
of Banco Delta Asia operating in any jurisdiction.
    (2) Correspondent account has the same meaning as provided in Sec.  
103.175(d)(1)(ii).
    (3) Covered financial institution has the same meaning as provided 
in Sec.  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-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).
    (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, Banco Delta Asia.
    (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 Banco Delta Asia. At a minimum, 
that special due diligence must include:
    (A) Notifying correspondent account holders that they may not 
provide Banco Delta Asia 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 Banco Delta Asia, 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, other due diligence measures it 
should adopt to guard against the indirect use of its correspondent 
accounts by Banco Delta Asia.
    (iii) A covered financial institution that obtains knowledge that a 
correspondent account is being used by the foreign bank to provide 
indirect access to Banco Delta Asia, shall take all appropriate steps 
to prevent 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: September 12, 2005.
William F. Baity,
Deputy Director, Financial Crimes Enforcement Network.
[FR Doc. 05-18657 Filed 9-19-05; 8:45 am]
BILLING CODE 4810-02-P


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