Federal Register / Vol. 70, No. 181 / Tuesday, September 20, 2005 / Proposed Rules 55217 

1Therefore, 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. 

2Available 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). 

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. 

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: 

• Federal e-rulemaking portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: regcomments@fincen.gov. 

Include RIN 1506–A83 in the subject 

line of the message. 

• 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

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: 

• The extent to which such financial 

institution is used to facilitate or 

promote money laundering in or 

through the jurisdiction; 

• The extent to which such financial 

institution is used for legitimate 

business purposes in the jurisdiction; 

and 

• The extent to which the finding that 

the institution is of primary money 

laundering concern is sufficient to 

ensure, with respect to transactions 

involving the institution operating in 

the jurisdiction, that the purposes of the 

BSA continue to be fulfilled, and to 

guard against international money 

laundering and other financial crimes. 

If the Secretary determines that a 

foreign financial institution is of 

primary money laundering concern, the 

Secretary must determine the 

appropriate special measure(s) to 

address the specific money laundering 

risks. Section 311 provides a range of 

special measures that can be imposed 

individually, jointly, in any 

combination, and in any sequence.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 

55218 Federal Register / Vol. 70, No. 181 / Tuesday, September 20, 2005 / Proposed Rules 

3Section 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. 

4Classified 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)). 

5The 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. 

6Banco 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. 

7The Banker’s Almanac (2004). 

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. 

9For 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. 

parties 3 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 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; 

• 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 the 

United States national security and 

foreign policy.4

B. Banco Delta Asia 

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

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. 

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 sectionby-section analysis below, financial 

institutions should, if necessary, be able 

to easily adapt their current screening 

procedures to comply with this special 

Federal Register / Vol. 70, No. 181 / Tuesday, September 20, 2005 / Proposed Rules 55219 

10See 67 FR 60562 (September 26, 2002) codified 

at 31 CFR 103.175 (d)(1). 

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 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, 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. 

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 

55220 Federal Register / Vol. 70, No. 181 / Tuesday, September 20, 2005 / Proposed Rules 

11Again, 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. 

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 payablethrough 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: 

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, 

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 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 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 

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

Alexander_T._Hunt@omb.eop.gov) 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, Counterterrorism, 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, 

55222 Federal Register / Vol. 70, No. 181 / Tuesday, September 20, 2005 / Proposed Rules 

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

L. 107–56, 115 Stat. 307. 

2. Subpart I of part 103 is proposed 

to be amended by adding new § 103.193 

to read as follows: 

§ 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 

§ 103.175(d)(1)(ii). 

(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–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