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Proposed Rule: Denial of Nauru Financial Institutions Access to U.S. Financial System

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has proposed a rule that aims to deny Nauru financial institutions access to the U.S. financial system through correspondent accounts.

Key Definitions

• Correspondent Account: A broad definition that includes most types of banking relationships between a U.S. depository institution and a foreign financial institution, including payable-through accounts.
• Covered Financial Institution: Includes:
  • Insured banks
  • Commercial banks
  • Trust companies
  • Private bankers
  • Credit unions
  • Thrift institutions
  • Broker-dealers registered with the SEC
  • Futures commission merchants or introducing brokers registered with the CFTC
  • Investment companies that are open-end companies registered with the SEC
• Nauru Financial Institution: Includes foreign banks licensed by Nauru (other than the Central Bank of Nauru) and other persons organized under the law of Nauru who conduct as a business one or more of the following activities:
  • Trading in money market instruments, exchange, interest rate, and index instruments
  • Transferable securities
  • Commodity futures

Requirements for Covered Financial Institutions

• Prohibition on Correspondent Accounts: Prohibits all covered financial institutions from establishing, maintaining, administering, or managing a correspondent account in the United States for or on behalf of a Nauru financial institution.
• Termination of Known Indirect Accounts: Requires covered financial institutions to terminate correspondent accounts maintained for foreign banks if they learn that such accounts are being used to provide services indirectly to a Nauru financial institution.