Financial Crime World

Financial Watch

Foreign Bank Customers Face New Scrutiny Under Anti-Money Laundering Rules

Washington D.C., USA - February 5, 2008

The US government has introduced new regulations requiring financial institutions to identify the owners of foreign correspondent banks in a bid to combat money laundering and terrorist financing.

Background

According to the Financial Crimes Enforcement Network (FinCEN), foreign banks whose shares are not publicly traded must now disclose the identity of their owners who hold 10% or more of any class of securities. This move is aimed at preventing the use of correspondent accounts for illicit activities.

New Regulations

The new regulations come into effect on February 5, 2008, and will apply to all correspondent accounts established on or after that date. Existing accounts will be subject to the rules from May 5, 2008.

  • Definition of Foreign Bank: A foreign bank is defined as any bank organized under foreign law or an agency, branch, or office located outside the United States of a US bank.
  • Correspondent Accounts: Correspondent accounts are defined as accounts established for foreign financial institutions to receive deposits from, make payments on behalf of, or handle other financial transactions relating to such institutions.

Impact

Industry experts say the new regulations will help prevent the misuse of correspondent accounts and promote greater transparency in the financial sector. FinCEN officials stated that the goal is “to ensure that foreign banks are transparent about their ownership structures and that they are not being used as a conduit for illicit funds.”

Next Steps

If you have any questions regarding the new regulations or need assistance in preparing anti-money laundering policies, please contact Paul Hastings’ Investment Management Practice Group.

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