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

The U.S. Department of the Treasury has proposed a rule aimed at denying Nauru financial institutions access to the U.S. financial system through correspondent accounts. This analysis breaks down the key points of the proposed rule.

Overview

The proposed rule seeks to prohibit certain U.S. financial institutions from maintaining correspondent accounts for, or on behalf of, Nauru financial institutions. The goal is to deny these institutions access to the U.S. financial system.

Section-by-Section Analysis

Definitions

• Correspondent Account: A bank account held by one bank (the respondent) at another bank (the correspondent bank) for processing transactions, including receiving deposits, making payments, and providing cash services.
• Covered Financial Institution: A financial institution that is subject to the regulations of the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).
• Nauru Financial Institution: A financial institution that is a resident of Nauru.

Requirements for Covered Financial Institutions

Prohibition on Correspondent Accounts

• All covered financial institutions are prohibited from establishing, maintaining, administering, or managing a correspondent account in the United States for, or on behalf of, a Nauru financial institution.
• This prohibition applies to all types of correspondent accounts, including those held at U.S. banks or through intermediaries.

Termination of Known Indirect Accounts

• If a covered financial institution learns that a correspondent account it maintains for a foreign bank is being used to provide services indirectly to a Nauru financial institution, it must terminate the correspondent account of the foreign bank.
• This requirement applies even if the covered financial institution does not have direct knowledge of the Nauru financial institution’s involvement in the transaction.

Overlap with Section 313/319 Rule

The proposed rule overlaps with the Section 313/319 Rule, which prohibits certain financial institutions from providing correspondent accounts to foreign shell banks and requires them to take reasonable steps to ensure that correspondent accounts provided to foreign banks are not being used to provide banking services indirectly to foreign shell banks.

This analysis provides a detailed overview of the proposed U.S. Treasury rule regarding the denial of access to the U.S. financial system through correspondent accounts for Nauru financial institutions. The rule aims to prohibit certain U.S. financial institutions from maintaining correspondent accounts for, or on behalf of, these institutions.