Key US Legislation and Regulation relevant to International Transactions

USA Patriot Act

October 2001 strengthened money laundering laws introduced in 1986, and the Bank Secrecy Act in 1970.

Title III (public law 107-56) “International Money Laundering Abatement and Anti-terrorist Financing Act” of 2001 contains most of the AML content. It governs US and non-US financial institutions that operate in the US. It enables international access points to the US financial system to be controlled.

Section 311: special measures for primary money laundering concerns. Allows the US Treasury to specify as a specific money laundering concern: a foreign jurisdiction, a foreign financial institution, any type of international transaction, or a type of account. US banks would then need to take special measures with these types of concerns.

There are five, graduated special measures that can be taken:

  1. Keep records, or file reports containing transaction data including beneficial owners as well as originator and beneficiary.

  2. Keep information about the beneficial owner of any US account opened or maintained by a foreign person or their representative.

  3. Identify and obtain information about customers who are permitted to use foreign bank’s payable through accounts.

  4. Identify and obtain information about customers who are permitted to use foreign bank’s correspondent accounts.

  5. Close certain PTA or correspondent accounts.

Section 312: Correspondent and Private banking

  • Required due diligence or enhanced due diligence for foreign correspondent and private banking accounts for non-US persons. It covers almost all account relationships that can be held with a foreign financial institution.

  • The rules apply to US banks, credit institutions, thrift institutions, trust banks, broker-dealers, futures commission merchants, and introducing brokers in commodities and mutual funds, and US-based agencies and branches of foreign banks.

  • Foreign institutions includes: foreign banks, foreign branches of US banks, credit unions, foreign businesses that would be considered broker-dealers, futures commission merchants, introducing brokers in commodities or mutual funds if operated in the US, and foreign money transmitters or currency exchangers.

  • Due diligence should:

    • Determine whether enhanced DD is needed

    • Assess the money laundering risk associated with the correspondent account

    • Use risk-based procedures and controls designed to detect and report suspected money laundering

  • Enhanced DD should apply to a correspondent account for a foreign bank operating under:

    • Off-shore banking license

    • A license issued by an non-cooperative country

    • A license issued by a country deemed a risk under section 311 of the Patriot Act.

  • Private banking is deemed as an account with a minimum deposit of $1 million, assigned to a designed banker, for a non-US person

    • All beneficial owners should be identified

    • Verify whether an owner is a current or former senior foreign political figure

    • Understand the purpose and use of the account, and the source of the funds

    • Monitor the account to ensure the use is in line with expectations, reporting any suspicions

  • Section 313 prohibited correspondent accounts for shell banks.

  • Section 319(a) allows forfeit of funds from a US correspondent account of the same amount as those deposited in a foreign correspondent account.

  • Section 319(b) records relating to correspondent accounts at foreign banks should be available within 120 hours (5 days).

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