On September 17, 2013, the Financial Crimes Enforcement Network ("FinCEN") published an Advisory concerning recent updates by the Financial Action Task Force ("FATF") to its designation of jurisdictions with strategic anti-money laundering/counter-terrorist financing ("AMC/CTF") deficiencies.1 FATF's designations and its associated recommendations, as well as FinCEN's endorsement of those recommendations, affect the level of due diligence U.S. financial institutions apply to accounts with ties to the relevant jurisdictions.
This Alert summarizes the changes FATF recently made to its designations, as well as FinCEN's recent guidance on those changes. It also provides some additional context on the larger regulatory framework impacting AML/CTF compliance.
FATF is an inter-governmental body, established in 1989, that currently counts 34 countries (including the U.S.) as well as the European Commission and Gulf Cooperation Council as members.2 The organization has published global standards for combatting money laundering and terrorist financing,3 and also periodically evaluates the quality of AML/CTF enforcement in various jurisdictions.
As part of the latter process, FATF publishes lists of jurisdictions with strategic AML/CTF deficiencies.4 These designations are organized into three categories, as follows, listed in descending order of severity of the AML/CTF deficiencies:
jurisdictions that are subject to FATF's call on its members and other countries to apply countermeasures,5 jurisdictions for which FATF recommends enhanced due diligence procedures,6 and jurisdictions that have developed action plans with FATF to address their strategic AML/CTF deficiencies.7 The FATF designations should be used by U.S. financial institutions to assist them with deciding whether to open or maintain an account with owners in, or other ties to, a given jurisdiction. They are further helpful in determining the level of risk-based due diligence appropriate to a given account, including the determination of whether general due diligence or enhanced due diligence procedures are appropriate.
In June 2013, FATF updated its designations from those it had last published in February 2013.8 The FinCEN guidance relates to the June changes.
Background on Select Patriot Act Requirements
General Due Diligence Requirements
Under the regulations implementing the Patriot Act, whenever a U.S. financial institution9 opens a correspondent account10 for a foreign financial institution, it has a general obligation to establish and follow appropriate and specific due diligence policies, procedures and controls that are reasonably designed to detect and report instances of money laundering.11 While the level of this general due diligence over a given account may vary, it must be calibrated to the level of risk associated with an account. To this end, the regulations specify various risk factors relevant to assessing the risks posed by a correspondent relationship.12 These factors include, among others, the AML and supervisory regime of the jurisdiction in which the foreign financial institution is located, information concerning the foreign financial institution's own AML record, and the nature of the foreign financial institution's business and the markets it serves.13
Enhanced Due Diligence Requirements
Enhanced due diligence policies, procedures, and controls apply to correspondent accounts for foreign financial institutions opened for (1) banks operating under "offshore banking licenses," (2) banks operating in foreign countries that have been formally designated by an intergovernmental organization as non-cooperative with international anti-money laundering principles or procedures, if the United States concurs with that designation, and (3) banks that have been designated by the Secretary of the Treasury "as warranting special measures due to money laundering concerns."14
The third criterion applies to banks in Iran, which is discussed in Section II.A of this Alert, while the second criterion applies to banks in the several jurisdictions discussed in Section II.B. If a correspondent account meets one of these three criteria, the U.S. financial institution must apply enhanced due diligence procedures to it, which "shall reflect the risk assessment of the correspondent account and shall include, as appropriate:"15
obtaining and considering information relating to the foreign bank's anti-money laundering program to assess the...