[Federal Register: November 25, 2003 (Volume 68, Number 227)]
[Proposed Rules]
[Page 66299-66305]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25no03-26]
[[Page 66299]]
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DEPARTMENT OF THE TREASURY
31 CFR Part 103
Imposition of Special Measures Against Burma as a Jurisdiction of
Primary Money Laundering Concern
AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: On November 18, 2003, the Secretary of the Treasury designated
Burma as a jurisdiction of primary money laundering concern pursuant to
31 U.S.C. 5318A, as added by section 311 of the Uniting and
Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001. The
Department of the Treasury, acting through FinCEN, is issuing this
proposed rule to impose special measures against this jurisdiction.
DATES: Written comments on the notice of proposed rulemaking must be
submitted on or before December 26, 2003.
ADDRESSES: It is preferable for comments to be submitted by electronic
mail because paper mail in the Washington, DC area may be delayed.
Comments submitted by electronic mail may be sent to regcomments@fincen.treas.gov with the caption in the body of the text,
``ATTN: Section 311--Designation of Burma.'' Comments also may be
submitted by paper mail to FinCEN, PO Box 39, Vienna, VA 22183, Attn:
Section 311 Special Measure Regulation (Burma). Please submit comments
by one method only. Comments may be inspected at FinCEN between 10 a.m.
and 4 p.m., in the FinCEN reading room in Washington, DC. Persons
wishing to inspect the comments submitted must request an appointment
by telephoning (202) 354-6400 (not toll-free number).
FOR FURTHER INFORMATION CONTACT: Office of the General Counsel,
Department of the Treasury, (202) 622-1927; the Executive Office for
Terrorist Financing and Financial Crimes, (Treasury), (202) 622-0470;
or the Office of Chief Counsel (FinCEN), (703) 905-3590 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION: The Secretary of the Treasury has designated
Burma as a jurisdiction of primary money laundering concern under 31
U.S.C. 5318A, as added by section 311(a) of the USA PATRIOT Act (Pub.
L. 107-56).
Treasury, acting through FinCEN, is also proposing the imposition
of special measures authorized by section 5318A(b)(5). The special
measures imposed under this section would generally prohibit certain
U.S. financial institutions from establishing, maintaining,
administering, or managing correspondent or payable-through accounts in
the United States for, or on behalf of, Burmese financial institutions,
unless (as explained below) operation of those accounts is not
prohibited by Executive Order 13310 of July 28, 2003, and the Burma-
related activities of such accounts are solely to affect transactions
that are exempt from, or licensed pursuant to, Executive Order 13310.
This prohibition extends to correspondent or payable-through accounts
maintained for other foreign banks when such accounts are used by the
foreign bank to provide financial services to a Burmese financial
institution indirectly.
Additionally, the Secretary designated two Burmese financial
institutions, Myanmar Mayflower Bank and Asia Wealth Bank, as financial
institutions of primary money laundering concern. By a separate
proposed rule, Treasury and FinCEN are proposing the imposition of the
fifth special measure as well. This special measure would prohibit
certain U.S. financial institutions from establishing, maintaining,
administering, or managing correspondent or payable-through accounts
for, or on behalf of, Myanmar Mayflower Bank or Asia Wealth Bank,
notwithstanding any exemption from, or license issued pursuant to
Executive Order 13310.
I. Background
A. Section 311 of the USA PATRIOT Act
On October 26, 2001, the President signed the Act into law. Title
III of the Act amends the anti-money laundering provisions of the Bank
Secrecy Act (BSA) (codified in subchapter II of chapter 53 of title 31,
United States Code) to promote the prevention, detection, and
prosecution of international money laundering and the financing of
terrorism.
Section 311 of the Act (Section 311) added section 5318A to the
BSA, granting the Secretary of the Treasury (Secretary) authority to
designate a foreign jurisdiction, institution(s), class(es) of
transactions, or type(s) of account(s) to be of ``primary money
laundering concern,'' and to require U.S. financial institutions to
take certain ``special measures'' against the primary money laundering
concern.
Section 311 identifies factors to consider as well as agencies and
departments to consult before the Secretary may designate a primary
money laundering concern. The statute also provides similar procedures,
i.e., factors and consultation requirements, for selecting specific
special measures against the designee.
Taken as a whole, Section 311 provides Treasury with a range of
options that can be adapted to target most effectively specific money
laundering and terrorist financing concerns. These options give the
Secretary the authority to bring additional and useful pressure on
those jurisdictions and institutions that pose money laundering
threats. Through the imposition of various special measures, the
Secretary can obtain more information about the concerned
jurisdictions, institutions, transactions, and accounts; more
effectively monitor the respective institutions, transactions, and
accounts; and/or protect U.S. financial institutions from involvement
with jurisdictions, institutions, transactions, or accounts that pose a
money laundering concern.
1. Required Consultations and Statutory Considerations To Be Made Prior
To Designating a Foreign Jurisdiction To Be of Primary Money Laundering
Concern
Before making a finding that reasonable grounds exist for
concluding that a jurisdiction is of primary money laundering concern,
the Secretary is required to consult with both the Secretary of State
and the Attorney General.
In addition to these consultations, the Secretary is required by
statute to consider ``such information as the Secretary determines to
be relevant, including the following potentially relevant factors,''
when designating a foreign jurisdiction:
[sbull] Evidence that organized criminal groups, international
terrorists, or both, have transacted business within the designated
jurisdiction;
[sbull] The extent to which the jurisdiction or financial
institutions operating in the jurisdiction offer bank secrecy or
special regulatory advantages to nonresidents or nondomiciliaries of
the jurisdiction;
[sbull] The substance and quality of administration of the bank
supervisory and counter-money laundering laws of the jurisdiction;
[sbull] The relationship between the volume of financial
transactions occurring in the jurisdiction and the size of the economy
of the jurisdiction;
[sbull] The extent to which the jurisdiction is characterized as an
offshore banking or secrecy haven by credible international
organizations or multilateral expert groups;
[[Page 66300]]
[sbull] Whether the United States has a mutual legal assistance
treaty with the jurisdiction, and the experience of United States law
enforcement and regulatory officials in obtaining information about
transactions originating in, or routed through or to, such
jurisdiction; and
[sbull] The extent to which the jurisdiction is characterized by
high levels of official or institutional corruption.
Thus, a designation is based on consideration of the relevant facts
and factors, in conjunction with a consultation process, which leads to
a decision by the Secretary that there are reasonable grounds to
conclude that the jurisdiction is of primary money laundering concern.
2. Imposition of Special Measures
If the Secretary determines that a foreign jurisdiction is of
primary money laundering concern, the Secretary must determine the
appropriate special measure(s) to address the specific money laundering
risks. Section 311 provides a range of special measures that can be
imposed, individually, jointly, in any combination, and in any
sequence.\1\
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\1\ Available special measures include requiring: (1)
Recordingkeeping and reporting of certain financial transactions;
(2) collection of information relating to beneficial ownership; (3)
collection of information relating to certain payable-through
accounts; (4) collection of information relating to certain
correspondent accounts; and (5) prohibition or conditions on the
opening or maintaining of correspondent or payable-through accounts;
31 U.S.C. 5318A(b)(1)-(5). For a complete discussion of the range of
possible countermeasures, see 68 FR 18917 (April 17, 2003)
(proposing to impose special measures against Nauru).
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The Secretary's imposition of special measures follows procedures
similar to those for designations, but carries with it additional
consultations to be made and factors to consider. The statute requires
the Secretary to consult with appropriate agencies and other interested
parties \2\ and to consider the following specific factors:
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\2\ Section 5318A(a)(4)(A) requires the Secretary to consult
with the Chairman of the Board of Governors of the Federal Reserve,
any other appropriate Federal banking agency, the Secretary of
State, the Securities and Exchange Commission (SEC), the Commodity
Future Trading Commission (CFTC), the National Credit Union
Administration (NCUA), and, in the sole discretion of the
Sectretary, ``such other agencies and interested parties as the
Secretary may find to be appropriate.'' The consultation process
must also include the Attorney General and the Secretary of State if
the Secretary is considering prohibiting or imposing conditions on
domestic financial institutions maintaining correspondent account
relationships with the disignated jurisdiction.
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[sbull] Whether similar action has been or is being taken by other
nations or multilateral groups;
[sbull] Whether the imposition of any particular special measure
would create a significant competitive disadvantage, including any
undue cost or burden associated with compliance, for financial
institutions organized or licensed in the United States;
[sbull] The extent to which the action or the timing of the action
would have a significant adverse systemic impact on the international
payment, clearance, and settlement system, or on legitimate business
activities involving the particular jurisdiction; and
[sbull] The effect of the action on United States national security
and foreign policy.
3. Procedures for Imposing Special Measures
In this proposed rulemaking, the Secretary seeks to impose the
fifth special measure (31 U.S.C. 5318A(b)(5)) against Burma. This
special measure may only be imposed through the issuance of a
regulation.
B. Burma
Burma (also known as Myanmar) has no effective anti-money
laundering controls in place. As a result, in June 2001 Burma was
designated as a Non-Cooperative Country or Territory (NCCT) by the
Financial Action Task Force (FATF) \3\ for its lack of basic anti-money
laundering provisions and weak oversight of the banking sector.
Following the designation by the FATF, in April 2002, FinCEN issued an
advisory to U.S. financial institutions to give enhanced scrutiny to
all transactions originating in or routed to or through Burma, or
involving entities organized or domiciled, or persons maintaining
accounts, in Burma. Deficiencies identified by FATF and the FinCEN
advisory included:
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\3\ For further informaiton on the FATF go to http://www.fatf-gafi.org
.
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[sbull] Burma lacks a basic set of anti-money laundering laws and
regulations.
[sbull] Money laundering is not a criminal offense for crimes other
than drug trafficking in Burma.
[sbull] The Burmese Central Bank has no anti-money laundering
regulations for financial institutions.
[sbull] Banks licensed by Burma are not legally required to obtain
or maintain identificaiton information about their customers.
[sbull] Banks licensed by Burma are not required to maintain
transaction records of customer accounts.
[sbull] Burma does not require financial institutions to report
suspicious transactions.
[sbull] Burma has significant obstacles to international co-
cooperation by judicial authorities.
In June 2002, Burma responded to this international pressure by
enacting an anti-money laundering law that purportedly addresses some
of these deficiencies. The necessary regulations required for its
effective implementation, however, are not in place. As a result, the
Burmese anti-money laundering law is ineffective and unenforceable, and
cannot be regarded as effectively remedying any of the identified
deficiencies. Due to Burma's lack of progress, the FATF called upon its
member jurisdictions to impose additional countermeasures on Burma as
of November 3, 2003.
The United States continues to recognize that Burma is a haven for
international drug trafficking. On January 31, 2003, the President also
signed Presidential Determination No. 2003-14, identifying Burma as a
major illicit drug producing and/or drug transiting country pursuant to
section 706(1) of the Foreign Relations Authorization Act, Fiscal Year
2003 (Pub. L. 107-228) and as a country that has failed demonstrably
during the previous twelve months to adhere to its obligations under
international counter-narcotics agreements and take the measures set
forth in section 489(a)(1) of the Foreign Assistance Act of 1961, as
amended (FAA). In addition, this past year Burma continued to be named
as a major money laundering country. A major money laundering country
is defined by statute as one ``whose financial institutions engage in
currency transactions including significant amounts of proceeds from
international narcotics trafficking.'' FAA section 481(e)(7).
C. Economic Sanctions
On July 28, 2003, the President signed both the Burmese Freedom and
Democracy Act of 2003 and Executive Order 13310, imposing economic
sanctions on Burma. These sanctions generally include: (1) A ban on the
exportation or reexportation, directly or indirectly, of financial
services to Burma; (2) the blocking of property and interests in
property of the State Peace and Development Council of Burma and three
state-owned foreign trade banks that are in the United States or in the
possession or control of U.S. persons; and (3) a ban on the importation
of Burmese goods into the United States. The new sanctions have frozen
hundreds of thousands of dollars of assets and have disrupted an
already weak economy, especially in the important garment sector where
many firms have closed or moved outside of Burma.
[[Page 66301]]
Executive Order 13310 prohibits broadly the provision of financial
services to Burma from the United States or by a U.S. person, subject
to limited exceptions.\4\ Since the President signed the Order,
however, Treasury has issued several licenses to permit transactions
with Burma for certain specified purposes. For example, Treasury issued
licenses authorizing transactions for the conduct of the official
business of the United States Government, the United Nations, the World
Bank, and the International Monetary Fund, and non-commercial personal
remittances of up to $300 per household per quarter. The exemptions and
licenses reflect the judgment of the United States that certain
transactions are necessary and appropriate, even within the framework
of this sanctions regime.
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\4\ For example, the prohibition does not extend to transacitons
relating to certain contracts entered into prior to May 21, 1997.
See Executive Order 13310, Sec. 13.
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D. The Proposed Section 311 Special Measures
The proposed imposition of Section 311 special measures reinforces
the existing restrictions on transactions with Burma that are outlined
above. Although they are similar in their effect, the proposed Section
311 special measures differ in certain respects and serve distinct
policy goals. First, the proposed Section 311 special measures are
potentially broader than the existing sanctions in at least one
respect--they would apply to all foreign branches of Burmese financial
institutions. Second, the purposes served by the Section 311 action
differ markedly from the purposes of the economic sanctions described
above. This action under Section 311 is premised on the Secretary's
determination that Burma poses an unacceptable risk of money laundering
and other financial crimes, due to its failure to implement an
effective anti-money laundering regime. The goals of this action
include protecting the U.S. financial system and encouraging Burma to
make the necessary changes to its anti-money laundering regime. The
existing sanctions pursuant to Executive Order 13310, on the other
hand, were imposed for different reasons, in particular to take
additional steps with respect to the government of Burma's continued
repression of the democratic opposition.
These underlying purposes for the designation of Burma fuel another
intended consequence, namely, to encourage other jurisdictions and
financial institutions to take similar steps to cut off Burma from the
international financial system due to the unacceptable risk of money
laundering. In addition to stemming the flow of illicit funds from
Burma into the United States, the act of naming Burma publicly and
formally denying them access to the U.S. financial system is an
important statement to the rest of the world about the need for caution
in financial dealings with Burma and the need for reform.
Next, this action fulfills an important role of the United States
in supporting the multilateral effort to encourage Burma to implement
effective anti-money laundering controls. The FATF has called on all
members to impose additional countermeasures as a result of Burma's
failure to address its money laundering deficiencies. The assessment of
Section 311 special measures, premised squarely on the absence of money
laundering controls, fulfills this obligation in a way that the
existing sanctions cannot.
Finally, the proposed Section 311 special measures incorporate the
exemptions from, and licenses issued pursuant to, Executive Order
13310. Thus, U.S. financial institutions may maintain otherwise
prohibited correspondent account relationships so long as the
maintenance of such accounts is not prohibited by E.O. 13310 and
provided that the only transactions conducted on behalf of Burmese
financial institutions are those that are otherwise permissible under
the existing sanctions regime. The policy of allowing certain
transactions under the Executive Order should not be undermined by
Section 311 special measures. However, Burma has been designated under
Section 311 of the Act due to inadequate anti-money laundering
controls, and the fact that the overarching purpose for a transaction
is permissible under the Executive Order does not itself reduce the
risk of money laundering. Therefore, while the exemptions and licenses
are incorporated into the proposed Section 311 special measures, U.S.
financial institutions processing such transactions must still conduct
enhanced scrutiny to guard against the flow of illicit proceeds.
II. Designation of Burma as a Jurisdiction of Primary Money Laundering
Concern
Based upon a review and analysis of relevant information,
consultations with relevant agencies and departments, and a
consideration of the factors outlined above, the Secretary has
determined that Burma is a jurisdiction of primary money laundering
concern. See the notice published elsewhere in this separate part.
The Secretary has found Burma to be a jurisdiction of primary money
laundering concern due to a number of factors, including: (1)
Inadequate anti-money laundering controls; and (2) lack of cooperation
with U.S. law enforcement agencies in criminal matters.
As provided by Section 311, the Secretary also considered the
following:
1. Evidence That Organized Criminal Groups, International Terrorists,
or Both, Have Transacted Business in That Jurisdiction
As set forth in the accompanying Section 311 designation of the two
Burmese banks, Myanmar Mayflower Bank and Asia Wealth Bank,\5\ the
Secretary has information that specific financial institutions within
Burma are essentially controlled by and used to facilitate money
laundering for organized drug trafficking organizations such as the
United Wa State Army \6\ and members of the Kokang ethnic group. The
Burmese government has failed to take any regulatory or enforcement
action against these financial institutions, despite their well-known
criminal links. Additionally, there is evidence of activity within
Burma involving the counterfeiting of U.S. currency. This activity is
believed to be linked to Burmese government officials, and the Burmese
government has failed to cooperate with U.S. law enforcement on the
matter.
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\5\ See the notice published in today's edition of the Federal
Register.
\6\ The United States as designated the United Wa State Army as
significant narcotics traffickers under the Foreign Narcotics
Kingpin Designation Act (the ``Kingpin Act''), 21 U.S.C. 1901-1908,
8 U.S.C 1182.
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2. The Extent to Which That Jurisdiction or Financial Institutions
Operating in That Jurisdiction Offer Bank Secrecy or Special Regulatory
Advantages to Non-Residents or Nondomiciliaries of That Jurisdiction
There are no explicit secrecy provisions within Burmese law. Burma
does not have an offshore sector catering to foreign investors or
depositors, and the Burmese anti-money laundering law contains customer
identification and recordkeeping requirements. However, as noted above,
this law cannot be enforced absent implementing regulations, which
Burma has failed to issue. Thus, as a practical matter, the laws that
would give rise to effective anti-money laundering controls and
transparency are unenforceable.
[[Page 66302]]
3. The Substance and Quality of Administration of the Bank Supervisory
and Counter-Money Laundering Law of That Jurisdiction
In addition to the deficiencies discussed above, the Central Bank
of Burma--which is responsible for the regulation and supervision of
all Burmese financial institutions--has failed to include anti-money
laundering provisions within its regulations for financial
institutions.
4. The Relationship Between the Volume of Financial Transactions
Occurring in That Jurisdiction and the Size of the Economy of the
Jurisdiction
Assessment of this factor is difficult due to difficulties in
estimating the overall size of the Burmese economy. Official data is
unreliable, and the black market and border trade likely comprise a
significant portion of the overall economy.
5. The Extent to Which That Jurisdiction Is Characterized as an
Offshore Banking or Secrecy Haven by Credible International
Organizations or Multilateral Expert Groups
As noted above, in June 2001, the FATF identified Burma as non-
cooperative in international efforts to fight money laundering due to
significant deficiencies in its anti-money laundering system. In
October 2003, due to Burma's continuing failure to address these
deficiencies, the FATF called upon its members to impose additional
countermeasures on Burma as of November 3, 2003.
6. Whether the United States Has a Mutual Legal Assistance Treaty With
That Jurisdiction, and the Experience of United States Law Enforcement
Officials in Obtaining Information About Transactions Originating in or
Routed Through or to Such Jurisdiction
The U.S. does not have a mutual legal assistance treaty with Burma.
Additionally, U.S. law enforcement indicates that they rarely gain
access to bank-related information pursuant to investigations.
Moreover, as previously indicated, U.S. law enforcement has received no
cooperation regarding counterfeiting investigations involving Burma.
7. The Extent to Which That Jurisdiction Is Characterized by High
Levels of Official or Institutional Corruption
Transparency International--the leading international non-
governmental organization devoted to curbing corruption--has ranked
Burma as the fourth most corrupt jurisdiction out of 133 jurisdictions
assessed worldwide.
III. Imposition of Special Measures
As a result of the designation of Burma as a jurisdiction of
primary money laundering concern, and based upon consultations \7\ and
the consideration of all relevant factors, the Secretary has determined
that grounds exist for the imposition of the special measures
authorized by section 5318A(b)(5). Thus, the proposed rulemaking would
prohibit covered financial institutions from establishing, maintaining,
administering, or managing in the United States any correspondent or
payable-through account for, or on behalf of, a Burmese financial
institution. This prohibition would extend to any correspondent or
payable-through account maintained in the United States for any foreign
bank if the account is used by the foreign bank to provide banking
services indirectly to a Burmese financial institution. Financial
institutions covered by this proposed rule that obtain knowledge that
this is occurring would be required to ensure that any such account no
longer is used to provide such services, including, where necessary,
terminating the correspondent relationship in the manner set forth in
this rulemaking. Other than with respect to Myanmar Mayflower Bank and
Asia Wealth Bank, the proposed rule does, however, allow U.S. financial
institutions to maintain correspondent accounts otherwise prohibited by
this rule if such accounts are permitted to be maintained pursuant to
Executive Order 13310 and the Burma-related activity of those accounts
is solely for the purpose of conducting transactions that are exempt
from, or authorized by regulation, order, directive, or license issued
pursuant to, Executive Order 13310.
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\7\ For purposes of this action, the required consultation with
the Federal functional regulators was performed at the staff level.
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In imposing this special measure, the Secretary has considered the
following pursuant to section 5318A(a)(4)(b):
1. Similar Actions Have Been or Will be Taken by Other Nations or
Multilateral Groups Against Burma Generally
In June 2001, the FATF designated Burma as an NCCT, resulting in
FATF members issuing advisories to their financial sectors recommending
enhanced scrutiny of transactions involving Burma. In April 2002 FinCEN
issued an advisory notifying U.S. financial institutions that they
should accord enhanced scrutiny with respect to transactions and
accounts involving Burma. In October 2003, FATF called upon its 33
members to take additional countermeasures with respect to Burma as of
November 3, 2003. Imposition of the fifth special measure on Burma is
consistent with this call for additional countermeasures and forms part
of an international effort to protect the financial system. Based on
informal discussions and the past practices of the FATF membership, the
majority of FATF members are expected to take countermeasures,
including all of the Group of Seven countries. The countermeasures
imposed by such FATF members will likely include imposition of
additional reporting requirements, issuance of additional advisories,
shifting the burden for reporting obligations, and/or restrictions on
the licensing of Burmese financial institutions.
2. Imposition of the Fifth Special Measure Would Not Create a
Significant Competitive Disadvantage, Including Any Undue Cost or
Burden Associated With Compliance, for Financial Institutions Organized
or Licensed in the United States
U.S. financial institutions are already prohibited from providing
financial services to Burma, unless such services are exempted or
licensed. The imposition of the fifth special measure potentially
imposes a broader prohibition than currently exists, because it would
preclude maintaining correspondent accounts for foreign branches of
Burmese financial institutions. However, on balance, it is unlikely
that the imposition of the fifth special measure will create any
significant additional costs or place U.S. financial institutions at a
competitive disadvantage. In fact, Treasury's action is intended to
encourage other jurisdictions and financial institutions to take
similar steps to cut off Burma from the international financial system,
which would further minimize any potential competitive disadvantage for
U.S. financial institutions.
Moreover, the proposed rule would not itself require U.S. financial
institutions to perform additional due diligence on their existing
foreign bank correspondent account customers beyond what is already
required under existing regulations.
3. The Proposed Action or the Timing of the Action Will Not Have a
Significant Adverse Systemic Impact on the International Payment,
Clearance, and Settlement System, or on Legitimate Business Activities
Involving the Jurisdiction
Given the preexisting sanctions on Burma, it is unlikely that these
new measures or the timing of the new
[[Page 66303]]
measures will have a significant adverse systemic impact on the
international payment, clearance, and settlement system, or on
legitimate business activities of Burma.
4. The Proposed Action Would Enhance the National Security of the
United States and Is Consistent With, and in Furtherance of, United
States Foreign Policy
The imposition of this countermeasure on Burma is consistent with
an overall foreign policy strategy to enhance our national security
through comprehensive economic and political sanctions against Burma.
IV. Section-by-Section Analysis
A. Overview
The designation published elsewhere in this separate part and this
proposed rule are intended to deny Burmese financial institutions
access to the U.S. financial system through correspondent accounts,
which includes payable-through accounts. The proposed rule would
prohibit certain U.S. financial institutions from establishing,
maintaining, administering, or managing correspondent accounts in the
United States for, or on behalf of, a Burmese financial institution. If
a U.S. financial institution covered by this proposed rule learns that
a correspondent account that it maintains for a foreign bank is being
used by that foreign bank to provide services indirectly to a Burmese
financial institution, the U.S. institution must ensure that the
account no longer is used to provide such services, including, where
necessary, terminating the correspondent relationship. As explained
below, the proposed rule does not itself require U.S. financial
institutions to perform additional due diligence on foreign bank
customers.
The proposed rule does allow U.S. financial institutions to
maintain otherwise prohibited correspondent accounts to the extent they
are permitted pursuant to Executive Order 13310 and the Burma-related
activities of those accounts are for the purpose of conducting
transactions that are exempt from, or licensed pursuant to, Executive
Order 13310.
B. Definitions
Correspondent account. Section 103.186(a)(1) of the proposed rule's
definition of correspondent account is the definition contained in 31
U.S.C. 5318A(e) (as added by Section 311 of the Act), which defines the
term for banks to mean an account established to receive deposits from
or make payments on behalf of a foreign financial institution, or
handle other financial transactions related to the foreign financial
institution.
In the case of a U.S. depository institution, this broad definition
would include most types of banking relationships between a U.S.
depository institution and a foreign financial institution, including
payable-through accounts. In the case of securities broker-dealers,
futures commission merchants, introducing brokers, and mutual funds, a
correspondent account would include any account that permits the
foreign financial institution to engage in (1) trading in securities
and commodity futures or options, (2) funds transfers, or (3) other
types of financial transactions. Treasury is using the same definition
for purposes of the proposed rule as that established in the final rule
implementing Sections 313 and 319(b) of the Act \8\ with two notable
exceptions: (1) the term also applies to such accounts maintained by
futures commission merchants, introducing brokers, and mutual funds;
and (2) the definition applies to such accounts maintained for any
Burmese financial institution, as opposed to just Burmese banks.
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\8\ 67 FR 60562 (September 26, 2002) (codified at 31 CFR 103.175
(d)(1))
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Covered financial institution. Section 103.186(a)(2) of the
proposed rule defines covered financial institution to mean all of the
following: any insured bank (as defined in section 3(h) of the Federal
Deposit Insurance Act (12 U.S.C. 1813(h)); a commercial bank or trust
company; a private banker; an agency or branch of a foreign bank in the
United States; a credit union; a thrift institution; a corporation
acting under section 25A of the Federal Reserve Act (12 U.S.C. 611 et
seq.); a broker or dealer registered or required to register with the
SEC under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.);
a futures commission merchant or an introducing broker registered, or
required to register, with the CFTC under the Commodity Exchange Act (7
U.S.C. 1 et seq.); and an investment company (as defined in section 3
of the Investment Company Act of 1940 (15 U.S.C. 80a-3)) that is an
open-end company (as defined in section 5 of the Investment Company Act
of 1940 (15 U.S.C. 80a-5) that is registered, or required to register,
with the SEC pursuant to that Act.
Burmese financial institution. Section 103.186(a)(3) of the
proposed rule defines a Burmese financial institution to include all
foreign banks chartered or licensed by Burma and any other person
organized under the law of Burma who conducts as a business one or more
of the following activities or operations on behalf of customers:
trading in (1) Money market instruments; (2) exchange, interest rate,
and index instruments; (3) transferable securities; and (4) commodity
futures or options. The definition of foreign bank is that contained in
31 CFR 103.11(o). The inclusion in this definition of financial
institutions other than depository institutions is done in recognition
that these activities are alternate viable routes for money laundering
activity. Foreign branches and offices of Burmese financial
institutions are included in this definition. However, subsidiaries are
not at this time. Also, the Central Bank of Burma is not a Burmese
financial institution.
C. Requirements for Covered Financial Institutions
1. Prohibition on Correspondent Accounts
Section 103.186(b)(1) of the proposed rule would prohibit generally
all covered financial institutions from establishing, maintaining,
administering, or managing a correspondent or payable-through account
in the United States for, or on behalf of, a Burmese financial
institution. The prohibition would require all covered financial
institutions to review their account records to determine that they
maintain no accounts directly for, or on behalf of, a Burmese financial
institution. This prohibition is subject to the exception contained in
section 103.186(b)(4), described below.
2. Prohibition on Indirect Correspondent Accounts
Under section 103.186(b)(2) of the proposed rule, if a covered
financial institution obtains knowledge that a correspondent or
payable-through account that it maintains for a foreign bank is being
used by that foreign bank to provide services indirectly to a Burmese
financial institution, the U.S. institution must ensure that the
account no longer is used to provide such services, including, where
necessary, terminating the correspondent relationship. In contrast to
the obligation placed on covered financial institutions to identify
correspondent accounts maintained directly for, or on behalf of, a
Burmese financial institution in section 103.186(b)(1), this section
would not itself impose an independent obligation on covered financial
institutions to review or investigate correspondent accounts they
[[Page 66304]]
maintain for foreign banks to ascertain whether a foreign bank is using
the account to provide services to a Burmese financial institution.
Instead, if covered financial institutions become aware, through due
diligence that is otherwise appropriate or required under existing
anti-money laundering obligations, that a foreign bank is using its
correspondent account to provide banking services indirectly to a
Burmese financial institution, then the covered financial institutions
must ensure that the account is no longer used for such purposes. This
reflects the approach taken in the proposed rulemaking imposing special
measures against Nauru.\9\
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\9\ 68 FR 18917 (April 17, 2003).
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Additionally, when a covered financial institution becomes aware
that a foreign bank customer is using the U.S. correspondent account to
provide services to a Burmese financial institution indirectly, the
covered financial institution may afford that foreign bank customer a
reasonable opportunity to take corrective action prior to terminating
the U.S. correspondent account. Should the foreign bank customer refuse
to comply, or if the covered financial institution cannot obtain
adequate assurances that the account will no longer be used for
impermissible purposes, the covered financial institution must
terminate the account in accordance with this regulation. Treasury has
also incorporated the requirement of termination within a reasonable
period of time and the reinstatement of a terminated correspondent
account found in the final regulation implementing Sections 313 and
319(b) of the Act.\10\
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\10\ 67 FR 60562 (September 26, 2002) (codified at 31 CFR
103.177).
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This provision is likewise subject to the exception contained in
section 103.186(b)(3), described below.
3. Exception
Section 103.186(b)(3) provides for an exception to the prohibition
on both direct and indirect correspondent account relationships of the
proposed rule. U.S. financial institutions covered by the proposed rule
may maintain a correspondent account relationship otherwise prohibited
by this rule if the maintenance of such an account is permitted
pursuant to Executive Order 13310 and if the transactions involving
Burmese financial institutions that are conducted through the
correspondent account are limited solely to transactions that are
exempted in, or otherwise authorized by regulation, order, directive,
or license issue pursuant to, Executive Order 13310. As described
previously in section I(C)(1), certain transactions with Burma are
exempt from the prohibitions of Executive Order 13310 or have been
authorized through the licensing process. The general licenses (i.e.,
those of general applicability) or other authorizations issued will be
set forth in 31 CFR part 537, and are available on the website of
Treasury's Office of Foreign Assets Control, http://www.treas.gov/offices/eotffc/ofac/sanctions/sanctguide-burma.html.
To ensure that
those authorized activities are available as a practical matter, U.S.
correspondent accounts permitted to operate pursuant to Executive Order
13310 may be used to effect those permitted transactions.
4. Reporting and Recordkeeping Not Required
Section 103.186(b)(3) of the proposed rule states that it does not
impose any reporting or recordkeeping requirement upon any covered
financial institution that is not otherwise required by applicable law
or regulation.
V. Designation of Burma To Be of Primary Money Laundering Concern
Effective November 18, 2003, Burma was designated by the Secretary
of the Treasury to be a jurisdiction of primary money laundering
concern under 31 U.S.C. 5318A, as added by Section 311(a) of the Act.
See the notice published elsewhere in this separate part.
VI. Public Comments Requested
Comments are invited from all interested persons concerning this
proposed rulemaking, and are specifically sought from the financial
sector, including domestic financial institutions and agencies,
concerning the appropriateness and effectiveness of this particular
special measure, the ability to comply with the special measure, and
any competitive disadvantage, cost, or burden associated with
compliance.
VII. Regulatory Flexibility Act
It is hereby certified that this proposed rule will not have a
significant economic impact on a substantial number of small entities.
As explained above, financial institutions covered by this proposed
rulemaking are already prohibited under existing sanctions from
maintaining correspondent accounts for Burmese financial institutions.
Given the comprehensive sanctions regime, Treasury and FinCEN believe
that few foreign correspondent bank customers of small U.S. financial
institutions covered by the proposed rulemaking will themselves
maintain correspondent accounts for Burmese financial institutions.
Treasury and FinCEN specifically request comment on the extent to which
the prohibition contained in the proposed rule would affect small U.S.
financial institutions beyond obligations already imposed by existing
economic sanctions.
VIII. Executive Order 12866
Because this rule involves a foreign affairs function of the United
States, it is not subject to Executive Order 12866, ``Regulatory
Planning and Review.''
List of Subjects in 31 CFR Part 103
Banks and banking, Brokers, Counter-money laundering, Counter-
terrorism, Currency, Foreign banking, Reporting and recordkeeping
requirements.
Authority and Issuance
For the reasons set forth in the preamble, 31 CFR part 103 is
proposed to be amended as follows:
PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND
FOREIGN TRANSACTIONS
1. The authority citation for part 103 is revised to read as
follows:
Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314,
5316-5332; title III, sec. 311, 312, 313, 314, 319, 326, 352, Pub.
L. 107-56, 115 Stat. 307; 12 U.S.C. 1818; 12 U.S.C. 1786(q).
2. Subpart I of part 103 is proposed to be amended by adding Sec.
103.186 under the undesignated centerheading ``SPECIAL DUE DILIGENCE
FOR CORRESPONDENT ACCOUNTS AND PRIVATE BANKING ACCOUNTS'' to read as
follows:
Sec. 103.186 Special measures against Burma.
(a) Definitions. For purposes of this section:
(1) Correspondent account means an account established to receive
deposits from, or make payments on behalf of, a foreign financial
institution, or handle other financial transactions related to such
institution.
(2) Covered financial institution has the same meaning as provided
in Sec. 103.175(f)(2) and also includes the following:
(i) A futures commission merchant or an introducing broker
registered, or required to register, with the Commodity Futures Trading
Commission under the Commodity Exchange Act (7 U.S.C. 1 et seq.); and
[[Page 66305]]
(ii) An investment company (as defined in section 3 of the
Investment Company Act of 1940 (15 U.S.C. 80a-5)) that is an open-end
company (as defined in section 5 of the Investment Company Act (15
U.S.C. 80a-5)) and that is registered, or required to register, with
the Securities and Exchange Commission pursuant to that Act.
(3) Burmese financial institution means the following:
(i) Any foreign bank, as that term is defined in Sec. 103.11(o),
chartered or licensed by Burma, including branches and offices located
outside Burma; and
(ii) Any other person organized under the law of Burma, including
branches or offices located outside of Burma, who conducts as a
business one or more of the following activities or operations on
behalf of customers:
(A) Trading in money market instruments;
(B) Trading in exchange, interest rate, and index instruments;
(C) Trading in transferable securities; or
(D) Trading in commodity futures or options.
(b) Requirements for covered financial institutions--(1)
Prohibition on correspondent accounts. A covered financial institution
shall terminate any correspondent account that is established,
maintained, administered, or managed in the United States for, or on
behalf of, a Burmese financial institution.
(2) Prohibition on indirect correspondent accounts. (i) If a
covered financial institution has or obtains knowledge that a
correspondent account established, maintained, administered, or managed
by that covered financial institution in the United States for a
foreign bank is being used by the foreign bank to provide banking
services indirectly to a Burmese financial institution, the covered
financial institution shall ensure that the correspondent account is no
longer used to provide such services, including, where necessary,
terminating the correspondent account; and
(ii) A covered financial institution required to terminate an
account pursuant to paragraph (b)(2)(i) of this section:
(A) Shall do so within a commercially reasonable time, and shall
not permit the foreign bank to establish any new positions or execute
any transactions through such account, other than those necessary to
close the account; and
(B) May reestablish an account closed pursuant to this paragraph if
it determines that the account will not be used to provide banking
services indirectly to a Burmese financial institution.
(3) Exception. The provisions of paragraphs (b)(1) and (2) of this
section shall not apply to a correspondent account provided that the
operation of such account is not prohibited by Executive Order 13310
and the transactions involving Burmese financial institutions that are
conducted through the correspondent account are limited solely to
transactions that are exempted from, or otherwise authorized by
regulation, order, directive, or license pursuant to, Executive Order
13310.
(4) Reporting and recordkeeping not required. Nothing in this
section shall require a covered financial institution to maintain any
records, obtain any certification, or report any information not
otherwise required by law or regulation.
Dated: November 19, 2003.
William F. Baity,
Acting Director, Financial Crimes Enforcement Network.
[FR Doc. 03-29289 Filed 11-24-03; 8:45 am]
BILLING CODE 4810-02-P