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Financial Institution Letters
THE DEPARTMENT OF THE TREASURY
THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
THE OFFICE OF THE COMPTROLLER OF THE CURRENCY
THE FEDERAL DEPOSIT INSURANCE CORPORATION
THE OFFICE OF THRIFT SUPERVISION
AND THE DEPARTMENT OF STATE
The working group determined to focus initially on transactions by senior foreign political figures and their close associates that may involve the proceeds of foreign official corruption for several reasons. First, while all significant corruption adversely affects individual segments in an economy, high-level corruption can be particularly damaging to a nation's economy and development. This sort of corruption can undermine local efforts to establish and strengthen market-based economic systems; interfere with the international community's efforts to support and promote economic development; discourage foreign private investment; and foster a climate conducive to financial crime and other forms of lawlessness. The impact of this form of corruption is felt disproportionately by developing nations. And this form of corruption directly impedes the achievement of a core United States diplomatic and international economic policy objective - namely, the promotion of democratic institutions and economic development around the world. It is thus squarely in the United States' interest to combat this form of corruption. Depriving corrupt officials access to well-established international financial markets, including the United States financial system, can contribute significantly to achieve this goal.
Second, a financial institution that engages in a financial transaction, knowing that the property involved in the transaction represents the proceeds of foreign official corruption, may be involved in the crime of money laundering under United States law, if the proceeds involved in the transactions were generated by a "specified unlawful activity," and if the other statutory elements are met See 18 U.S.C. 1956 & 1957.
Third, regardless of whether the funds involved in the transaction constitute "proceeds" for the purposes of U.S. criminal money laundering laws, business relationships with persons who have high-ranking public positions in foreign governments, or other closely related persons or entities, can, under certain circumstances, expose financial institutions to significant risk, especially if the person involved comes from a country in which corruption and the illicit use of public office to obtain personal wealth may be widespread. This risk is even more acute if the person involved comes from a country whose counter-money laundering regime does not meet international financial transparency standards. Financial institutions that engage, directly or indirectly, in business relationships with senior political figures or closely related persons from such countries thus may be subjecting themselves to significant legal risks, reputational damage, or both.
To assist financial institutions in ensuring that they do not unwittingly hide or move the proceeds of foreign official corruption, this document provides guidance to financial institutions in applying enhanced scrutiny to transactions by senior foreign political figures and closely related persons and entities. This Guidance is intended to help financial institutions more effectively detect and deter transactions that involve the proceeds of foreign corruption, and thus better protect themselves from being used as a conduit for such transactions. This Guidance contains suggested procedures for account opening and maintenance for persons known to be senior foreign political figures, their immediate family or their close associates. It also contains a list of questionable or suspicious activities that, when present, often will warrant enhanced scrutiny of transactions involving such persons.
Banks should apply this Guidance to their private banking activities and accounts, and also may wish to apply this Guidance in connection with high dollar-value accounts or transactions in other relevant areas of their operations. Similarly, other financial institutions should apply this Guidance, as applicable, in connection with high dollar-value accounts or transactions in relevant parts of their operations. (Where this document refers to "accounts" and "business relationships," it should be read and understood in this fashion.)
This Guidance is intended to build upon financial institutions' existing due diligence and anti-money laundering programs, policies, procedures and controls, and to assist financial institutions in the continuing design and development of comprehensive due diligence programs to identify and manage particular risks that may exist. Sound risk management policies and procedures vary among financial institutions and, therefore, the application of this Guidance also may vary among institutions.
This Guidance is not a rule or regulation and should not be interpreted as such. It is advice that financial institutions are encouraged to employ in conjunction with policies, practices and procedures that are in place to enable financial institutions to comply with applicable laws and regulations and to minimize reputational risks. The Federal financial institutions supervisory agencies will continue to monitor whether financial institutions have appropriate controls to identify and deter money laundering, but will not examine, review or audit financial institutions solely for compliance with this Guidance. If, however, deficiencies emerge at a financial institution that would have been minimized or eliminated if the advice contained in this Guidance had been followed, the relevant financial institution supervisor, depending on the severity of the identified deficiencies, may require that the advice contained in this Guidance be integrated into the risk management policies and procedures of the affected institution.
This Guidance is intended to be consistent with applicable civil and criminal laws as well as the regulations of the particular financial institution's supervisory or regulatory agency and the Department of the Treasury. It does not replace, supersede or supplant any financial institution's legal obligations, nor does compliance with this Guidance create a "safe harbor" against action by the United States, any federal agency, or the federal financial institutions supervisory agencies.
II. Enhanced Scrutiny Guidance
As described further herein, financial institutions are encouraged to develop and maintain "enhanced scrutiny" practices and procedures designed to detect and deter transactions that may involve the proceeds of official corruption by senior foreign political figures, their immediate family, or their close associates. These practices and procedures should be viewed as an application of institutions' due diligence and anti-money laundering policies and procedures and should ensure that institutions report such activity as suspicious in accordance with applicable suspicious activity reporting requirements. In order to ensure that practical steps are taken to provide this enhanced scrutiny, it is prudent practice for a financial institution to review its practices in this area as part of its overall internal and external audit.
The manner in which a financial institution may elect to apply the advice contained in this Guidance will vary depending on the extent of the risk determined to exist by each institution as a general matter, given its normal business operations, and in each case as it is presented. Each financial institution should exercise reasonable judgment in designing and implementing policies and procedures regarding senior foreign political figures, their immediate family and their close associates, and for determining any necessary actions to be undertaken by the institution regarding their transactions.
This Guidance should not be read or understood as discouraging or prohibiting financial institutions from doing business with any legitimate customer, including a senior foreign political figure, or his or her immediate family or close associates. To the contrary, this Guidance is designed solely to assist financial institutions in determining whether a transaction by a senior foreign political figure, his or her immediate family or his or her close associates merits enhanced scrutiny so that the institution, through the application of such scrutiny, is better able to identify and avoid transactions involving the proceeds of foreign corruption and, as necessary and appropriate, to file suspicious activity reports.
In undertaking the reasonable steps and reasonable efforts suggested in this Guidance concerning (1) whether a person or entity is a Covered Person (see Section II.B), (2) the establishment and maintenance of accounts for a Covered Person (see Section II.C), and (3) potentially questionable or suspicious activities involving a Covered Person's transactions (see Section II.D), a financial institution should not rely solely on information obtained from the Covered Person or his or her associates, but should attempt to obtain additional information from its organization and from independent sources (see Section II.E.).
B. Definition of Covered Person
For the purposes of this Guidance, a "Covered Person" is a person identified in the course of normal account opening, maintenance or compliance procedures to be a "senior foreign political figure," any member of a senior foreign political figure's "immediate family," and any "close associate" of a senior foreign political figure.
A "senior foreign political figure" is a senior official in the executive, legislative, administrative, military or judicial branches of a foreign government (whether elected or not), a senior official of a major foreign political party, or a senior executive of a foreign government-owned corporation. In addition, a "senior foreign political figure" includes any corporation, business or other entity that has been formed by, or for the benefit of, a senior foreign political figure.
When, during its normal account opening, maintenance or compliance procedures, a financial institution learns of information indicating that a particular individual may be a senior foreign political figure, a member of a senior foreign political figure's immediate family, or a close associate of a senior foreign political figure, it should exercise reasonable diligence in seeking to determine whether the individual is, in fact, a Covered Person. We recognize that, in some instances, it is not possible even through the exercise of reasonable diligence to determine whether a particular individual is a Covered Person.
C. Account Establishment and Maintenance Procedures For Covered Persons
In conjunction with financial institutions' policies, practices and procedures that are in place to enable financial institutions to comply with applicable laws and regulations, financial institutions are encouraged to employ the following practices when establishing and maintaining a business relationship with a Covered Person:
> Ascertain the Identity of the Account Holder and the Account's Beneficial Owner
When conducting transactions for or on behalf of Covered Persons, financial institutions should be alert to features of transactions that are indicative of transactions that may involve the proceeds of foreign official corruption. The following non-exhaustive list of potentially questionable or suspicious activities is designed to illustrate the sort of transactions involving Covered Persons that often will warrant enhanced scrutiny, but does not replace, supersede or supplant financial institutions' legal obligations regarding potentially suspicious transactions generally. The list should be evaluated by each financial institution along with other information the institution may have concerning the Covered Person, the nature of the transaction itself, and other parties involved in the transaction, in evaluating a particular transaction. The occurrence of one or more of the items on the list in a transaction involving a Covered Person often will warrant some form of enhanced scrutiny of the transaction, but does not necessarily mean, in itself, that a transaction is suspicious.
Institutions should pay particular attention to:
E. Sources of Information
In addition to a financial institution's existing information sources, several sources of information exist that may assist financial institutions in determining whether to conduct business with an individual who may be a Covered Person, and in determining whether such a Person may be engaging in transactions that may involve proceeds derived from official corruption. While there is no requirement to do so, a financial institution may wish to consult some or all of the following sources:
In addition to these published sources of information, if a financial institution is unsure whether an individual holds a position within the government of a particular country, it is encouraged to contact the United States Department of State at www.state.gov, which may be able to provide that information.
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