November 1, 2011
On October 11, 2011, the United States Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN)” published in the Federal Register the final version of new regulations implementing section 104(e) of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (“CISADA”). These regulations, effective October 11, 2011, require that a U.S. bank, upon a request from FinCEN, provide the following information within 45 calendar days with regard to specified foreign bank(s) with which the U.S. bank maintains a correspondent account:
1. whether the specified foreign bank maintains a correspondent account for an Iranian-linked financial institution designated under the International Emergency Economic Powers Act (“IEEPA”);
2. whether the specified foreign bank has processed one or more transfers of funds within the preceding 90 calendar days for or on behalf of, directly or indirectly, an Iranian-linked financial institution designated under IEEPA, other than through a correspondent account; or
3. whether the specified foreign bank has processed one or more transfers of funds within the preceding 90 calendar days for or on behalf of, directly or indirectly, Iran’s Islamic Revolutionary Guard Corps (“IRGC”) or any of its agents or affiliates designated under IEEPA.
The U.S. bank would be required to ask the named foreign correspondent to certify this information using a certification form being published by FinCEN with the final regulation. The form would be required to be filed with FinCEN within 45 calendar days of the receipt of the request regarding the foreign correspondent bank. When making its inquiry to the specified foreign bank, the regulations also require the U.S. bank to request that the foreign bank agree to notify the U.S. bank if it subsequently establishes a new correspondent account for an Iranian-linked financial institution designated under IEEPA at any time within 365 calendar days from the date of the foreign bank’s initial response, and to report such information to the U.S. bank within 30 days of the establishment of the new correspondent account. The U.S. bank would have to provide this new information to FinCEN within 10 days of receipt of the information. The respondent U.S. bank also must report instances in which the U.S. bank does not maintain a correspondent account for the specified foreign bank. The U.S. bank also will be in compliance with the reporting regulations if it timely reports (i.e., within 45 calendar days of FinCEN’s request) instances in which:
1. it did not receive a response from the specified foreign bank (e.g., if a foreign bank cites privacy legislation and refuses to provide information or does not respond at all to the U.S. bank’s queries);
2. it cannot determine that the foreign bank does not maintain a relevant account or has not processed relevant transfers of funds, along with the reasons for this (e.g., failure of the foreign bank to certify its response; if the U.S. bank has information inconsistent with the foreign bank’s certification; if the foreign bank does not respond to the U.S. bank’s queries).
These new reporting requirements are limited to those U.S. banks to which FinCEN directly sends its requests for foreign correspondent bank information U.S. banks will also not need to independently verify the information provided by the specified foreign bank. The U.S. bank will be required to certify on the form that to the best of its “knowledge” it has no information that is inconsistent with the information being provided by the foreign bank. FinCEN states in the preamble that knowledge means knowledge obtained based on OFAC monitoring and Bank Secrecy Act due diligence. If the U.S. bank possesses information that is inconsistent with the foreign bank’s certification, it must report the discrepancy to FinCEN (e.g., the U.S. bank’s transaction monitoring software blocked a transaction on behalf of the foreign bank, but that foreign bank does not include information regarding the blocked transaction in the report provided to the U.S. bank).
In addition, U.S. banks would not need to take any specific actions based on the information they do or do not receive in response to their queries of the specified foreign bank(s) listed in FinCEN requests for information. They would also not need to take any specific actions to terminate the correspondent relationship based solely on the fact that they had received a request for information under these regulations. As a practical matter, many U.S. banks may treat a receipt of a request as a red flag which will generate an account review and lead to possible termination of their relationship with the foreign correspondent bank. U.S. banks will be required to comply with any restrictions that the U.S. Government chooses to impose on foreign correspondent banks based on the information that FinCEN receives from the responses to its issued requests for information.
In the Final Rule, FinCEN also stated that it reserved the right to expand the reporting regulations to require that U.S. banks request information as to whether their foreign correspondent banks had facilitated the activities of a non-IEEPA-designated person subject to financial sanctions pursuant to U.N. Security Council Resolutions regarding Iran. The regulations as published do not require reporting regarding foreign correspondent banks’ activities with respect to non-IEEPA-designated sanctioned persons at this time, however.
If a foreign correspondent bank conducts legitimate business with an Iranian-linked financial institution designated under IEEPA, through licensed transactions and clearing authorized by the competent authority in the foreign bank’s jurisdiction, the foreign bank may provide further information concerning the licensed/cleared activity in the certification form it provides to the inquiring U.S. bank. Such explanatory information may be taken into account when the foreign bank’s certification is reviewed by FinCEN and it is determined what further action, if any, is appropriate under section 104(c) of CISADA.
 Comprehensive Iran Sanctions: Final Rule, 76 Fed. Reg. 62,607 (Oct. 11, 2011) (to be codified at 31 C.F.R. part 1060), available at http://www.gpo.gov/fdsys/pkg/FR-2011-10-11/pdf/2011-26204.pdf (“Final Rule”).
 A U.S. bank is defined in 31 C.F.R. § 1010.100(d), and includes each agent, agency, branch, or office within the United States of persons doing business in one or more of the following capacities: commercial banks or trust companies, private banks, savings and loan associations, national banks, thrift institutions, credit unions, other organizations chartered under banking laws and supervised by banking supervisors of any State, and banks organized under foreign law. The Final Rule does not apply to any other type of non-bank financial institution that may fall within the same bank holding company structure. In addition, U.S. branches of foreign banks are included within the definition of a U.S. bank in 31 C.F.R. § 1010.100(d). A foreign bank is defined in 31 C.F.R. § 1010.100(u) and means a bank organized under foreign law (except for U.S. branches of such banks), or an agency, branch, or office of a U.S. bank located outside the United States. See Final Rule at 62,616-17.
 Should the respondent U.S. bank receive information from the specified foreign bank outside of the 45 calendar day period, the U.S. bank is required to report such information to FinCEN within 10 calendar days of receipt. See Final Rule at 62,614-15.
 A list of the twenty-one Iranian-linked financial institutions designated under IEEPA can be found on the U.S. Treasury Department’s website at http://www.treasury.gov/resource-center/sanctions/Programs/Documents/irgc_ifsr.pdf.
 “[O]ther than through a correspondent account” includes those circumstances in which financial institutions are part of a common payments or clearing mechanism that provides for transfers of funds among participants without requiring bilateral correspondent account relationships. See Final Rule at 62,612. “[F]or or on behalf of, directly or indirectly” include situations where a foreign bank has knowledge that a transfer of funds it is processing is for or on behalf of an IEEPA-designated Iranian-linked financial institution or an IEEPA-designated IRGC-linked person, but where the designated entity or individual does not appear on the face of the transaction. Thus, the U.S. bank must also request that the specified foreign bank include information regarding transfers in which the processing is being done with knowledge based on a relationship that exists through a third party such as a money exchange or trading house. See id. at 62,613.
 This does not require the foreign bank to report the transfers of funds processed for a relevant IEEPA-designated entity or individual following its initial response, only the establishment of a new correspondent account for an IEEPA-designated, Iranian-linked financial institution. See id. at 62,613.
Gibson, Dunn & Crutcher’s lawyers are available to assist with any questions you may have regarding these issues. For further information please contact the Gibson Dunn lawyer with whom you work or the following lawyers in the firm’s Washington, D.C. office:
Judith Alison Lee (202-887-3591, [email protected])
Amy G. Rudnick (202-955-8210, [email protected])
Daniel J. Plaine (202-955-8286, [email protected])
John J. Sullivan (202-955-8565, [email protected])
Linda Noonan (202-887-3595, [email protected])
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