Money Laundering, Terrorism and Financial Institutions - USA Patriot Act Monitor

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1/17/2006 Due Diligence Rules for Correspondent and Banking Accounts Must Be Parsed by Compliance Officers
Final due diligence rules for correspondent and private banking accounts, published in the Federal Register of January 4, are a subtle evolution from the rules proposed in 2002, and compliance departments have their work cut our for them in applying the new requirements to the operations of their institutions. Because “correspondent account” is not a common term outside of the banking context, the rules provide separate definitions of “account” for (1) broker-dealers, (2) futures commission merchants and introducing brokers, and (3) mutual funds. An account, to represent a correspondent relationship, need not be a deposit account, but can be any relationship with a foreign financial institution to provide ongoing services. Such ongoing services, according to the preamble, include foreign exchange contracts and over-the-counter derivatives contracts. This inclusion of OTC contracts would include a swap where periodic payments under a long-term contract are made with a counterparty. The correspondent and private banking account due diligence requirements will be the subject of an extensive analysis in the March issue of the Monitor, and will be incorporated into the posted compliance checklists for banks and broker-dealers.

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