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

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5/22/2006 FinCEN Posts Answers to Correspondent/Private Banking Account Questions Raised by the Securities Industry

FinCEN has posted guidance on a number of issues that have arisen since it issued final rules regarding correspondent accounts established or maintained for foreign financial institutions and private banking accounts for non-U.S. persons. With respect to clearing firms in the securities and futures industries, for instance, an introduced account will generally not be a private banking account of the clearing firm, but FinCEN says that it would be if the clearing firm imposes a $1 million requirement on introduced accounts and assigns an officer, employee, or agent to act as liaison between the clearing firm and the introduced account.  Institutions are to analyze the “type, purpose, and anticipated activity” of a correspondent account.  FinCEN was asked by industry representatives whether this could be limited to a consideration of “money movements.”  FinCEN declined to accept such a simplification, arguing that money launderers may use correspondent accounts in the integration process of money laundering, which might not be detected merely by an analysis of money movements. Further analysis of the guidance will be incorporated into forthcoming supplements to Banoun and Ensminger, Money Laundering, Terrorism and Financial Institutions, and into the compliance checklists (http://www.civicresearchinstitute.com/moneylaundering/checklists.html).

    A mutual fund is repeatedly used as a temporary resting place for funds from multiple sources without a clear business (including investment) purpose.  In instances where suspicious activity may involve another mutual fund, another financial institution, or an agent of the mutual fund, information sharing is permitted, provided that a party with whom or which information is shared is not the subject of the filing.  Parties may share information so that a single SAR-SF is filed by one of them which is as complete as possible (procedures also allow for joint filings), and to avoid duplicative reporting.  An amendment to 31 CFR 103.16, on suspicious activity reporting by insurance companies, clarifies than an insurance company that issues variable products funded by separate accounts that meet the definition of a mutual fund is to file SARs under the new mutual fund rule, 31 CFR 103.15.  The new rules are effective October 31, 2006 and will be discussed in a forthcoming issue of the Monitor. 

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