On November 9, 2016, the US Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) issued a final rule (the “Final Rule”) imposing additional restrictions on North Korean banks and other financial institutions. The Final Rule follows a related June 3, 2016 Notice of Proposed Rulemaking and FinCEN’s June 2, 2016 Finding that North Korea is a jurisdiction of primary money laundering concern under Section 311 of the USA PATRIOT Act, 31 U.S.C. 5318A. These developments were discussed in our previous blog post.
As detailed in a previous blog post, the United States imposed comprehensive sanctions against North Korea in March 2016. Accordingly, US financial institutions are already generally prohibited from engaging in both direct and indirect transactions with North Korean financial institutions. According to the US Treasury Department Press Release regarding the Final Rule, these additional restrictions will further limit North Korea’s access to the US financial system and provide greater protection for the US financial system from North Korean illicit activity.
The Final Rule specifically prohibits “covered financial institutions” (“CFIs”) from opening or maintaining a correspondent account in the United States for or on behalf of a North Korean banking institution. CFIs are also prohibited under the rule from processing transactions for the correspondent account of a foreign bank in the United States if such transactions involve a North Korean financial institution.
In addition, the Final Rule requires CFIs to apply special due diligence to their foreign correspondent accounts that is reasonably designed to guard against their use to process transactions involving North Korean financial institutions. The rule goes on to specify the minimum special due diligence that must be applied by CFIs. For instance, CFIs that know or believe a correspondent account holder is providing services to a North Korean financial institution must notify the correspondent account holder that this account holder may not provide a North Korean financial institution with access to the correspondent account at the CFI. CFIs must also take steps to identify any use of foreign correspondent accounts by North Korean financial institutions based on records maintained in the normal course of business. The Final Rule further requires that CFIs take steps to investigate and prevent access by a foreign bank to a correspondent account where the CFI knows or has reason to believe that the foreign bank’s correspondent account is being used to process North Korean transactions — including termination of the account where necessary.
For purposes of these rules, “CFIs” generally include the following: insured banks; commercial banks; agencies or branches of a foreign bank in the United States; federally insured credit unions; savings associations; certain banking corporations authorized to do foreign banking business; federally-regulated trust banks or trust companies; certain brokers or dealers in securities; certain futures commission merchants or introducing brokers; and mutual funds.