On November 2, the Financial Crimes Enforcement Network (FinCEN) issued a final rule (Rule) under Section 311 of the USA PATRIOT ACT, which prohibits U.S. financial institutions from processing transactions for foreign correspondent accounts involving a Chinese bank (Bank) that was suspected of facilitating illicit North Korean financial activity and laundering funds to finance North Korea’s nuclear and ballistic missile programs. U.S. financial institutions are also instructed to apply enhanced due diligence to foreign correspondent accounts to prevent them from being used to process transactions involving the Bank. The Rule is effective 30 days after its publication in the Federal Register.
In tandem with the issuance of the Rule, FinCEN issued an advisory (FIN-2017-A008) to warn U.S. financial institutions about strategies used by North Korean enterprises as a means to gain access to international financial systems, including (i) the use of a network of global financial representatives; (ii) trade-based payment schemes; (iii) front and shell companies; (iv) surge activity cycles; and (v) financial institutions that operate in areas bordering North Korea. The advisory’s regulatory guidance is designed to assist financial institutions in identifying and reporting suspicious activity by North Korea and its financial institutions. The guidance follows a September 26 announcement by the Treasury Department’s Office of Foreign Assets Control that imposed additional sanctions on North Korean banks and individuals connected to global North Korean financial networks. (See previous InfoBytes coverage here.)