Correspondent Banks: Update Your Risk-Based Policies and Procedures for Iran, North Korea, and others advise U.S. FinCEN
by Bachir El Nakib (CAMS), Senior Consultant, Compliance Alert (LLC).
The global Financial Action Task Force's updates issued on June 23 outline countries requiring anti-money laundering/counter-terrorist financing (AML/CFT) "countermeasures or enhanced due diligence" as well as those identified as having "strategic AML/CFT deficiencies."
FATF's lists noted relatively few changes. The most significant was that both Afghanistan and Laos were removed from FATF's list of countries with "strategic deficiencies," leaving only Bosnia and Herzegovina, Ethiopia, Iraq, Syria, Uganda, Vanuatu, and Yemen.
The U.S. Treasury Department's anti-money laundering unit on Friday urged financial institutions to take evolving financial transaction risks from countries including North Korea and Iran into account. The caution issued by Treasury, which also catalogues recent events that have heightened risk in these regions, cited updated reports from the global anti-money laundering standards setter on nations regarded as doing a poor job of combating financial crime. FinCEN said in its recent advisory on Friday that "Financial institutions should consider these changes when reviewing their obligations and risk-based policies, procedures, and practices with respect to the jurisdictions noted below."
FinCEN's advisory does raise the stakes for foreign banks with ties to North Korea and forcing global financial institutions to reassess their correspondent relationships., however, outline several recent events involving Iran and North Korea that are apt to change risk assessments. For instance, it notes that in June 2017, Treasury labelled China-based Bank of Dandong a "foreign financial institution of primary money laundering concern" under Section 311 of the USA PATRIOT Act:
[Sec. 311. Special Measures for Jurisdictions, Financial Institutions, or International Transactions of Primary Money Laundering Concern, (1) In general The Secretary of the Treasury may require domestic financial institutions and domestic financial agencies to take 1 or more of the special measures described in subsection (b) if the Secretary finds that reasonable grounds exist for concluding that a jurisdiction outside of the United States, 1 or more financial institutions operating outside of the United States, 1 or more classes of transactions within, or involving, a jurisdiction outside of the United States, or 1 or more types of accounts is of primary money laundering concern, in accordance with subsection (c)].
The FinCEN report states that "financial institutions must also comply with the extensive U.S. restrictions and prohibitions against opening or maintaining any correspondent accounts, directly or indirectly, with foreign banks licensed by (North Korea) or Iran."