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Daily Rules, Proposed Rules, and Notices of the Federal Government

DEPARTMENT OF THE TREASURY

Financial Crimes Enforcement Network

31 CFR Part 1060

RIN 1506-AB12

Comprehensive Iran Sanctions, Accountability, and Divestment Reporting Requirements

AGENCY: Financial Crimes Enforcement Network ("FinCEN"), Treasury.
ACTION: Final rule.
SUMMARY: FinCEN, to comply with the congressional mandate to prescribe regulations under section 104(e) of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 ("CISADA") and consistent with its statutory mission under 31 U.S.C. 310, is issuing this final rule. The rule requires a U.S. bank that maintains a correspondent account for a foreign bank to inquire of the foreign bank, and report to FinCEN certain information with respect to transactions or other financial services provided by that foreign bank. Under the rule, U.S. banks will only be required to report thisinformation to FinCEN upon receiving a specific written request from FinCEN. This final rule follows publication of a May 2, 2011 proposed rule, takes into account the public comments received, and adopts the provisions of the proposed rule with minor modifications described in the preamble.
DATES: Effective Date:October 11, 2011.
FOR FURTHER INFORMATION CONTACT: The FinCEN regulatory helpline at (800) 949-2732 and select Option 6.
SUPPLEMENTARY INFORMATION: I. Statutory Provisions

On July 1, 2010, the President signed CISADA1 into law. Section 104(c) of CISADA requires the Secretary of the Treasury (“the Secretary”) to prescribe regulations to prohibit, or impose strict conditions on, the opening or maintaining in the United States of correspondent accounts and payable-through accounts for foreign financial institutions that the Secretary finds knowingly engage in sanctionable activities described in section 104(c)(2) of CISADA. The relevant statutory language reads as follows:

1Public Law No. 111-195, 124 Stat. 1312 (2010).

“(c) PROHIBITIONS AND CONDITIONS WITH RESPECT TO CERTAIN ACCOUNTS HELD BY FOREIGN FINANCIAL INSTITUTIONS.—

(1) IN GENERAL.—Not later than 90 days after the date of the enactment of this Act, the Secretary of the Treasury shall prescribe regulations to prohibit, or impose strict conditions on, the opening or maintaining in the United States of a correspondent account or a payable-through account by a foreign financial institution that the Secretary finds knowingly engages in an activity described in paragraph (2).

(2) ACTIVITIES DESCRIBED.—A foreign financial institution engages in an activity described in this paragraph if the foreign financial institution—

(A) facilitates the efforts of the Government of Iran (including efforts of Iran's Revolutionary Guard Corps or any of its agents or affiliates)—

(i) to acquire or develop weapons of mass destruction or delivery systems for weapons of mass destruction; or

(ii) to provide support for organizations designated as foreign terrorist organizations under section 219(a) of the Immigration and Nationality Act (8 U.S.C. 1189(a)) or support for acts of international terrorism (as defined in section 14 of the Iran Sanctions Act of 1996 (Public Law 104-172; 50 U.S.C. 1701 note));

(B) facilitates the activities of a person subject to financial sanctions pursuant to United Nations Security Council Resolution 1737 (2006), 1747 (2007), 1803 (2008), or 1929 (2010), or any other resolution that is agreed to by the Security Council and imposes sanctions with respect to Iran;

(C) engages in money laundering to carry out an activity described in subparagraph (A) or (B);

(D) facilitates efforts by the Central Bank of Iran or any other Iranian financial institution to carry out an activity described in subparagraph (A) or (B); or

(E) facilitates a significant transaction or transactions or provides significant financial services for—

(i) Iran's Revolutionary Guard Corps or any of its agents or affiliates whose property or interests in property are blocked pursuant to the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.); or

(ii) a financial institution whose property or interests in property are blocked pursuant to that Act in connection with—

(I) Iran's proliferation of weapons of mass destruction or delivery systems for weapons of mass destruction; or

(II) Iran's support for international terrorism.

(3) PENALTIES.—The penalties provided for in subsections (b) and (c) of section 206 of the International Emergency Economic Powers Act (50 U.S.C. 1705) shall apply to a person that violates, attempts to violate, conspires to violate, or causes a violation of regulations prescribed under paragraph (1) of this subsection to the same extent that such penalties apply to a person that commits an unlawful act described in section 206(a) of that Act.”

On August 16, 2010, the Office of Foreign Assets Control (“OFAC') published the Iranian Financial Sanctions Regulations, 31 CFR Part 561 (the “IFSR”). Section 561.201 of the IFSR implements section 104(c) of CISADA. It states that the Secretary will, consistent with authorities under CISADA, prohibit or impose strict conditions on the opening or maintaining in the United States of correspondent accounts or payable-through accounts for a foreign financial institution that the Secretary finds knowingly engages in one or more of the sanctionable activities described in section 561.201(a) of the IFSR.

Section 104(e) of CISADA requires the Secretary to prescribe regulations to establish one or more specific requirements for U.S. financial institutions maintaining correspondent accounts for foreign financial institutions, in connection with the sanctionable activities described in section 104(c)(2) of CISADA. The relevant statutory language reads as follows:

“(e) REQUIREMENTS FOR FINANCIAL INSTITUTIONS MAINTAINING ACCOUNTS FOR FOREIGN FINANCIAL INSTITUTIONS.—

(1) IN GENERAL.—The Secretary of the Treasury shall prescribe regulations to require a domestic financial institution maintaining a correspondent account or payable-through account in the United States for a foreign financial institution to do one or more of the following:

(A) Perform an audit of activities described in subsection (c)(2) that may be carried out by the foreign financial institution.

(B) Report to the Department of the Treasury with respect to transactions or other financial services provided with respect to any such activity.

(C) Certify, to the best of the knowledge of the domestic financial institution, that the foreign financial institution is not knowingly engaging in any such activity.

(D) Establish due diligence policies, procedures, and controls, such as the due diligence policies, procedures, and controls described in section 5318(i) of title 31, United States Code, reasonably designed to detect whether the Secretary of the Treasury has found the foreign financial institution to knowingly engage in any such activity.

(2) PENALTIES.—The penalties provided for in sections 5321(a) and 5322 of title 31, United States Code, shall apply to a person that violates a regulation prescribed under paragraph (1) of this subsection, in the same manner and to the same extent as such penalties would apply to any person that is otherwise subject to such section 5321(a) or 5322.”

In order to comply with the congressional mandate to prescribe regulations under section 104(e) of CISADA, and consistent with its statutory mission under 31 U.S.C. 310, FinCEN is implementing section 104(e)(1)(B) of CISADA. FinCEN considered implementing any one or more of the options under section 104(e)(1) of CISADA, and determined that implementing section 104(e)(1)(B) is the most useful vehicle for effecting the intent of section 104(e) at this time. Section 104(e)(1)(B) of CISADA authorizes the Secretary to prescribe regulations that require a domestic financial institution maintaining a correspondent account in the United States for a foreign financial institution to report to the Department of the Treasury with respect to transactions or other financial services provided with respect to sanctionable activities described in section 104(c)(2) of CISADA that may be carried out by the foreign financial institution.

FinCEN believes that among the services included within the concept of “transactions or other financial services provided” by a foreign financial institution are correspondent accounts the foreign financial institution maintains for other foreign financial institutions and transfers of funds the foreign financial institution processes for or on behalf of other foreign financial institutions, individuals, or entities. A foreign financial institution's provision of correspondent account services and transfer of funds services to a financial institution designated by the U.S. Government in connection with Iran's proliferation of weapons of massdestruction or delivery systems for weapons of mass destruction, or in connection with Iran's support for international terrorism, may be relevant to the sanctionable activities described under section 104(c)(2) of CISADA. As a result, FinCEN is focusing this reporting requirement on the provision of information relating to such correspondent accounts and transfers of funds.2 In addition, because a foreign financial institution's provision of transfer of funds services to Iran's Islamic Revolutionary Guard Corps (“IRGC”) or any of its agents or affiliates designated by the U.S. Government may also be relevant to the sanctionable activities described under section 104(c)(2) of CISADA, FinCEN is also focusing this reporting requirement on the provision of information relating to such transfers of funds.3

2 See, e.g.,CISADA subsection 104(c)(2)(E)(ii), which includes focus on the provision by foreign financial institutions of significant financial services to financial institutions that are of concern under CISADA.

3 See, e.g.,CISADA subsection 104(c)(2)(E)(i), which includes focus on the provision by foreign financial institutions of significant financial services to individuals or entities that are of concern under CISADA.

FinCEN is implementing section 104(e)(1)(B) of CISADA by issuing regulations that require a bank, upon receiving a written request from FinCEN, to inquire of a specified foreign bank for which it maintains a correspondent account, and report to FinCEN, with respect to the following: (1) Whether the foreign bank maintains a correspondent account for an Iranian-linked financial institution designated under the International Emergency Economic Powers Act (“IEEPA”);4 (2) whether the foreign bank has processed one or more transfers of funds within the preceding 90 calendar days for or on behalf of, directly or indirectly,5 an Iranian-linked financial institution designated under IEEPA, other than through a correspondent account; and (3) whether the foreign bank has processed one or more transfers of funds within the preceding 90 calendar days for or on behalf of, directly or indirectly, an IRGC-linked person designated under IEEPA.6

4 See belowSection V. A. for the definition of Iranian-linked financial institution designated under IEEPA.

5 See belowSection IV. D. for the rationale for replacing the terminology “related to” with “for or on behalf of, directly or indirectly.”

6 See belowSection V. A. for the definition of IRGC-linked person designated under IEEPA.

In addition, the rule requires a bank to request, when making its inquiry of a specified foreign bank, that the foreign bank agree to notify the bank if the foreign bank subsequently establishes a new correspondent account for an Iranian-linked financial institution designated under IEEPA at any time within 365 calendar days from the date of the foreign bank's initial response, and report such information to FinCEN.

The rule also requires a bank to report to FinCEN instances in which the bank does not maintain a correspondent account for a foreign bank specified in a written request from FinCEN. This requirement will only apply when FinCEN specifically requests in writing that the bank report such information. To the extent possible and based on all available information, FinCEN intends to send requests directly to banks that FinCEN believes may maintain correspondent accounts for the specified foreign bank(s). The number of banks that receive a request may vary in each specific case, based on the availability of information to FinCEN and other circumstances.

II. Background Information A. 31 CFR Part 561 Iranian Financial Sanctions Regulations—Office of Foreign Assets Control

On August 16, 2010, OFAC published the IFSR, 31 CFR part 561. As noted above, section 561.201 of the IFSR implements section 104(c) of CISADA. It states that the Secretary will, consistent with authorities under CISADA, prohibit or impose strict conditions on the opening or maintaining in the United States of correspondent accounts or payable-through accounts for a foreign financial institution that the Secretary finds knowingly engages in one or more of the sanctionable activities described in section 561.201(a) of the IFSR. The names of foreign financial institutions that are found by the Secretary to knowingly engage in such sanctionable activities, and for which U.S. financial institutions may not open or maintain correspondent accounts or payable-through accounts in the United States, will be published in theFederal Registerand listed in appendix A to the IFSR. If the Secretary decides to impose strict conditions on the opening or maintaining of a correspondent account or a payable-through account for a foreign financial institution, the actual condition(s) to be imposed will be specified upon the identification of the foreign financial institution in an order or regulation published in theFederal Register.

B. Use of CISADA Reports

The CISADA reports received as a result of this rulemaking will be used primarily to provide FinCEN with potentially useful information from U.S. banks regarding the nature of foreign bank activities that may be relevant to CISADA. Based on the reports, immediate action may be taken under section 104(c) of CISADA, or, among other things, there may be consultation with those foreign banks that maintain correspondent accounts for Iranian-linked financial institutions designated under IEEPA, that have processed one or more transfers of funds for or on behalf of, directly or indirectly, an Iranian-linked financial institution or an IRGC-linked person designated under IEEPA, or that have been unwilling to respond to inquiries from the banks at which the foreign banks maintain correspondent accounts. An investigation by OFAC into the activities of such foreign banks could result in a finding by the Secretary under section 104(c) of CISADA and section 561.201 of the IFSR. For example, when a bank reports that a foreign bank maintains a correspondent account for an Iranian-linked financial institution designated under IEEPA, or has processed one or more transfers of funds for or on behalf of, directly or indirectly, an Iranian-linked financial institution or an IRGC-linked person designated under IEEPA, OFAC could use the information to corroborate or supplement data derived from other sources and may request further information from the foreign bank to clarify whether the foreign bank is facilitating significant transactions or providing significant financial services for an Iranian-linked financial institution or an IRGC-linked person designated under IEEPA. Such transactions or services can be the basis for prohibiting or imposing strict conditions on the foreign bank's correspondent or payable-through accounts in the United States under section 104(c) of CISADA and section 561.201 of the IFSR.

III. Notice of Proposed Rulemaking

The final rule contained in this document is based on the Notice of Proposed Rulemaking published in theFederal Registeron May 2, 2011 (“Notice”).7 With the intent of implementing section 104(e) of CISADA, the Notice proposed to require a U.S. bank that maintains a correspondent account for a foreign bank to inquire of the foreign bank and report to FinCEN certain information with respect to transactions or other financial services provided by that foreign bank. The Notice also proposed that banks would only be required toreport this information to FinCEN upon receiving a specific written request from FinCEN.

7 See76 FR 24410 (May 2, 2011).

IV. Comments on the Notice—Overview and General Issues

The comment period for the Notice ended on June 1, 2011. We received a total of seven comment letters from 14 entities and individuals.8 Of the seven comment letters, five were submitted by trade groups or associations,9 one was submitted by a group of seven U.S. Senators, and one was submitted by an advocacy group. The comments were generally supportive of the Notice but sought additional clarification on certain aspects of the Notice. Comments received covered a broad and varied range of topics. Although most of these comments are addressed directly below, a few others are covered in the section-by-section analysis.

8All comments to the Notice are available for public viewing athttp://www.regulations.gov.

9One comment letter was submitted on behalf of two trade groups or associations.

Comments on the Notice focused on the following general matters: (A) The approach to implementing section 104(e) of CISADA; (B) the ability of a foreign bank to respond to a CISADA request; (C) the impact of the rule on foreign correspondent account relationships; (D) the scope of information to be reported by a foreign bank; (E) the timeframe for a foreign bank and a U.S. bank to respond to a CISADA request; (F) clarification regarding the proposed model certification; (G) clarification regarding certain definitions and terms; (H) record retention and supporting documentation; (I) sharing information regarding a CISADA request; and (J) estimate of burden.

A. The Approach to Implementing Section 104(e) of CISADA

One of the comments asserted that the Notice was not published in theFederal Registeruntil 10 months after the President signed CISADA, which led the commenter to call into question the seriousness of enforcing comprehensive sanctions against Iran. Two commenters urged that the final rule should be implemented as soon as possible. Conversely, another commenter asserted that allowing only a 30-day comment period for the Notice was inadequate. In drafting the Notice, we considered a number of different approaches before settling on the one that we believe will produce the most useful information in the most workable manner. The time it took to publish the Notice reflected the need to craft a rule that would best achieve our policy aims, in a complex and novel context. Because we were mindful of the need to obtain this information expeditiously, we issued the Notice with a 30-day comment period. The quality and scope of the comments convinces us that 30 days was sufficient. We have drafted the final rule as promptly as possible, while taking into consideration all of the comments received and ensuring that we have established a rule that most effectively implements section 104(e) of CISADA.

Section 104(e) of CISADA offers FinCEN four options for rulemaking. One commenter requested clarification regarding how FinCEN determined that implementing section 104(e)(1)(B) would be the most useful way to implement section 104(e) of CISADA. As noted above, FinCEN considered a number of different approaches to implementing section 104(e) of CISADA. We believe that implementing section 104(e)(1)(B) will produce the most useful information in the most workable manner and will best achieve our policy aims. In fact, this belief is echoed in a number of comments FinCEN received. One commenter asserted that section 104(e) of CISADA allows FinCEN to implement any one or more of four requirements, some of which the commenter believes are potentially very burdensome to industry. The commenter believes the proposed requirements appropriately balance the need of the U.S. government to isolate Iran from the global financial system with the need to maintain an effectively functioning correspondent banking system. Another commenter asserted that FinCEN has taken elements of the four options Congress outlined in the statute and incorporated them with existing requirements to develop a rule that considers the costs to industry, the ability of the industry to comply, appropriate use of limited enforcement resources, and the need for information. Yet another commenter asserted that banks providing correspondent relationships in the U.S. are not in a position to speak to the overall activities of their foreign counterparts. The commenter further asserted that as such, if those activities are at issue under section 104(e) of CISADA, it is more appropriate to ask the U.S.-based banks to transmit inquiries to their foreign correspondents than to ask them to conduct independent investigations for which they are ill-suited.

One commenter believes that the proposed rule treats section 104(e) of CISADA as a discretionary provision in which banks will only have to certify they are not doing business with relevant Iranian-linked designated entities and individuals upon a written inquiry from FinCEN. Another commenter suggested that the proposed rule would not meet the requirements of the statute, as domestic financial institutions should be required to provide information to FinCEN, not only when asked, but as soon as they are aware that the foreign financial institution is engaged in a “prohibited activity.” FinCEN does not interpret 104(e) to be discretionary. To the contrary, we understand 104(e) to require the Secretary to prescribe regulations mandating that domestic financial institutions take one or more actions, one of which is to provide requested reports to FinCEN, and we believe the final rule reflects this understanding. We also note that the activities described in section 104(c)(2) of CISADA are not “prohibited activities.” Instead they are activities that can be grounds for imposing the sanctions described in section 104(c)(1) of CISADA.

FinCEN proposed to target this reporting requirement on those foreign banks that there is some basis to suspect may be engaged in activities that may be sanctionable under section 104(c) of CISADA. We considered requiring every U.S. bank to provide periodic reports from every foreign bank for which they maintain correspondent accounts, but concluded that we would be better served by a rule that focused on those foreign banks that are of interest for purposes of CISADA. By requiring reports from those U.S. banks that maintain correspondent accounts for the specific foreign banks that are of interest for purposes of CISADA implementation, we believe that we will receive the information needed without generating a multitude of unnecessary and uninformative reports.

The reporting requirement in the final rule is scalable. Based on the circumstances, it permits FinCEN to expand the number of U.S. banks that would be required to file reports, as well as the number of foreign banks from whom information would be sought. This means that FinCEN may ask any number of U.S. banks about any number of foreign banks as is necessary, based on the number of foreign banks there is some basis to suspect may be engaged in activities that may be sanctionable under section 104(c) of CISADA.

The targeted approach that FinCEN has proposed is supported by a number of commenters. One commenter strongly recommended incorporating the concept of targeted requests in the final rule. That same commenter noted that it appreciated FinCEN's effort to craft aregulation that focuses on developing meaningful and properly targeted information. Another commenter expressed support for a request-driven model as an appropriate means of focusing industry and governmental resources on information of value. Yet another commenter asserted that in proposing a reporting requirement that would be imposed only when specifically requested, FinCEN has struck an appropriate balance between the need of the U.S. government to isolate Iran from the global financial system with the need to maintain an effectively functioning correspondent banking system.

One commenter correctly noted that banks are only required to request information from a foreign bank for which they maintain a correspondent account upon receiving a written request from FinCEN regarding that specific foreign bank. This rule does not require a bank to proactively inquire of any one or more of the foreign banks for which it maintains correspondent accounts.

One commenter suggested that under CISADA, a foreign financial institution should be required to report if it has facilitated the activities of a person subject to financial sanctions pursuant to United Nations (“U.N.”) Security Council Resolutions with respect to Iran. The commenter suggested that the proposed rule should be amended to require this additional disclosure. We recognize that foreign banks' transactions involving persons subject to financial sanctions pursuant to U.N. Security Council Resolutions with respect to Iran are among the sanctionable activities described in section 104(c)(2) of CISADA; however, there are other avenues for obtaining information on such transactions and FinCEN has determined that this specific reporting mechanism is not the most efficacious means to obtain such information at this time. However, as FinCEN collects and assesses the information required under this rule, we will continue to consider whether expanding the scope of this rule to include information pertaining to whether a foreign bank has facilitated the activities of a person subject to financial sanctions pursuant to U.N. Security Council Resolutions with respect to Iran would provide additional useful information as it relates to CISADA. If that is determined to be the case, FinCEN will consider proposing an expansion of this reporting requirement to include such information. At this time, FinCEN believes that a focus on foreign banks' transactions involving Iranian-linked financial institutions designated under IEEPA and IRGC-linked persons designated under IEEPA will provide the most beneficial information for purposes of implementing section 104(c) of CISADA.

One commenter suggested that alternative resources might better serve the same purpose as the proposed rule. The commenter encouraged FinCEN to place greater reliance on government-to-government requests given the commenter's belief that such requests are likely to be far more reliable when collecting information to identify sanctions targets. The same commenter asserted that the benefit of an inter-governmental approach is the opportunity to urge other countries to adopt and implement similar sanctions. FinCEN clarifies that this rule is one tool that is being utilized to collect information as it relates to identifying potential sanctions targets under CISADA. As the commenter correctly suggested, additional methods of information collection are being utilized to identify sanctions targets. The commenter also suggested that FinCEN utilize existing Bank Secrecy Act (“BSA”) reporting tools as necessary to implement this reporting requirement. FinCEN agrees, and will leverage existing BSA reporting tools as appropriate.

B. The Ability of a Foreign Bank To Respond to a CISADA Request

Four commenters asserted that privacy legislation in certain jurisdictions may prohibit foreign banks from providing the requested information with respect to individual customer accounts and transactions. Three of these same commenters asserted that under CISADA banks have no legal authority to compel foreign banks to provide the requested information. FinCEN acknowledges that some foreign banks may choose not to respond or may not be able to respond due to their own jurisdictions' privacy legislation. For this reason the rule incorporates an option for U.S. banks to report to FinCEN instances in which they have not received a response from a foreign bank.

Although foreign banks are not necessarily required to respond under CISADA authority, those foreign banks may feel compelled to respond in order to maintain good relationships with the U.S. banks with which they maintain correspondent accounts. Even in instances in which a foreign bank does not respond to a bank's inquiry, that information is still valuable. As noted elsewhere in this rulemaking, based on the reports received, immediate action may be taken under section 104(c) of CISADA, or, among other things, there may be consultation with foreign banks, including those that have been unwilling to respond to inquiries. An investigation by OFAC into the activities of such foreign banks could result in a finding by the Secretary under section 104(c) of CISADA and section 561.201 of the IFSR.

One commenter suggested that the proposed rule should clearly outline the ramifications for foreign banks that fail to provide the required information or provide incorrect information. The commenter suggested that those ramifications should mirror the sanctions outlined in section 104(c)(1) of CISADA. If a foreign bank fails to respond or provides incorrect information an investigation may be conducted into the activities of such foreign bank which could, in turn, result in a finding under section 104(c) of CISADA.

One commenter contended that the proposed rule does not take into account the fact that a foreign bank may conduct legitimate business with an Iranian-linked financial institution designated under IEEPA, through licensed transactions and clearing. The commenter further asserted that for this reason, it would be possible for a U.S. authority to impose a penalty under CISADA on a foreign bank for undertaking transactions which had been licensed by its own competent authority. If a foreign bank wishes to explain that a correspondent account or transfer of funds identified in a certification was licensed by a competent authority in the foreign bank's home jurisdiction, the foreign bank may provide this explanatory information in the certification form. Such explanatory information may be taken into account when the foreign bank's certification is reviewed and it is determined what further action, if any, is appropriate under section 104(c) of CISADA. The model certification has been revised to include language that identifies this type of circumstance as an example of information a foreign bank can include in its certification.

C. The Impact of the Rule on Foreign Correspondent Account Relationships

One commenter requested that FinCEN clarify that a request for information regarding a foreign bank or even a positive report from a foreign bank is not a mandate to close or restrict an account. The commenter asserted that one option under the rule is for a bank to report that it cannot determine to its satisfaction that the foreign bank does not maintain a relevant account or

has not processed relevant transfers of funds. The commenter requested that FinCEN acknowledge in the final rule that this option meets compliance expectations for the bank, and the bank is not expected to take further action. Another commenter similarly suggested that the rule should clarify that a bank that does not receive a response from a foreign bank is merely required to report that and does not have to take any other action, including closing the account.

As explained elsewhere in the rulemaking, this rule does not require a bank to take any steps with respect to the foreign bank other than those relating to the collection of information outlined in the rule, regardless of the response received from the foreign bank. While the rule does not preclude a bank from taking any other action based on the bank's assessment of the facts and bank policy, including restricting or terminating a correspondent account relationship with a foreign bank or filing a suspicious activity report, a bank is not required to take any additional action based solely upon the fact that the bank: (i) Has received a request for information under this regulation; (ii) has received a response from the foreign bank; or (iii) has not received a response from the foreign bank.

If a foreign bank does not respond to an inquiry made by a bank under this rule, the bank will be in compliance with these reporting requirements so long as the bank timely reports to FinCEN that the foreign bank did not respond to the bank's inquiry. In addition, if a bank cannot determine that the foreign bank does not maintain a relevant account or has not processed relevant transfers of funds, the bank will be in compliance with these reporting requirements so long as the bank timely reports such information to FinCEN, together with the reason(s) for this, such as the failure of the foreign bank to respond to the inquiry by or a request from the bank, the failure of the foreign bank to certify its response, or if the bank has information that is inconsistent with the certification.

FinCEN requested comment regarding the impact of this information collection on banks' correspondent account relationships with foreign banks. One commenter suggested that a barrage of requests from the United States could create, over time, an unintended consequence of alienating foreign correspondents. The commenter also asserted that foreign banks might be driven to find alternate ways to direct transactions to avoid dealing with the United States. The commenter sees this as having a two-part negative impact: the immediate detriment to the economy and the decreasing ability of the United States to receive valuable information on international transactions. As stated elsewhere in the rulemaking, FinCEN proposed to target this reporting requirement on those foreign banks that there is some basis to suspect may be engaged in activities that may be sanctionable under section 104(c) of CISADA. We considered requiring every U.S. bank to provide periodic reports from every foreign bank for which they maintain correspondent accounts, but concluded that we would be better served by a rule that focused on those foreign banks that are of interest for purposes of CISADA. We believe that by taking a targeted approach we will avoid alienating foreign banks for which we have no concern regarding sanctionable Iranian-related activities. For these reasons, we believe the commenter's concerns are unfounded.

D. The Scope of Information To Be Reported by a Foreign Bank

FinCEN requested comment as to whether the terminology “processed one or more transfers of funds” should be further clarified, and if so, how and what terms should be used in the alternative. A few commenters requested further clarification; however FinCEN did not receive any suggestions regarding alternative terminology.

One commenter asserted that the broad definition of the term “processed one or more transfers of funds” appears problematic. The commenter suggested that according to the definition, this term would include each and every transaction, in particular those that do not require using a correspondent account. Another commenter suggested that it would need further clarity regarding the term “processed one or more transfers of funds” to identify which transactions FinCEN intends to reach. Another commenter questioned what is meant by the term “other than through a correspondent account,” in the context of a request that a foreign bank certify whether it has processed one or more transfers of funds within the preceding 90 calendar days related to an Iranian-linked financial institution designated under IEEPA, “other than through a correspondent account.”

As explained in the Notice, the terminology “processed one or more transfers of funds” is meant to address circumstances through which transfers of funds are made without requiring a correspondent account, specifically including circumstances in which financial institutions are part of a common payments or clearing mechanism that provides for transfers of funds among participants without requiring bilateral correspondent account relationships. If a foreign bank is reporting that it maintains a correspondent account for a specific Iranian-linked financial institution designated under IEEPA, the foreign bank does not also have to report that it has processed transfers of funds for that specific Iranian-linked financial institution, as that is assumed within the context of the reported correspondent account. Alternatively, for example, in instances in which a foreign bank is part of a common payments or clearing mechanism that provides for transfers of funds among participants without requiring bilateral correspondent account relationships, those foreign banks should report whether they have processed transfers of funds for an Iranian-linked financial institution designated under IEEPA through such common payments or clearing mechanisms. This type of example is the reason we used the terminology processed one or more transfers of funds within the preceding 90 calendar days related to an Iranian-linked financial institution designated under IEEPA, “other than through a correspondent account.”10

10As it relates to the model certification, a foreign bank should fill out each section of the model certification by selecting one box in each section of the model certification. For example, if a foreign bank has a correspondent account for an Iranian-linked financial institution designated under IEEPA, the foreign bank will select the second box under section B of the model certification: “Foreign Bank hereby certifies that itdoesmaintain a correspondent account(s) for an Iranian-Linked Financial Institution Designated Under IEEPA.” The foreign bank will also fill out the corresponding chart in section B of the model certification for each applicable correspondent account. The language in the first box under section C of the model certification states “Foreign Bank hereby certifies that to its knowledge ithas not processedone or more transfers of funds within the preceding 90 calendar days for or on behalf of, directly or indirectly, an Iranian-Linked Financial Institution Designated Under IEEPA,other than through a correspondent accountdetailed above.” The language “other than through a correspondent account detailed above” is intended to direct the foreign bank not to reenter the information that was already entered in section B of the model certification in section C of the model certification. However, regardless of which box the foreign bank selects in section B of the model certification, the foreign bank should also select one box from section C of the model certification. If a foreign bank has not processed any transfers of funds outside of a correspondent account relationship with an Iranian-linked financial institution designated under IEEPA, the foreign bank will select the first box under section C of the model certification. If the foreign bank has processed transfers of funds for or on behalf of, directly or indirectly, an Iranian-linked financial institution designated under IEEPA outside of a correspondent account relationship, the foreign bank will select the second box under section C of the model certification: “Foreign Bank hereby certifies that ithas processedone or more transfers of funds withinthe preceding 90 calendar days for or on behalf of, directly or indirectly, an Iranian-Linked Financial Institution Designated Under IEEPA,other than through a correspondent accountdetailed above.” In this case the foreign bank also will fill out the corresponding chart in section C of the model certification for each applicable Iranian-linked financial institution designated under IEEPA. Similarly, the foreign bank will also select one box from section D of the model certification.

FinCEN also clarifies that in the context of a request that a foreign bank certify whether it has processed one or more transfers of funds within the preceding 90 calendar days related to an IRGC-linked person designated under IEEPA, the foreign bank should report whether it has processed any transfers of funds related to an IRGC-linked person designated under IEEPA, regardless of whether the transfers of funds were processed through a correspondent account or through some other common payments or clearing mechanism.

One commenter noted that under section 1060.300(b), the foreign bank is requested to certify that it has not “processed one or more transfers of funds within the preceding 90 calendar days related to an Iranian-linked financial institution” or “related to an IRGC-linked person.” The commenter contended that this concept is broader than can reasonably be expected. The commenter explained that while the foreign bank could reasonably determine whether such relevant designated entities and individuals were parties to a transaction, it has no reliable way of ascertaining whether a transaction with a third party has a relationship to such relevant designated entities and individuals. The commenter provided the following example: if the head office of a foreign bank processes a non-USD-denominated payment from its customer in another country outside the United States to a Middle Eastern trading company, it would have no way of knowing whether the trading company may in turn be acting on behalf of a relevant designated entity or individual. The commenter suggested that the requested certification relate to payments “to or from” the relevant designated entities or individuals as opposed to “related to.”

Another commenter noted that it is conceivable that transactions can be conducted that are settled through correspondent accounts held for other credit institutions where the foreign bank does not or cannot recognize that a relevant transaction is conducted on behalf of or in the interest of an Iranian-linked financial institution designated under IEEPA. The commenter suggested that the certification from the foreign bank, therefore, must at least contain the qualification that it is not aware of, or should not necessarily have been aware of, such circumstance.

In the context of the request that a foreign bank certify whether it has processed one or more transfers of funds within the preceding 90 calendar days “related to” an Iranian-linked financial institution designated under IEEPA, other than through a correspondent account, and whether it has processed one or more transfers of funds within the preceding 90 calendar days “related to” an IRGC-linked person designated under IEEPA, FinCEN has agreed to replace “related to” with “for or on behalf of, directly or indirectly.” The terminology “for or on behalf of, directly or indirectly,” is meant to include situations where a foreign bank has knowledge that a transfer of funds it is processing is for or on behalf of an Iranian-linked financial institution designated under IEEPA, or an IRGC-linked person designated under IEEPA, but where the designated entity or individual does not appear on the face of the transaction. In other words, the phrase is meant to include those situations in which the processing is being done with knowledge based on a relationship that exists through a third party such as a money exchange or trading house.

Consistent with the above mentioned revision and based on comments received, FinCEN has also incorporated the phrase “to its knowledge” into the reporting requirement that upon receiving a written request from FinCEN, a bank shall report to FinCEN, in such format and manner as may be prescribed by FinCEN, the following information for any specified foreign bank the name of any specified foreign bank, for which the bank maintains a correspondent account, that certifies that it does not maintain a correspondent account for an Iranian-linked financial institution designated under IEEPA, that certifies thatto its knowledgeit has not processed one or more transfers of funds within the preceding 90 calendar days for or on behalf of, directly or indirectly, an Iranian-linked financial institution designated under IEEPA, other than through a correspondent account, and/or that certifies thatto its knowledgeit has not processed one or more transfers of funds within the preceding 90 calendar days for or on behalf of, directly or indirectly, an IRGC-linked person designated under IEEPA.”11 [Emphasis added.]

11 Seesection 1060.300(c)(1)(iv).

In order to be consistent with the revisions to the regulation text, FinCEN has also incorporated the phrase “to its knowledge” into the model certification in the following places: “Foreign Bank hereby certifies thatto its knowledgeit has not processed one or more transfers of funds within the preceding 90 calendar days for or on behalf of, directly or indirectly, an Iranian-Linked Financial Institution Designated Under IEEPA, other than through a correspondent account detailed above;” [emphasis added] and “Foreign Bank hereby certifies thatto its knowledgeit has not processed one or more transfers of funds within the preceding 90 calendar days for or on behalf of, directly or indirectly, an IRGC-Linked Person Designated Under IEEPA.” [Emphasis added.]

One commenter noted that when inquiring of a foreign bank, the U.S. bank would also be required to ask the foreign bank to agree to report if it establishes a new correspondent account for an Iranian-linked financial institution designated under IEEPA within 365 calendar days after its initial response and that would in turn be reported to FinCEN by the U.S. bank. The commenter believes this is the most difficult element of the proposal. The commenter asserted that a request is based on whether the United States has designated an entity under IEEPA. The commenter further suggested that since IEEPA is a U.S. law, and the IEEPA lists are constantly changing, any affected foreign bank would be required to develop systems to monitor and track whether or not a transaction might be covered. The commenter also suggested that foreign banks would have to sort through the entire OFAC list as a first step to identify which entities are covered and then apply it to its own records. The commenter recommended that FinCEN or OFAC create a special section/list for IEEPA designations that is easily accessed by foreign banks around the world.

FinCEN clarifies that the rule does not call on a foreign bank to report on new transfers of funds processed for a relevant designated entity or individual following its initial response. The rule only calls on a foreign bank to report any new correspondent accounts opened for an Iranian-linked financial institution designated under IEEPA within 365 calendar days after the foreign bank's initial response. Also, as noted elsewhere in the rulemaking and in the model certification, a list of financial institutions that meet the criteria of Iranian-linked financial institutions designated under IEEPA ([IFSR] tags) are included at the following link on OFAC'sWeb site: http://www.treasury.gov/resource-center/sanctions/Programs/Documents/irgc_ifsr.pdf.As of June 27, 2011, there were 22 financial institutions with IFSR tags, meaning 22 Iranian-linked financial institutions designated under IEEPA.12 The foreign bank can go to the link to look for updates to the site when they open a new correspondent account. In addition, as part of standard practices, banks globally should perform some type of customer identification or verification, customer due diligence, and/or “know your customer” policy in opening new accounts. In light of the global awareness of risks in conjunction with certain transactions related to Iran, it does not appear to be unreasonable to expect that a foreign bank that has received a request under this rulemaking could report on new correspondent accounts within the succeeding 365 calendar days.

12It is important to note that the list is dynamic and should be referenced regularly to ensure the most up-to-date information.

The commenter also suggested that FinCEN call on a foreign bank to respond to these requests within 30 calendar days after the foreign bank identifies a new correspondent account with an Iranian-linked financial institution designated under IEEPA. This comment is addressed by text in the model certification, which provides as follows: “Foreign Bank hereby agrees to notify in writing the Bank if Foreign Bank establishes a new Correspondent Account for an Iranian-Linked Financial Institution Designated Under IEEPA at any time within 365 calendar days from the date of this response. Foreign Bank agrees to provide such notification within 30 calendar days of the establishment of the new correspondent account.”

FinCEN requested comment regarding whether setting a minimum dollar threshold for a foreign bank to report on transfers of funds processed within the preceding 90 calendar days related to an Iranian-linked financial institution designated under IEEPA or related to an IRGC-linked person designated under IEEPA would lessen the reporting obligations, while still providing useful information. FinCEN also requested comment regarding what that minimum dollar threshold should be.

Three commenters suggested that a threshold should be set. Two of these commenters asserted that section 104 of CISADA applies to a “significant transaction or transactions.” For this reason, the commenters suggested that a threshold should be set to require foreign banks to only report on significant transactions. As it relates to section 104(c) of CISADA, a determination of significance will be decided on a case-by-case basis. Neither section 104 of CISADA nor the IFSR defines a minimum dollar threshold for “significant transactions.”13 Neither of these commenters suggested what the minimum dollar threshold should be.

13 See31 CFR 561.404 for interpretations of “significant transaction or transactions.”

Only one commenter proposed what that minimum dollar threshold should be. The commenter suggested that FinCEN should apply the $3,000 threshold that exists in some other anti-money laundering rules because monitoring transactions of lesser value can be overly burdensome with little benefit. The commenter also suggested that a threshold for minimum aggregate through-put in a correspondent account can also serve to better focus resources on identifying the riskiest correspondent accounts. However, the commenter further asserted that it is mindful that parsing activity at the margins of the threshold can incur its own compliance costs and therefore thresholds should always be applied permissively and not as technical standards that generate compliance complexities.

Considering the fact that a threshold of $3,000 is unlikely to eliminate a substantial number of responses from foreign banks, and considering the commenter's proposal that utilizing the minimum threshold should be at the foreign bank's discretion due to the potential burden of added compliance costs, FinCEN has determined that it will not set a minimum threshold for reporting on transfers of funds. In addition, for these same reasons, FinCEN will not set a minimum threshold for reporting on correspondent accounts. This rule calls for reports on all correspondent accounts with Iranian-linked financial institutions designated under IEEPA regardless of the volume of transactions conducted through the correspondent accounts.

E. The Timeframe for a Foreign Bank and a U.S. Bank To Respond to a CISADA Request

In the Notice, FinCEN proposed that a bank would be required to report the information required by this rule to FinCEN within 30 calendar days of the date of the written request from FinCEN. In addition, FinCEN proposed that if a bank receives notification from a foreign bank that the foreign bank has established a new correspondent account for an Iranian-linked financial institution designated under IEEPA, the bank is required to report the information required by this rule within 10 calendar days of receiving that notification. FinCEN requested comment as to whether these proposed timeframes were appropriate.

Four commenters contended that 30 calendar days to report the information required by this rule to FinCEN is not sufficient. Three of these commenters proposed that the timeframe be extended to 90 calendar days. Two of these commenters asserted that it will take a foreign bank time to research whether it maintains a correspondent account or has processed transfers of funds in the previous 90 calendar days for the relevant designated entities and individuals. Two of these commenters asserted that foreign banks' responses may be subject to legal review by local regulators prior to submission to the bank. One of these commenters suggested that a bank will have to do some level of due diligence to “certify” that it does not know that the foreign bank's certification is incorrect. Another one of these commenters asserted that it would be unfortunate if a U.S. bank had to report to FinCEN that a foreign bank has not replied in time, specifically in instances in which the foreign bank is making efforts to do so, as this could cast a bad and perhaps false light on the foreign bank. Another commenter suggested that a 30-day timeframe to respond will likely produce a significant number of “no response” reports to FinCEN.

FinCEN has taken these comments into consideration. For this reason, FinCEN is revising the timeframe to respond to 45 calendar days from the date of the written request from FinCEN. FinCEN acknowledges the concerns raised by the commenters; however, these requests are time-sensitive by nature and extending the timeframe for a response to 90 days is not feasible. In addition, as noted elsewhere in this rulemaking, a U.S. bank is not expected to independently verify the information provided by a foreign bank. This should lessen the amount of time necessary for a U.S. bank to review a foreign bank's response prior to submission to FinCEN.

FinCEN does recognize the possibility that there may be certain situations in which additional time for a foreign bank to respond is needed. For this reason, we are amending the final rule to require that if a U.S. bank receives a certification from a foreign bank after the 45 calendar day deadline, the U.S. bank is required to report that information to FinCEN within 10 calendar days of receiving that certification. This additional obligation does not relieve the U.S. bank of its obligation to report to FinCEN within 45calendar days the results of the U.S. bank's inquiry, regardless of whether the foreign bank has responded.

One commenter suggested that a bank should be given 30 days to respond to FinCEN upon receiving a notification from a foreign bank that it has opened a new account with an Iranian-linked financial institution designated under IEEPA. As has been clarified elsewhere in this rulemaking, a U.S. bank is not expected to independently verify the information provided by a foreign bank. For this reason, FinCEN believes that if a bank receives notification from a foreign bank that the foreign bank has established a new correspondent account for an Iranian-linked financial institution designated under IEEPA, the bank will have sufficient time to report the information required by this rule within 10 calendar days of receiving that notification.

F. Clarification Regarding the Proposed Model Certification

FinCEN requested comment as to the effectiveness of the proposed model certification. One commenter noted that under the proposed rule, the person signing on behalf of the U.S. bank would be required to state that he has read and understood the foreign bank's certification, that the statements made are complete and correct, and that the U.S. bank does not know or suspect, or have reason to suspect that the foreign bank's certification is incorrect. The commenter suggested that a statement that the foreign bank's response is complete and correct would require the certifying U.S. officer to have intimate knowledge of the foreign bank's customers and activities, something that the U.S. bank will never have. The commenter also suggested that the terminology “know, suspect, and reason to suspect” raises questions about the level of due diligence a U.S. bank is expected to perform under the proposed rule.

Another commenter noted that section 1060.300(c)(1)(v) requires that the reporting U.S. bank identify any specified foreign bank for which the inquiring U.S. bank “has not been able to establish to its satisfaction” does not engage in the listed activities and, further, certify to FinCEN that it does not “know[], suspect[], or ha[ve] reason to suspect” that any certification provided by the foreign bank is incorrect. With these few words, the commenter suggested, the proposed rule would appear to shift the burden on the inquiring bank from simply acting as a conduit for FinCEN's inquiries to independently investigating and evaluating the truthfulness of the foreign bank's response.

Another commenter noted that a U.S. bank has no ability to verify the information reported by a foreign bank. The commenter recommended that the final rule acknowledge that the only obligation of the U.S. bank is to request the data and pass along the information it receives as received. An additional commenter expressed similar concerns.

FinCEN clarifies that our expectation with regard to knowledge is only knowledge a U.S. bank would have based on the monitoring it already conducts to comply with OFAC requirements and BSA requirements regarding due diligence over foreign correspondent accounts. We also clarify that we do not expect a U.S. bank to independently verify the information provided by a foreign bank. However, we do expect a bank to report if it has information that is inconsistent with the foreign bank's certification. An example of a situation in which information is inconsistent with the certification might involve a scenario where a U.S. bank's transaction monitoring software recently blocked a transaction on behalf of a certain foreign bank, but that foreign bank does not include such transaction in the report provided to the U.S. bank.

To reflect these clarifications in the final rule more clearly, FinCEN has decided to make revisions to section 1060.300(c)(1)(v) and to the portion of the model certification to be completed by the bank. These revisions directly address the recommendations offered by these commenters.

FinCEN is revising the language in section 1060.300(c)(1)(v) of the final rule to clarify our expectations with regard to the U.S. bank's responsibilities as they relate to the information reported by a foreign bank. Section 1060.300(c)(1)(v) proposed that a bank report to FinCEN the following information regarding a specified foreign bank: The name of any specified foreign bank, for which the bank maintains a correspondent account,about which the bank has not been able to establish to its satisfaction that the foreign bankdoes not maintain a correspondent account for an Iranian-linked financial institution designated under IEEPA, has not processed one or more transfers of funds within the preceding 90 calendar days related to an Iranian-linked financial institution designated under IEEPA, other than through a correspondent account, and/or has not processed one or more transfers of funds within the preceding 90 calendar days related to an IRGC-linked person designated under IEEPA, together with the reason(s) for this, such as the failure of the foreign bank to respond to the inquiry by or a request from the bank, the failure of the foreign bank to certify its response,or if the bank knows, suspects, or has reason to suspect that the certification is incorrect.”[Emphasis added.]

FinCEN is amending section 1060.300(c)(1)(v) by revising the phrase “about which the bank has not been able to establish to its satisfaction that the foreign bank” to read as follows: “that the bank cannot determine;” and revising the phrase “or if the bank knows, suspects, or has reason to suspect that the certification is incorrect” to read as follows: “or if the bank has information that is inconsistent with the certification.”

In addition, FinCEN is also revising the corresponding portion of the model certification to be completed by the bank. The proposed language in the model certification stated as follows: “I, _________________________ (name of signatory), have read and understand this Certification; the statements made in this Certification are complete and correct, to the best of the knowledge of the Bank; and the Bank does not know, suspect, or have reason to suspect that the Certification made by Foreign Bank is incorrect. I am authorized to submit this document on behalf of the Bank.”

In the final rule, FinCEN is revising the portion of the model certification to be completed by the bank to read as follows: “I, _________________________ (name of signatory), have received and reviewed this Certification. To the best of its knowledge, the Bank has no information that is inconsistent with the Certification made by Foreign Bank. I am authorized to submit this document on behalf of the Bank.”

This revision is consistent with the revisions made to section 1060.300(c)(1)(v). FinCEN believes that this revision to the model certification, together with the amendments to section 1060.300(c)(1)(v) discussed above, will alleviate the concerns raised by commenters and more accurately describe FinCEN's expectations with regard to the U.S. bank's obligations as they relate to information received from a foreign bank.

Furthermore, as requested by three commenters, FinCEN clarifies that the individual signing the model certification is only signing on behalf of the relevant bank in his capacity as a duly authorized officer of the bank and not in his personal capacity. As noted in the language in the model certification, the individual signing on behalf of the bank is submitting the “document on behalf of the Bank.”

Similarly, as requested by one commenter, FinCEN clarifies that the individual signing the model certification is only signing on behalf of the relevant foreign bank in his capacity as a duly authorized officer of the foreign bank and not in his personal capacity. As noted in the language in the model certification, the individual signing on behalf of the foreign bank is “authorized to execute this certification on behalf of Foreign Bank.”

One commenter requested that FinCEN clarify how foreign banks should convert foreign currency as it relates to the foreign banks' reporting on the approximate value of transactions processed through