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constitutes terminating action to the special measure against Commercial authority of the Secretary of the repetitive inspections in paragraphs (f), (g), of (CBS) as a financial Treasury (Secretary) to administer the (h), (i), and (j), of this AD. institution of primary money laundering BSA and its implementing regulations (n) Replacement of the front combustion concern, pursuant to the authority has been delegated to the Director of liner assembly with a front combustion liner assembly that incorporates the modifications contained in 31 U.S.C. 5318A of the FinCEN. in RR SB No. RB.211–72–9764 in the RB211– Bank Secrecy Act. Section 311 of the USA Patriot Act 524G and –524H engines constitutes DATES: Written comments on the notice (section 311) added section 5318A to terminating action to the repetitive of proposed rulemaking must be the BSA, granting the Secretary the inspections in paragraphs (f), (g), (h), (i), and submitted on or before June 17, 2004. authority to find that a foreign (j) of this AD. jurisdiction, institution, class of ADDRESSES: You may submit comments, transactions, or type of account is of Definition of Shop Visit identified by RIN 1506–AA64, by either ‘‘primary money laundering concern’’ (o) For the purpose of this AD, a shop visit of the following methods: • and to require domestic financial is defined as any time that the 04 module is Federal e-rulemaking portal: http:// institutions and financial agencies to removed for refurbishment or overhaul. www.regulations.gov. Follow the take certain ‘‘special measures’’ against Alternative Methods of Compliance instructions for submitting comments. the primary money laundering concern. • E-mail: (p) The Manager, Engine Certification Section 311 identifies factors for the Office, has the authority to approve [email protected]. Include Secretary to consider and agencies to alternative methods of compliance for this RIN 1506–AA64 in the subject line of consult before the Secretary may AD if requested using the procedures found the message. • conclude that a jurisdiction, institution, in 14 CFR 39.19. Mail: FinCEN, PO Box 39, Vienna, or transaction is of primary money VA 22183. Include RIN 1506–AA64 in Material Incorporated by Reference laundering concern. The statute also the body of the text. (q) You must use Rolls-Royce plc (RR) provides similar procedures, i.e., factors Instructions: It is preferable for and consultation requirements, for Alert Service Bulletin No. RB.211–72– comments to be submitted by electronic AB482, Revision 9, dated July 28, 2003; RR selecting the imposition of specific Service Bulletin (SB) No. RB.211–71–9670, mail because paper mail in the special measures against the primary dated August 27, 1993; and RR SB No. Washington, DC, area may be delayed. money laundering concern. RB.211–72–9764, Revision 3, dated January Please submit comments by one method Taken as a whole, section 311 16, 1998 to do the inspections and only. All submissions received must provides the Secretary with a range of replacements required by this AD. Approval include the agency name and the options that can be adapted to target of incorporation by reference from the Office Regulatory Information Number (RIN) specific money laundering and terrorist of the Federal Register is pending. for this rulemaking. All comments financing concerns most effectively. Related Information received will be posted without change These options give the Secretary the (r) Civil Aviation Authority airworthiness to http://www.fincen.gov, including any authority to bring additional and useful directive AD G–2003–0011 (previously 005– personal information provided. pressure on those jurisdictions and 07–95), dated October 1, 2003, also addresses Comments may be inspected at FinCEN institutions that pose money laundering the subject of this AD. Aircraft Maintenance between 10 a.m. and 4 p.m., in the threats. Through the imposition of Manual 72–00–00 also addresses the subject FinCEN reading room in Washington, various special measures, the Secretary of this AD. DC. Persons wishing to inspect the can gain more information about the Issued in Burlington, Massachusetts, on comments submitted must request an concerned jurisdictions, institutions, May 12, 2004. appointment by telephoning (202) 354– transactions, and accounts; can more Peter A. White, 6400 (not a toll-free number). effectively monitor the respective Acting Manager, Engine and Propeller FOR FURTHER INFORMATION CONTACT: jurisdictions, institutions, transactions, Directorate, Aircraft Certification Service. Office of Regulatory Programs, FinCEN, and accounts; and/or can protect U.S. [FR Doc. 04–11200 Filed 5–17–04; 8:45 am] at (202) 354–6400; and Office of Chief financial institutions from involvement BILLING CODE 4910–13–P Counsel, FinCEN, at (703) 905–3590 with jurisdictions, institutions, (not toll-free numbers). transactions, or accounts that pose a SUPPLEMENTARY INFORMATION: money laundering concern. Before DEPARTMENT OF THE TREASURY making a finding that reasonable I. Background grounds exist for concluding that a 31 CFR Part 103 A. Statutory Provisions foreign financial institution is of primary money laundering concern, the RIN 1506–AA64 On October 26, 2001, the President Secretary is required to consult with signed into law the Uniting and both the Secretary of State and the Financial Crimes Enforcement Strengthening America by Providing Network; Amendment to the Bank Attorney General. Appropriate Tools Required to Intercept In addition to these consultations, the Secrecy Act Regulations—Imposition and Obstruct Terrorism (USA PATRIOT Secretary, when finding that a foreign of a Special Measure Against Act) Act of 2001 (the USA Patriot Act), financial institution is of primary of Syria, Including Public Law 107–56. Title III of the USA money laundering concern, is required Its Subsidiary, Syrian Lebanese Patriot Act amends the anti-money by statute to consider ‘‘such information Commercial Bank, as a Financial laundering provisions of the Bank as the Secretary determines to be Institution of Primary Money Secrecy Act (BSA), codified at 12 U.S.C. relevant, including the following Laundering Concern 1829b, 12 U.S.C. 1951–1959, and 31 potentially relevant factors’’: AGENCY: Financial Crimes Enforcement U.S.C. 5311–5314, 5316–5332, to • The extent to which the financial Network (FinCEN), Treasury. promote the prevention, detection, and institution is used to facilitate or ACTION: Notice of proposed rulemaking. prosecution of international money promote money laundering in or laundering and the financing of through the jurisdiction; SUMMARY: FinCEN is issuing this notice terrorism. Regulations implementing the • The extent to which the financial of proposed rulemaking to impose a BSA appear at 31 CFR Part 103. The institution is used for legitimate

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business purposes in the jurisdiction; business activities involving the suspicious money laundering and particular institution; and transactions, but the Commission is • The extent to which the finding that • The effect of the action on United composed of both regulators and the institution is of primary money States national security and foreign members of the banking community, laundering concern is sufficient to policy.3 thus automatically creating a conflict of ensure, with respect to transactions B. CBS interest. Further, the law continues to involving the institution operating in maintain strict bank secrecy, which can the jurisdiction, that the purposes of the In this rulemaking, FinCEN proposes only be lifted through formal action by BSA continue to be fulfilled, and to to impose the fifth special measure (31 the Commission. The law and the guard against international money U.S.C. 5318A(b)(5)) against CBS. The implementing regulation also fail to laundering and other financial crimes. fifth special measure prohibits or provide an enforcement mechanism to If the Secretary determines that a conditions the opening or maintaining ensure that anti-money laundering foreign financial institution is of of correspondent or payable-through controls are implemented by the primary money laundering concern, the accounts. This special measure may be financial sector. On the whole, the law Secretary must determine the imposed only through the issuance of a and the implementing regulation fail to appropriate special measure(s) to regulation. meet the international standards CBS is based in Damascus, Syria, and address the specific money laundering established by the FATF 40 maintains approximately 50 branches risks. Section 311 provides a range of Recommendations and thus do not and employs about 4,500 persons. All of special measures that can be imposed, create an effective anti-money the branches are located in Syria. CBS individually, jointly, in any laundering regime. Furthermore, Syria 1 was established in Syria in 1967 as the combination, and in any sequence. The does not participate in any exchange of single, government-owned bank Secretary’s imposition of special information with foreign nations or specializing in servicing foreign trade measures follows procedures similar to foreign financial institutions, severely and commercial banking, including those for designations, but carries with hampering the ability to obtain foreign exchange transactions. CBS it additional consultations to be made information about transactions maintains correspondent accounts with and factors to consider. The statute involving CBS. Finally, as a financial in countries all over the world, requires the Secretary to consult with entity under the control of a designated including the United States. CBS has appropriate agencies and other state sponsor of terrorism, CBS provides 2 one subsidiary, Syrian Lebanese interested parties and to consider the cause for real concern about terrorist Commercial Bank, located in Beirut, following specific factors: financing and money laundering • Lebanon, of which CBS maintains Whether similar action has been or activities. is being taken by other nations or approximately an 84% ownership multilateral groups; interest. Syrian Lebanese Commercial II. Imposition of Special Measure • Whether the imposition of any Bank has two branches and two Against CBS, Including Its Subsidiary, particular special measure would create offices—its main branch in Beirut, a Syrian Lebanese Commercial Bank, as a significant competitive disadvantage, branch in Moussaitbeh, and a Financial Institution of Primary including any undue cost or burden representative offices in Aleppo and Money Laundering Concern Damascus, Syria. Syrian Lebanese associated with compliance, for A. Finding financial institutions organized or Commercial Bank also maintains licensed in the United States; correspondent accounts with a few Based upon a review and analysis of • The extent to which the action or banks in the United States. For purposes relevant information, consultations with the timing of the action would have a of this document and unless the context relevant agencies and departments, and significant adverse systemic impact on dictates otherwise, references to CBS after consideration of the factors the international payment, clearance, include Syrian Lebanese Commercial enumerated in section 311, the and settlement system, or on legitimate Bank, and any other branch, office, or Secretary, through his delegate, the subsidiary of CBS. Director of FinCEN, has determined that 1 Available special measures include requiring: Syria has very limited money CBS is a financial institution of primary (1) Recordkeeping and reporting of certain financial laundering controls in place. In money laundering concern. FinCEN has transactions; (2) collection of information relating to September 2003, Syria passed reason to believe that CBS: (1) Has been beneficial ownership; (3) collection of information relating to certain payable-through accounts; (4) Legislative Decree No. 59, creating an used by terrorists and/or persons collection of information relating to certain Anti-Money Laundering Commission associated with terrorist organizations; correspondent accounts; and (5) prohibition or and criminalizing money laundering for and (2) has been used as a conduit for conditions on the opening or maintaining of a small category of offenses. These the laundering of proceeds generated correspondent or payable-through accounts. 31 U.S.C. 5318A(b)(1)–(5). For a complete discussion specified offenses do not meet the from the illicit sale of Iraqi oil. In of the range of possible countermeasures, see 68 FR minimum categories of offenses as addition, CBS is licensed in Syria, a 18917 (April 17, 2003) (proposing to impose special provided in the Financial Action Task jurisdiction with very limited money measures against Nauru). Force (FATF) 40 Recommendations on laundering controls. A discussion of the 2 Section 5318A(a)(4)(A) requires the Secretary to section 311 factors relevant to this consult with the Chairman of the Board of Money Laundering. The law also creates Governors of the Federal Reserve, any other an Anti-Money Laundering Commission finding follows. appropriate Federal banking agency, the Secretary (referred to as the ‘‘Anti-Money 1. The Extent to Which CBS Has Been of State, the Securities and Exchange Commission Laundering Board’’ in the law’s (SEC), the Commodity Futures Trading Commission Used to Facilitate or Promote Money (CFTC), the National Credit Union Administration implementing regulation) to investigate Laundering in or Through the (NCUA), and, in the sole discretion of the Secretary, Jurisdiction ‘‘such other agencies and interested parties as the 3 Classified information used in support of a Secretary may find to be appropriate.’’ The section 311 finding and measure(s) may be FinCEN has reason to believe, based consultation process must also include the Attorney submitted by Treasury to a reviewing court ex parte upon a variety of sources, that CBS is General, if the Secretary is considering prohibiting and in camera. See section 376 of the Intelligence or imposing conditions on domestic financial Authorization Act for Fiscal Year 2004, Pub. L. used to facilitate or promote money institutions maintaining correspondent account 108–177 (amending 31 U.S.C. 5318A by adding new laundering. First, the U.S. Government relationships with the designated entity. paragraph (f)). has information through classified

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sources that CBS may have been used by a number of structured or otherwise 3. The Extent to Which Such Action is terrorists and/or persons associated with suspicious wire transfers, totaling more Sufficient to Ensure, With Respect to terrorist organizations. Because the than $1 million, transmitted through Transactions Involving CBS, That the crime of money laundering includes the U.S. financial institutions to accounts at Purposes of the BSA Continue To Be use of financial institutions to promote CBS over the past several years. Fulfilled, and To Guard Against the carrying on of terrorist activity, the International Money Laundering and 2. The Extent to Which CBS Is Used for use of CBS by terrorists demonstrates Other Financial Crimes that it is being used to promote money Legitimate Business Purposes in the Jurisdiction As detailed above, FinCEN has laundering. reasonable grounds to believe that CBS In addition, CBS has maintained Until very recently, CBS had been the is being used to promote or facilitate accounts containing the proceeds from only bank in Syria authorized to provide money laundering. At the moment, the illicit sale of Iraqi oil in violation of commercial banking services and to there are no protective measures that comprehensive U.N. sanctions. The U.S. engage in foreign currency transactions. specifically target CBS. Thus, finding Government has information that more Consequently, a significant number of CBS to be a financial institution of than $1 billion was illegally diverted by transactions through CBS are likely primary money laundering concern and Saddam Hussein’s regime from the legitimate. Indeed, some U.S. financial prohibiting the opening or maintaining U.N.’s Oil-for-Food program.4 Some of institutions appear to have legitimate that money appears to have been used of correspondent accounts for that correspondent relationships with the institution, is a necessary step to ensure to purchase military weapons, which Bank. However, given that CBS is may now be in use against U.S. and that CBS is not able to access the U.S. subject to extremely limited anti-money financial system to facilitate terrorist other coalition troops in Iraq. The sale laundering controls, and because it is of Iraqi oil outside the U.N.’s Oil-for- financing or money laundering, or to owned and controlled by a government engage in any other criminal purpose. Food Program, in violation of applicable that sponsors terrorism,5 the extent of U.N. sanctions, was overseen by the the Bank’s legitimate activities is B. Imposition of Special Measure Iraqi State Oil Marketing Organization ultimately difficult to quantify. FinCEN As a result of the finding that CBS is (SOMO). SOMO maintained at least two specifically solicits comment on the a financial institution of primary money accounts at CBS through which impact of the proposed special measure laundering concern, and based upon the proceeds from the illicit sale of Iraqi oil upon legitimate transactions with CBS additional consultations and the flowed. Further, the Government of involving, for example, the U.S. consideration of all relevant factors, the Syria has not taken any steps to transfer Embassy, U.S. companies, United Secretary, through his delegate, the the CBS accounts containing the Nations agencies, and non-governmental Director of FinCEN, has determined that proceeds generated from the illicit sale and private voluntary organizations reasonable grounds exist for the of Iraqi oil to the Development Fund for doing business in Syria, including the imposition of the special measure Iraq, as required under U.N. Security availability of alternative banking authorized by section 5318A(b)(5).6 Council Resolution (UNSCR) 1483. facilities for such legitimate That special measure authorizes the UNSCR 1483 requires Member States in transactions, and the need for an which there are funds or other financial prohibition of the opening or exception if suitable alternatives are not maintaining of correspondent accounts 7 assets of the previous Government of available. Iraq or its state bodies, corporations, or by any domestic financial institution or agencies, located outside Iraq, to freeze FinCEN has identified numerous agency for or on behalf of a targeted those assets and, unless they are the instances where substantial amounts of financial institution. A discussion of the subject of prior judicial, administrative, illicit funds passed through CBS. additional section 311 factors relevant or arbitral lien or judgment, to transfer Additionally, CBS continues to hold to imposing this particular special them to the Development Fund of Iraq. Iraq-related accounts that should have measure follows. been transferred to the Development Finally, numerous transactions that 1. Whether Similar Actions Have Been Fund for Iraq, as required by UNSCR may be indicative of terrorist financing or Will Be Taken by Other Nations or 1483. Thus, any legitimate use of CBS and money laundering have been Multilateral Groups Against CBS observed transiting CBS. This financial is significantly outweighed by the activity includes several transactions apparent use of the Bank to promote or Although Syria has been designated through accounts at CBS that reference facilitate terrorist financing or money by the United States as a state sponsor a reputed financier for Osama bin laundering. of terrorism, other countries have not Laden. The observed activity also made a similar designation. In addition, includes classic indicia of money 5 Syria is designated as a state sponsor of other countries have not taken an action laundering such as: Large deposits into terrorism, under section 6(j) of the Export similar to the one proposed in this Administration Act of 1979, 50 U.S.C. App. 2405. U.S. financial institutions of rulemaking that would prohibit Section 321 of the Antiterrorism and Effective domestic financial institutions and sequentially-numbered monetary Death Penalty Act of 1996 (AEDPA), Pub. L. 104– instruments that reference CBS; large 132, makes it a criminal offense for U.S. persons, agencies from opening or maintaining a and/or structured deposits of funds into except as provided in regulations issued by the correspondent account for or on behalf bank accounts, followed immediately by Secretary of the Treasury in consultation with the of CBS, which is owned and controlled Secretary of State, knowingly to engage in a by the Government of Syria. The U.S. the transfer of those funds to CBS; and financial transaction with the government of any country designated as supporting international 6 4 In 1995, the U.N. Security Council adopted terrorism. For the purpose of implementing section In connection with this action, FinCEN Resolution 986, establishing the Oil-for-Food 321 of AEDPA, regulations issued and administered consulted with staff of the Federal functional Program. The Program provided Iraq with an by the Office of Foreign Assets Control (OFAC) of regulators, the Department of Justice, and the State opportunity to sell oil to finance the purchase of the U.S. Department of the Treasury effectively Department. medicines, health supplies, food, and other prohibit U.S. persons from engaging in financial 7 For purposes of the proposed rule, a humanitarian goods, notwithstanding the U.N.- transactions with the government of Syria that correspondent account is defined as an account imposed sanctions then in effect with respect to constitute unlicensed donations to U.S. persons or established to receive deposits from, or make Iraq. The first Iraqi oil under the Program was are such financial transactions that the U.S. person payments or other disbursements on behalf of, a exported in December 1996 and the first shipments knows or has reasonable cause to believe pose a risk foreign bank, or handle other financial transactions of food arrived in March 1997. of furthering terrorist acts in the United States. related to the foreign bank.

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Government hopes that other countries financial institution in Syria that could United States any correspondent will take similar action based on the conduct commercial and foreign account for, or on behalf of, CBS. As a findings contained in this rulemaking. exchange transactions, the imposition of corollary to this prohibition, covered In the meantime, lack of similar action this special measure likely will affect financial institutions would be required by other countries makes it even more some legitimate business activities. Two to apply special due diligence to their imperative that the fifth special measure private banks have recently been correspondent accounts to guard against be imposed in order to prevent access established that are permitted to their indirect use by CBS. At a by CBS to the U.S. financial system. conduct foreign exchange and foreign minimum, that special due diligence currency transactions. However, the 2. Whether the Imposition of the Fifth must include two elements. First, a Government of Syria is still developing Special Measure Would Create a covered financial institution must notify implementing regulations to permit Significant Competitive Disadvantage, its correspondent account holders that these banks to conduct the full range of Including Any Undue Cost or Burden they may not provide CBS with access foreign transactions. The imposition of Associated With Compliance, for to the correspondent account this measure may in fact act as a catalyst Financial Institutions Organized or maintained at the covered financial in the process of opening the Syrian Licensed in the United States institution. Second, a covered financial banking sector. On balance, FinCEN institution must take reasonable steps to The fifth special measure sought to be does not believe that imposition of the identify any indirect use of its imposed by this rulemaking would fifth special measure will place an correspondent accounts by CBS, to the prohibit covered financial institutions undue burden on legitimate business extent that such indirect use can be from opening or maintaining transactions in light of the reasons for determined from transactional records correspondent accounts for, or on behalf imposing this measure. maintained by the covered financial of, CBS. As a corollary to this measure, institution in the normal course of covered financial institutions also 4. The Effect of the Proposed Action on would be required to apply special due United States National Security and business. A covered financial institution diligence to all of their correspondent Foreign Policy must take a risk-based approach when accounts to ensure that no such account The exclusion from the U.S. financial deciding what, if any, additional due is being used indirectly to provide system of banks that serve as conduits diligence measures it should adopt to services to CBS. The burden associated for significant money laundering guard against the indirect use of its with these requirements is not expected activity and other financial crimes correspondent accounts by CBS, based to be significant, given that only a few enhances national security, making it on risk factors such as the type of U.S. banks currently maintain more difficult for criminals to access the services it offers and geographic correspondent accounts for CBS. In substantial resources of the U.S. locations of its correspondents. addition, all U.S. persons (including financial system. In addition, the A. 103.188(a)—Definitions financial institutions) currently apply imposition of the fifth special measure some degree of due diligence to all against CBS would complement the U.S. 1. Correspondent Account transactions or accounts involving the Government’s overall foreign policy government of Syria, as a means of strategy of enhancing national security Section 103.188(a)(1) defines the term complying with the sanctions currently through comprehensive economic and ‘‘correspondent account’’ by reference to imposed against Syria. As explained in political sanctions against Syria, as the definition contained in 31 CFR more detail in the section-by-section demonstrated by the recent enactment 103.175(d)(1)(ii). Section analysis below, financial institutions of the Syria Accountability Act.8 103.175(d)(1)(ii) defines a should be able to adapt their current Therefore, after conducting the correspondent account to mean an screening procedures to comply with required consultations and weighing the account established to receive deposits this special measure. Thus, the special relevant factors, FinCEN has determined from, or make payments or other due diligence that would be required by that reasonable grounds exists for disbursements on behalf of, a foreign this rulemaking is not expected to concluding that CBS is a financial bank, or handle other financial impose a significant additional burden institution of primary money laundering transactions related to the foreign bank. upon U.S. financial institutions. concern and for imposing the special In the case of a U.S. depository measure authorized by 31 U.S.C. institution, this broad definition would 3. The Extent to Which the Proposed 5318A(b)(5). include most types of banking Action or Timing of the Action Would relationships between a U.S. depository Have a Significant Adverse Systemic III. Section-by-Section Analysis institution and a foreign bank, including Impact on the International Payment, The proposed rule would prohibit payable-through accounts. Clearance, and Settlement System, or on covered financial institutions from Legitimate Business Activities of CBS establishing, maintaining, In the case of securities broker- dealers, futures commission merchants This rulemaking targets CBS administering, or managing in the and introducing brokers, and specifically; it does not target a class of investment companies that are open-end financial transactions (such as wire 8 On December 12, 2003, the President signed into companies (mutual funds), a transfers) or a particular jurisdiction. law the Syria Accountability and Lebanese Sovereignty Restoration Act of 2003 (the Syria correspondent account would include CBS is not a major participant in the Accountability Act), Pub. L. 108–175. Section 5 any account that permits the foreign international payment system and is not requires the President to impose a number of bank to engage in (1) trading in relied upon by the international banking different sanctions on Syria until such time that the securities and commodity futures or community for clearance or settlement President certifies to Congress that Syria, among other things, no longer provides support for options, (2) funds transfers, or (3) other services. Thus, the imposition of the international terrorist groups. The President may types of financial transactions. fifth special measure against CBS will refrain from imposing any sanction specified in the not have a significant adverse systemic Syria Accountability Act if he determines that it is FinCEN is using the same definition in the national security interest of the United States for purposes of the proposed rule as that impact on the international payment, to do so and submits to the appropriate clearance, and settlement system. As congressional committee a report containing the established in the final rule until recently CBS was the only reasons for the determination. implementing sections 313 and 319(b)

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of the USA Patriot Act 9 except that the B. 103.188(b)—Requirements for indirect access will not be provided in term is being expanded to cover such Covered Financial Institutions order to comply with this notice accounts maintained by mutual funds requirement. Instead, methods of 1. Prohibition on Direct Use of and by futures commission merchants compliance with the notice requirement Correspondent Accounts and introducing brokers. could include, for example, transmitting Section 103.188(b)(1) of the proposed a one-time notice by mail, fax, or e-mail 2. Covered Financial Institution rule prohibits all covered financial to a covered financial institution’s Section 103.188(a)(2) of the proposed institutions from establishing, correspondent account customers, rule defines covered financial maintaining, administering, or informing them that they may not institution to mean all of the following: managing a correspondent or payable- provide CBS with access to the covered Any insured bank (as defined in section through account in the United States financial institution’s correspondent 3(h) of the Federal Deposit Insurance for, or on behalf of, CBS. The account, or including such information Act (12 U.S.C. 1813(h)); a commercial prohibition would require all covered in the next regularly occurring bank or trust company; a private banker; financial institutions to review their transmittal from the covered financial an agency or branch of a foreign bank account records to ensure that they institution to its correspondent account in the United States; a credit union; a maintain no accounts directly for, or on holders. FinCEN specifically solicits thrift institution; a corporation acting behalf of, CBS. comments on the appropriate form and under section 25A of the Federal scope of the notice that would be 2. Special Due Diligence of Reserve Act (12 U.S.C. 611 et seq.); a required under the rule. broker or dealer registered or required to Correspondent Accounts To Prohibit A covered financial institution also register with the SEC under the Indirect Use would be required under this Securities Exchange Act of 1934 (15 As a corollary to the prohibition on rulemaking to take reasonable steps to U.S.C. 78a et seq.); a futures commission the opening or maintaining of identify any indirect use of its merchant or introducing broker correspondent accounts directly for correspondent accounts by CBS, to the registered, or required to register, with CBS, section 103.188(b)(2) requires a extent that such indirect use can be the CFTC under the Commodity covered financial institution to apply determined from transactional records Exchange Act (7 U.S.C. 1 et seq.); and special due diligence to its maintained by the covered financial an investment company (as defined in correspondent accounts 10 that is institution in the normal course of section 3 of the Investment Company reasonably designed to guard against business. For example, a covered Act of 1940 (15 U.S.C. 80a–3)) that is an their indirect use by CBS. At a financial institution would be expected open-end company (as defined in minimum, that special due diligence to apply an appropriate screening section 5 of the Investment Company must include notifying correspondent mechanism to be able to identify a funds Act of 1940 (15 U.S.C. 80a–5)) that is account holders that they may not transfer order that on its face listed CBS registered, or required to register, with provide CBS with access to the as the originator’s or beneficiary’s the SEC under section 8 of the correspondent account maintained at financial institution, or otherwise Investment Company Act of 1940 (15 the covered financial institution. For referenced CBS. An appropriate U.S.C. 80a-8). example, a covered financial institution screening mechanism could be the mechanism used by a covered financial 3. CBS may satisfy this requirement by transmitting the following notice to all institution to comply with sanctions Section 103.188(a)(3) of the proposed of its correspondent account holders: programs imposed under other federal rule defines CBS to include all law. FinCEN specifically solicits headquarters, branches, and offices of Notice: Pursuant to U.S. regulations issued under section 311 of the USA PATRIOT Act, comments on the requirement under the CBS operating in Syria or in any other 31 CFR 103.188, please be informed that you proposed rule that a covered financial jurisdiction. All subsidiaries of CBS, are prohibited from providing Commercial institution take reasonable steps to including Syrian Lebanese Commercial Bank of Syria or any of its subsidiaries screen its correspondent accounts in Bank and its branches, are included in (including Syrian Lebanese Commercial order to identify any indirect use of the definition, although FinCEN Bank) with access to the correspondent such accounts by CBS. understands that CBS currently only has account(s) that we maintain for or on behalf Notifying its correspondent account one subsidiary, Syrian Lebanese of your institution. Any failure to comply holders and taking reasonable steps to Commercial Bank. FinCEN will provide with this prohibition may result in the identify any indirect use of its updated information as it becomes termination of the affected correspondent correspondent accounts by CBS in the account. available; however, the responsibility manner discussed above are the for determining whether a customer is a The purpose of the notice requirement minimum due diligence requirements subsidiary of CBS ultimately rests with is to help ensure cooperation from under the proposed rule. Beyond these the covered financial institution. For correspondent account holders in minimum steps, a covered financial purposes of complying with the denying CBS access to the U.S. financial institution should adopt a risk-based proposed rule’s prohibition on the system, as well as to increase awareness approach for determining what, if any, opening or maintaining of within the international financial additional due diligence measures it correspondent accounts for or on behalf community of the risks and deficiencies should implement to guard against the of CBS or any of its subsidiaries, of CBS. However, FinCEN does not indirect use of its correspondents FinCEN expects that a covered financial require or expect a covered financial accounts by CBS, based on risk factors institution will take such steps that a institution to obtain a certification from such as the type of services it offers and reasonable and prudent financial its correspondent account holders that the geographic locations of its institution would take to protect itself correspondent account holders. from or other fraud or loss based 10 Again, for purposes of the proposed rule, a A covered financial institution that correspondent account is defined as an account obtains knowledge that a correspondent on misidentification of a person’s status. established to receive deposits from, or make payments or other disbursements on behalf of, a account is being used by a foreign bank 9 See 67 FR 60562 (September 26, 2002), codified foreign bank, or handle other financial transactions to provide indirect access to CBS must at 31 CFR 103.175(d)(1). related to the foreign bank. take all appropriate steps to block such

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indirect access, including, where facilities, and the need for an exception correspondent account holders in necessary, terminating the if suitable alternatives are not available. denying access to the U.S. financial correspondent account. A covered system, as well as to increase awareness V. Regulatory Flexibility Act financial institution may afford the within the international financial foreign bank a reasonable opportunity to It is hereby certified that this community of the risks and deficiencies take corrective action prior to proposed rule will not have a significant of CBS. The information required to be terminating the correspondent account. economic impact on a substantial maintained by 31 CFR 103.188(b)(3)(i) Should the foreign bank refuse to number of small entities. FinCEN will be used by federal agencies and comply, or if the covered financial understands that CBS currently certain self-regulatory organizations to institution cannot obtain adequate maintains only a handful of verify compliance by covered financial assurances that the account will no correspondent accounts in the United institutions with the provisions of 31 longer be used for impermissible States, and that those accounts are CFR 103.188. The class of financial purposes, the covered financial maintained at very large banks. Thus, institutions affected by the disclosure institution must terminate the account the prohibition on maintaining such requirement is identical to the class of within a commercially reasonable time. accounts will not have a significant financial institutions affected by the A covered financial institution may impact on a substantial number of small recordkeeping requirement. The reestablish an account closed under the entities. In addition, all U.S. persons, collection of information is mandatory. proposed rule if it determines that the including U.S. financial institutions, Description of Affected Financial account will not be used to provide currently exercise some degree of due Institutions: Banks, broker-dealers in banking services indirectly to CBS. diligence in order to comply with U.S. securities, futures commission FinCEN specifically solicits comment sanctions programs, including sanctions merchants and introducing brokers, and on the requirement under the proposed against Syria. Thus, the special due mutual funds maintaining rule that a covered financial institution diligence that would be required by this correspondent accounts. block indirect access to CBS, once such rulemaking—i.e., the one-time Estimated Number of Affected indirect access is identified. transmittal of notice to correspondent Financial Institutions: 5,000. account holders—is not expected to Estimated Average Annual Burden 3. Reporting Not Required impose a significant additional Hours Per Affected Financial Section 103.188(b)(3) of the proposed economic burden upon small U.S. Institution: The estimated average rule clarifies that the rule does not financial institutions. FinCEN invites burden associated with the collection of impose any reporting requirement upon comments from members of the public information in this proposed rule is 1 any covered financial institution that is who believe there will be a significant hour per affected financial institution. not otherwise required by law or economic impact on small entities. Estimated Total Annual Burden: regulation. A covered financial VI. Paperwork Reduction Act 5,000 hours. institution must, however, document its FinCEN specifically invites comments compliance with the requirement that it The collection of information on: (a) Whether the proposed collection notify its correspondent account holders contained in this proposed rule is being of information is necessary for the that they may not provide CBS with submitted to the Office of Management proper performance of the mission of access to the correspondent account and Budget for review in accordance FinCEN, including whether the maintained at the covered financial with the Paperwork Reduction Act of information shall have practical utility; institution. 1995 (44 U.S.C. 3507(d)). Comments on (b) the accuracy of FinCEN’s estimate of the collection of information should be the burden of the proposed collection of IV. Request for Comments sent (preferably by fax (202–395–6974)) information; (c) ways to enhance the FinCEN invites comments on all to Desk Officer for the Department of the quality, utility, and clarity of the aspects of the proposal to prohibit the Treasury, Office of Information and information required to be maintained; opening or maintaining of Regulatory Affairs, Office of (d) ways to minimize the burden of the correspondent accounts for or on behalf Management and Budget, Paperwork required collection of information, of CBS, and specifically invites Reduction Project (1506), Washington, including through the use of automated comments on the following matters: DC 20503 (or by e-mail to collection techniques or other forms of 1. The appropriate form and scope of [email protected]), with a copy to information technology; and (e) the notice to correspondent account FinCEN by mail or e-mail at the estimates of capital or start-up costs and holders that would be required under addresses previously specified. costs of operation, maintenance, and the rule; Comments on the collection of purchase of services to maintain the 2. The appropriate scope of the information should be received by June information. proposed requirement for a covered 17, 2004. In accordance with the financial institution to take reasonable requirements of the Paperwork VII. Executive Order 12866 steps to identify any indirect use of its Reduction Act of 1995, 44 U.S.C. This proposed rule is not a significant correspondent accounts by CBS; 3506(c)(2)(A), and its implementing regulatory action for purposes of 3. The appropriate steps a covered regulations, 5 CFR 1320, the following Executive Order 12866, ‘‘Regulatory financial institution should take once it information concerning the collection of Planning and Review.’’ identifies an indirect use of one of its information as required by 31 CFR correspondent accounts by CBS; and 103.188 is presented to assist those List of Subjects in 31 CFR Part 103 4. The impact of the proposed special persons wishing to comment on the Administrative practice and measure upon legitimate transactions information collection. procedure, Banks and banking, Brokers, with CBS involving, for example, the The collection of information in this Counter-money laundering, Counter­ U.S. Embassy, U.S. companies, proposed rule is in 31 CFR terrorism, and Foreign banking. multilateral organizations, and non­ 103.188(b)(2)(i) and 31 CFR governmental and private voluntary 103.188(b)(3)(i). The disclosure Authority and Issuance organizations doing business in Syria, requirement in 31 CFR 103.188(b)(2)(i) For the reasons set forth in the the availability of alternative banking is intended to ensure cooperation from preamble, part 103 of title 31 of the

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Code of Federal Regulations is proposed diligence to its correspondent accounts DEPARTMENT OF DEFENSE to be amended as follows: that is reasonably designed to guard against their indirect use by Commercial GENERAL SERVICES PART 103—FINANCIAL Bank of Syria. At a minimum, that ADMINISTRATION RECORDKEEPING AND REPORTING special due diligence must include: OF CURRENCY AND FINANCIAL NATIONAL AERONAUTICS AND TRANSACTIONS (A) Notifying correspondent account SPACE ADMINISTRATION holders that they may not provide 1. The authority citation for part 103 Commercial Bank of Syria with access 48 CFR Part 25 is revised to read as follows: to the correspondent account Authority: 12 U.S.C. 1829b and 1951–1959; maintained at the covered financial [FAR Notice 2004–N1] 31 U.S.C. 5311–5314, 5316–5332; title III, institution; and secs. 311, 312, 313, 314, 319, 326, 352, Pub. L. 107–56, 115 Stat. 307. (B) Taking reasonable steps to identify Federal Acquisition Regulation; List of any indirect use of its correspondent Nonavailable Articles Under the Buy 2. Subpart I of part 103 is proposed accounts by Commercial Bank of Syria, American Act to be amended by adding new § 103.188 to the extent that such indirect use can to read as follows: AGENCIES: Department of Defense (DoD), be determined from transactional General Services Administration (GSA), records maintained in the covered § 103.188 Special measures against and National Aeronautics and Space Commercial Bank of Syria. financial institution’s normal course of Administration (NASA). (a) Definitions. For purposes of this business. ACTION: Request for public comments. section: (ii) A covered financial institution (1) Commercial Bank of Syria means shall take a risk-based approach when SUMMARY: The Civilian Agency any headquarters, branch, office, or deciding what, if any, additional due Acquisition Council and the Defense subsidiary of Commercial Bank of Syria diligence measures it should adopt to Acquisition Regulations Council (the operating in Syria or in any other guard against the indirect use of its Councils) are seeking information that jurisdiction, including Syrian Lebanese correspondent accounts by Commercial will assist in identifying domestic Commercial Bank. Bank of Syria. capabilities and for evaluating whether (2) Correspondent account has the some articles on the list of nonavailable (iii) A covered financial institution same meaning as provided in articles at FAR part 25 are now mined, that obtains knowledge that a § 103.175(d)(1)(ii). produced, or manufactured in the (3) Covered financial institution has correspondent account is being used by United States in sufficient and the same meaning as provided in the foreign bank to provide indirect reasonably available commercial § 103.175(f)(2) and also includes: access to Commercial Bank of Syria, quantities and of a satisfactory quality. (i) A futures commission merchant or shall take all appropriate steps to block DATES: an introducing broker registered, or such indirect access, including, where Interested parties should submit comments in writing to the FAR required to register, with the necessary, terminating the Secretariat at the address shown below Commodity Futures Trading correspondent account. Commission under the Commodity on or before July 19, 2004. (3) Recordkeeping and reporting. (i) A Exchange Act (7 U.S.C. 1 et seq.); and ADDRESSES: Submit printed comments (ii) An investment company (as covered financial institution is required to General Services Administration, defined in section 3 of the Investment to document its compliance with the FAR Secretariat (MVA), 1800 F Street, Company Act (15 U.S.C. 80a–3)) that is notice requirement set forth in NW, Room 4035, ATTN: Laurie Duarte, an open-end company (as defined in paragraph (b)(2)(i)(A) of this section. Washington, DC 20405. Submit section 5 of the Investment Company (ii) Nothing in this section shall electronic comments via the Internet to Act (15 U.S.C. 80a–5)) and that is require a covered financial institution to the U.S. Government’s Web site at http:/ registered, or is required to register, report any information not otherwise /www.regulations.gov, or to GSA’s e- with the Securities and Exchange required to be reported by law or mailbox at [email protected]. Commission under section 8 of the regulation. Please submit comments only and cite Investment Company Act (15 U.S.C. ‘‘FAR Notice 2004–N01’’ in all 80a–8). Dated: May 11, 2004. correspondence related to this case. (4) Subsidiary means a company of William J. Fox, FOR FURTHER INFORMATION CONTACT: The which more than 50 percent of the Director, Financial Crimes Enforcement FAR Secretariat, Room 4035, GS voting stock or analogous equity interest Network. Building, Washington, DC, 20405, at is owned by another company. [FR Doc. 04–11102 Filed 5–17–04; 8:45 am] (202) 501–4755 for information (b) Requirements for covered financial BILLING CODE 4810–02–P pertaining to status or publication institutions—(1) Prohibition on direct schedules. The TTY Federal Relay use of correspondent accounts. A Number for further information is 1– covered financial institution shall 800–877–8973. For clarification of terminate any correspondent account content, contact Ms. Cecelia Davis, that is established, maintained, Procurement Analyst, at (202) 219– administered, or managed in the United 0202. Please cite ‘‘FAR Notice 2004– States for, or on behalf of, Commercial N1.’’ Bank of Syria. (2) Special due diligence of SUPPLEMENTARY INFORMATION: correspondent accounts to prohibit A. The Buy American Act (41 U.S.C. indirect use. (i) A covered financial 10a–10d) generally requires that only institution shall apply special due domestically mined, produced, or

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