Rule2024-14415
Imposition of Special Measure Regarding Al-Huda Bank as a Financial Institution of Primary Money Laundering Concern
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 3, 2024
Effective
August 2, 2024
Issuing agencies
Treasury DepartmentFinancial Crimes Enforcement Network
Abstract
FinCEN is issuing this final rule to prohibit covered U.S. financial institutions from opening or maintaining a correspondent account for, or on behalf of Al-Huda Bank, a foreign financial institution based in Iraq found to be of primary money laundering concern pursuant to section 311 of the USA PATRIOT Act. The rule further requires covered U.S. financial institutions to take reasonable steps not to process transactions for the correspondent account of a foreign banking institution in the United States if such a transaction involves Al-Huda Bank. It also requires covered institutions to apply special due diligence to their foreign correspondent accounts that is reasonably designed to guard against their use to process transactions involving Al-Huda Bank.
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<title>Federal Register, Volume 89 Issue 128 (Wednesday, July 3, 2024)</title>
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[Federal Register Volume 89, Number 128 (Wednesday, July 3, 2024)]
[Rules and Regulations]
[Pages 55051-55059]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-14415]
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DEPARTMENT OF THE TREASURY
Financial Crimes Enforcement Network
31 CFR Part 1010
RIN 1506-AB65
Imposition of Special Measure Regarding Al-Huda Bank as a
Financial Institution of Primary Money Laundering Concern
AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.
ACTION: Final rule.
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SUMMARY: FinCEN is issuing this final rule to prohibit covered U.S.
financial institutions from opening or maintaining a correspondent
account for, or on behalf of Al-Huda Bank, a foreign financial
institution based in Iraq found to be of primary money laundering
concern pursuant to section 311 of the USA PATRIOT Act. The rule
further requires covered U.S. financial institutions to take reasonable
steps not to process transactions for the correspondent account of a
foreign banking institution in the United States if such a transaction
involves Al-Huda Bank. It also requires covered institutions to apply
special due diligence to their foreign correspondent accounts that is
reasonably designed to guard against their use to process transactions
involving Al-Huda Bank.
DATES: This final rule is effective August 2, 2024.
FOR FURTHER INFORMATION CONTACT: The FinCEN Regulatory Support Section
at 1-800-767-2825 or electronically at <a href="/cdn-cgi/l/email-protection#2e485c4d6e4847404d4b4000494158"><span class="__cf_email__" data-cfemail="5c3a2e3f1c3a35323f3932723b332a">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Background
A. Statutory Provisions
On October 26, 2001, the President signed into law the Uniting and
Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56 (USA
PATRIOT Act). Title III of the USA PATRIOT Act amended the anti-money
laundering (AML) provisions of the Bank Secrecy Act (BSA) to promote
the prevention, detection, and prosecution of international money
laundering and the financing of terrorism.\1\ Section 311 of the USA
PATRIOT Act (section 311), codified at 31 U.S.C. 5318A, grants the
Secretary of the Treasury (Secretary) authority, upon finding that
reasonable grounds exist for concluding that one or more financial
institutions operating outside of the United States is of primary money
laundering concern, to require domestic financial institutions and
domestic financial agencies to take certain ``special measures.'' The
authority of the Secretary to administer the Bank Secrecy Act (BSA) and
its implementing regulations has been delegated to FinCEN.\2\
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\1\ The BSA, as amended, is the popular name for a collection of
statutory authorities that FinCEN administers that is codified at 12
U.S.C. 1829b, 1951-1960 and 31 U.S.C. 5311-5314, 5316-5336, and
includes other authorities reflected in notes thereto. Regulations
implementing the BSA appear at 31 CFR Chapter X.
\2\ Pursuant to Treasury Order 180-01 (Jan. 14, 2020), the
authority of the Secretary to administer the BSA, including, but not
limited to, 31 U.S.C. 5318A, has been delegated to the Director of
FinCEN.
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[[Page 55052]]
The five special measures set out in section 311 are safeguards
that may be employed to defend the U.S. financial system from money
laundering and terrorist financing risks. The Secretary may impose one
or more of these special measures in order to protect the U.S.
financial system from such threats. Through special measures one
through four, the Secretary may impose additional recordkeeping,
information collection, and reporting requirements on covered domestic
financial institutions and domestic financial agencies--collectively,
``covered financial institutions.'' \3\ Through special measure five,
the Secretary may prohibit, or impose conditions on, the opening or
maintaining in the United States of a correspondent account for or on
behalf of a foreign banking institution, if such correspondent account
involves the foreign financial institution found to be of primary money
laundering concern.\4\
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\3\ 31 U.S.C. 5318A(b)(1)-(b)(4).
\4\ 31 U.S.C. 5318A(b)(5).
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B. Al-Huda Bank
Al-Huda Bank is a private commercial bank registered and
headquartered in Baghdad, Iraq, with five branch locations in Baghdad,
Karbala, and Nasiriyah, Iraq. Al-Huda Bank has no subsidiaries or
branches outside of Iraq and is regulated by the Central Bank of Iraq
(CBI).
Al-Huda Bank has no direct U.S. correspondent banking relationships
but interacts with the U.S. financial system indirectly through U.S.
dollar (USD) correspondent accounts at six foreign financial
institutions. In other words, Al-Huda Bank interacts with foreign banks
that themselves have correspondent accounts with U.S. banks.
II. FinCEN's Section 311 Rulemaking Regarding Al-Huda Bank
A. Finding
In a notice of proposed rulemaking (NPRM) published in the Federal
Register on January 31, 2024, FinCEN found that reasonable grounds
exist for concluding that Al-Huda Bank is a foreign financial
institution of primary money laundering concern pursuant to 31 U.S.C.
5318A.\5\
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\5\ 89 FR 6074 (Jan. 31, 2024).
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As described in the NPRM, FinCEN assesses that Al-Huda Bank has
exploited its access to USD to support designated foreign terrorist
organizations (FTOs), including Iran's Islamic Revolutionary Guard
Corps (IRGC) and IRGC-Quds Force (IRGC-QF), as well as Iran-aligned
Iraqi militias Kata'ib Hizballah (KH) and Asa'ib Ahl al-Haq (AAH).\6\
Since its establishment, Al-Huda Bank has been controlled and operated
by the IRGC and IRGC-QF. Moreover, the chairman of Al-Huda Bank is
complicit in Al-Huda Bank's illicit financial activities, including
money laundering through front companies that conceal the true nature
of and parties involved in illicit transactions, ultimately enabling
the financing of terrorism.
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\6\ The U.S. Department of State has authority to designate
organizations as FTOs. The U.S. Department of the Treasury's Office
of Foreign Assets Control (OFAC) has also designated the IRGC, IRGC-
QF, KH, and AAH pursuant to multiple sanctions authorities.
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Given the nature of Iraq's economy and trade relationships, Iraqi
businesses that import goods into Iraq rely on wire transfers of USD
from the CBI account at the Federal Reserve Bank of New York (FRBNY), a
process known as the wire auction, or more generally the ``CBI dollar
auction.'' \7\ Many Iraqi businesses and financial institutions use the
CBI dollar auction for legitimate purposes. However, FinCEN assesses
that Al-Huda Bank has deliberately embarked on a strategy that relies
on exploiting the CBI dollar auction to support designated FTOs,
including the IRGC, IRGC-QF, KH, and AAH, with the support of the
Iranian government. Al-Huda Bank has actively supported terrorist
groups and abused the CBI dollar auction through numerous money
laundering typologies, including use of fraudulent documentation to
obscure the ultimate beneficiaries of the transactions. Given these
facts, FinCEN assesses that there is a high risk of Al-Huda Bank
exploiting USD correspondent relationships to support its money
laundering and terrorist financing activity.
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\7\ The CBI dollar auction comprises both (1) the wire auction,
and (2) bulk USD banknote shipments to Iraq which the CBI sells to
exchange houses and banks in return for Iraqi dinar (IQD). The
latter is known as the ``cash auction'' and is a separate process
from the wire auction. Al-Huda Bank's known illicit finance
activities described herein are related to the wire auction.
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1. Al-Huda Bank Has Exploited Its Access to USD Through the Wire
Auction
Individual Iraqi businesses that import goods into Iraq rely on
wire transfers of USD from CBI's account at the FRBNY. The wire
auction, a part of what is known as the CBI dollar auction, is the
mechanism by which the CBI provides USD to facilitate the purchase of
imports. When Iraq sells oil in the international petroleum markets,
the revenues are credited in USD to the CBI's account at the FRBNY.
Iraqi companies with accounts at Iraqi banks can then access the CBI
dollar auction to purchase USD with IQD to pay for imports. USD are
transferred from the CBI's FRBNY account to an Iraqi bank, and onward
to a third-country bank on behalf of a third-country exporter.
Many Iraqi businesses and their banks use the CBI dollar auction
for its intended, legitimate purpose of facilitating imports of goods.
However, FinCEN assesses that Al-Huda Bank has deliberately embarked on
a strategy that relies on illegitimate exploitation of the CBI dollar
auction to support designated FTOs, including the IRGC, IRGC-QF, KH,
and AAH, with the support of the Iranian government.
With the knowledge of Al-Huda Bank's chairman, Al-Huda Bank's abuse
of the CBI dollar auction was obfuscated through the application of
numerous money laundering typologies, including the use of fraudulent
documentation, fake deposits, identity documents of the deceased, fake
companies, and counterfeit IQD, which were used to purchase USD and
support terrorist groups and militias. For years, Al-Huda Bank has been
involved in these deceptive money laundering activities. Examples of
three of these money laundering typologies are discussed below: (1)
fraudulent documentation; (2) stolen identities; and (3) counterfeit
IQD. Al-Huda Bank's use of these money laundering typologies also risks
exposing covered financial institutions to Al-Huda Bank's exploitation
of USD correspondent banking relationships to support its terrorist
financing activities.
Since at least 2012, Al-Huda Bank has used fraudulent documentation
to purchase foreign currency--including USD--from the CBI at CBI dollar
auctions. Based on media reporting, between 2012 and 2014, Al-Huda Bank
filed false documentation to justify international transfers of over $6
billion to banks and companies.\8\ On at least one occasion, government
authorities detected Al-Huda Bank's filing of fraudulent documentation,
which resulted in freezing of a transfer of a significant amount of
money. In another scheme, Al-Huda Bank would deposit fake checks to
make the balance seem higher on the account Al-Huda Bank used in CBI
dollar auctions. The fake check deposits would allow Al-Huda Bank to
purchase USD using that false higher balance before the fake check
[[Page 55053]]
bounced, which Al-Huda Bank would then write off.
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\8\ Al-Arabiya, ``Billions of Dollars'' Smuggled Out of Iraq
During Maliki's Rule (Nov. 9, 2015), available at <a href="https://english.alarabiya.net/News/middle-east/2015/11/09/Iraq-smuggled-billions-of-dollars-during-Maliki-s-rule">https://english.alarabiya.net/News/middle-east/2015/11/09/Iraq-smuggled-billions-of-dollars-during-Maliki-s-rule</a>.
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Al-Huda Bank, with its chairman's knowledge, has also abused the
CBI dollar auction by utilizing stolen identities. In one scheme, the
Al-Huda Bank chairman and other Al-Huda Bank officials would use the
identification documents of deceased individuals to purchase USD in CBI
dollar auctions. Al-Huda Bank officials would also pay living people
for use of their identification documents. The illicit use of
identification documents allowed Al-Huda Bank to circumvent limits on
currency purchases.
With the knowledge of Al-Huda Bank's chairman, Al-Huda Bank has
also been involved in funneling of counterfeit IQD through fake
businesses in Iraq. The counterfeit IQD would be printed in Iran,
funneled through Iraqi businesses, and then exchanged for USD. The use
of counterfeit IQD greatly increases the amount of illicit profit
gained from exchanging IQD for USD at the CBI dollar auction, and the
funneling of counterfeit IQD through Iraqi businesses disguises the
counterfeit IQD's source in Iran.
2. Through the Exploitation of the Wire Auction, Al-Huda Bank Has
Provided Support to Designated FTOs
Iran has exploited its relationship with Iraq-based, Iran-backed
militias to influence Iraqi businesses and officials to generate
illicit revenue for the militias' operations. As part of this effort,
Iran has developed a network of commercial platforms, including
financial institutions, to move funds and misrepresent trade-based
financial transactions that obscure the ultimate beneficiaries, namely
Iran-backed terrorist groups and militias.
Since its establishment, Al-Huda Bank has been controlled and
operated by the IRGC and IRGC-QF. In 2008, the chairman of Al-Huda Bank
established the bank specifically for the benefit of KH and has met
with and taken orders from IRGC-QF leadership in Tehran, Iran. After
establishing the bank, the Al-Huda Bank chairman began money laundering
operations on behalf of the IRGC-QF and KH.
Al-Huda Bank has funded Iran-aligned militias through a scheme in
which Al-Huda Bank and other Iraqi banks have falsely claimed imports
into Iraq that did not exist worth billions of dollars to justify the
purchase of USD in the CBI dollar auction. Al-Huda Bank would purchase
the USD with counterfeit IQD printed in Iran. Al-Huda Bank was not
allowed to conduct financial transactions without the Iran-aligned
militias' involvement and Al-Huda Bank would provide part of Al-Huda
Bank's revenue from this scheme to those Iran-aligned militias.
This fraudulent scheme has been a substantial source of funding for
Iran-aligned militias' operations. The Iran-aligned Iraqi militia AAH
has used companies based across Iraq to generate revenue, launder
illicit profits, and convert IQD to USD. AAH has used Al-Huda Bank to
maintain accounts for some of these companies, as well as to access the
currency auction. The use of false imports, counterfeit currency, and
front companies are essential components of exploitation of the CBI
dollar auction by obscuring the source of funds and the purpose and
ultimate beneficiaries of the transactions that support Iran-aligned
Iraqi militias. Overall, IRGC and IRGC-QF use of Al-Huda Bank and
several other Iraqi banks to access the CBI dollar auction resulted in
approximately $70 billion USD in profit, from 2019 through 2020.
B. Proposed Special Measure
In the NPRM, FinCEN proposed: (1) to prohibit covered financial
institutions from opening or maintaining a correspondent account in the
United States for, or on behalf of, Al-Huda Bank; (2) to prohibit
covered financial institutions from processing a transaction involving
Al-Huda Bank through the United States correspondent account of a
foreign banking institution; and (3) a requirement for covered
financial institutions to apply special due diligence to their foreign
correspondent accounts that is reasonably designed to guard against
their use to process transactions involving Al-Huda Bank.\9\ The
comment period for the NPRM closed on March 1, 2024.
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\9\ 89 FR 6074 (Jan. 31, 2024).
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As further described below, FinCEN is adopting the proposal as a
final rule. In so doing, FinCEN has considered public comments and the
relevant statutory factors and has engaged in the required
consultations prescribed by 31 U.S.C. 5318A.
C. Subsequent Developments
Following the issuance of the NPRM, the CBI banned Al-Huda Bank
from accessing the CBI dollar auction.\10\ However, in light of Al-Huda
Bank's consistent and longstanding ties to terrorist organizations
since its inception and its history of obfuscating transactions and
account holders in support of those organizations, it is reasonable to
assess that Al-Huda Bank will seek ways to continue that support even
without access to the CBI dollar auction, through its access to USD
correspondent banking relationships in the region. Therefore, Al-Huda
Bank remains of primary money laundering concern.
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\10\ Reuters, Iraq bans 8 local banks from US dollar
transactions (Feb. 4, 2024), available at <a href="https://www.reuters.com/business/finance/iraq-bans-8-local-banks-us-dollar-transactions-2024-02-04/">https://www.reuters.com/business/finance/iraq-bans-8-local-banks-us-dollar-transactions-2024-02-04/</a>.
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D. Consideration of Comments
Concurrent with the issuance of the NPRM on January 31, 2024,
FinCEN opened a comment period that closed on March 1, 2024. FinCEN
received seven comments; they are described below, along with FinCEN's
response. Neither Al-Huda Bank nor its officers submitted any comments.
1. Comments Attesting to Al-Huda Bank's or Bank Owner Hamad al-
Moussawi's Good Reputation
In response to the NPRM, FinCEN received four comments attesting to
the good reputation of the owner and chairman of Al-Huda Bank, Hamad
al-Moussawi (al-Moussawi). Commenters claimed that al-Moussawi is
``pro-Western,'' a ``democracy supporter,'' and holds ``purely liberal
ideas.'' Several commenters also claimed that al-Moussawi ``does not
have any suspicious relationships'', or ties with ``Iranian backed
groups'' or ``extremist Islamic parties or other sectarian parties.''
Two commenters commented on the reputation of Al-Huda Bank itself. One
described the bank as ``one of the disciplined banks with a good
reputation.'' The second claimed that ``the bank has not faced any
accusations of this kind previously.'' These commenters have not
provided any specific evidence or documentation to support their
claims. Further, even if they could be substantiated, such general
claims about Al-Huda Bank and its owner al-Moussawi would not allay
FinCEN's concerns regarding Al-Huda Bank's specific illicit conduct.
2. Comments Disputing the Feasibility of Money Laundering Typologies
Outlined in the NPRM
Two commenters claimed that it would be ``impossible'' or
``unrealistic'' for a bank to conduct the type of illicit activity
described in the NPRM, given the CBI's supervision and controls.
Specifically, these commenters disputed the ability of any Iraqi bank
to utilize forged checks and counterfeit IQD.
These comments do not allay FinCEN's concerns regarding Al-Huda
Bank, as the commenters have not provided specific evidence or
documentation to support their claims.
[[Page 55054]]
3. Comments Questioning the Sources Cited in the NPRM
Four comments claimed that FinCEN did not provide sufficient
evidence, and/or relied upon inaccurate, biased public and non-public
information. Four comments questioned the veracity of media reporting
as evidence in the NPRM. One commenter found that the NPRM ``relied on
information from media sources'' and stated that ``media in the Middle
East, as a whole, is unprofessional, participates in corrupt practices,
lacks neutrality, and is irresponsible.'' Another commenter claimed
that information FinCEN used, including media reporting, ``is often not
thoroughly researched, and if the reports received by [FinCEN]
originated from Iraqi parties, [. . .] those reports were built on the
basis of animosity towards individuals and a desire to harm their
interests, rather than a desire to present facts.'' These comments do
not allay FinCEN's concerns regarding Al-Huda Bank, as they cite no
specific evidence that would call into question the reliability of the
media reporting and sources upon which FinCEN has relied.
Moreover, FinCEN based its findings on corroborated evidence from
both public and non-public sources, of which media reporting was only a
small part. In making its finding of primary money laundering concern
and adopting special measure five to address it, FinCEN has considered
the totality of information available to it, including from media
organizations, and has independently evaluated its sources for
credibility, potential bias, and accuracy. One commenter claimed to
have ``found a document issued by the Central Bank of Iraq denying the
accuracy'' of an article cited in the NPRM. The article reported that,
from 2012 to 2014, Al-Huda Bank used forged documents in transfers of
over $6 billion to banks and companies outside of Iraq.\11\ The
document stated that there were no such personal money transfers
transferred out of Iraq to the account of Al-Huda Bank's owner. Because
the document focuses narrowly on the owner's personal money transfers,
it does not contradict the information reported in the article, which
is also corroborated by other sources.
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\11\ Al-Arabiya, ``Billions of Dollars'' Smuggled Out of Iraq
During Maliki's Rule (Nov. 9, 2015), available at <a href="https://english.alarabiya.net/News/middle-east/2015/11/09/Iraq-smuggled-billions-of-dollars-during-Maliki-s-rule">https://english.alarabiya.net/News/middle-east/2015/11/09/Iraq-smuggled-billions-of-dollars-during-Maliki-s-rule</a>.
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E. Summary of FinCEN's Ongoing Concerns Regarding Al-Huda Bank
After considering comments received from the public, as well as
other information available to the agency, including both public and
non-public information, FinCEN is issuing this final rule, imposing a
prohibition on U.S. financial institutions from opening or maintaining
a correspondent account for, or on behalf of, Al-Huda Bank. The
information available to FinCEN provides reason to conclude that Al-
Huda Bank continues to be a foreign financial institution of primary
money laundering concern.
III. Imposition of a Special Measure Regarding Al-Huda Bank as a
Foreign Financial Institution of Primary Money Laundering Concern
Based upon this finding, FinCEN is authorized to impose one or more
special measures. Following the required consultations and the
consideration of all relevant factors discussed in the NPRM, FinCEN
proposed a prohibition under the fifth special measure.\12\
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\12\ Prior to issuing the January 2024 NPRM and this final rule,
FinCEN consulted with representatives and staff of the following
Departments and agencies regarding this action: Department of
Justice; the Department of State; the Board of Governors of the
Federal Reserve System; the Federal Deposit Insurance Corporation;
the Securities and Exchange Commission; the Commodity Futures
Trading Commission; the Office of the Comptroller of the Currency;
and the National Credit Union Administration. During those
consultations, FinCEN shared drafts and information for the purpose
of obtaining interagency views on: (1) the finding that Al-Huda Bank
is of primary money laundering concern; (2) the imposition of
special measure five prohibiting covered U.S. financial institutions
from opening or maintaining a correspondent account for, or on
behalf of Al-Huda Bank and requiring covered U.S. financial
institutions to take reasonable steps not to process transactions
for the correspondent account of a foreign banking institution in
the United States if such a transaction involves Al-Huda Bank; and
(3) the effect such prohibition would have on the domestic and
international financial system. Those views are reflected in
FinCEN's explanation of the reasons for issuing this final rule.
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After reviewing the comments and considering all potential special
measures, FinCEN concludes that a prohibition under special measure
five is warranted. Consistent with the finding that Al-Huda Bank is a
foreign financial institution of primary money laundering concern, and
in consideration of additional relevant factors, this final rule
imposes a prohibition on the opening or maintaining of correspondent
accounts by covered financial institutions for, or on behalf of, Al-
Huda Bank. This prohibition will help guard against the money
laundering and terrorist financing risks to the U.S. financial system
posed by Al-Huda Bank, as identified in the NPRM and this final rule.
A. Whether Similar Action Has Been or Is Being Taken by Other Nations
or Multilateral Groups Regarding Al-Huda Bank
Following the issuance of the NPRM, the CBI banned Al-Huda Bank
from accessing the CBI dollar auction.\13\ Nevertheless, as indicated
above, FinCEN remains concerned by Al-Huda Bank's continued potential
to interact with the U.S. financial system indirectly through U.S.
dollar (USD) correspondent accounts at six foreign financial
institutions.
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\13\ Reuters, Iraq bans 8 local banks from US dollar
transactions (Feb. 4, 2024), available at <a href="https://www.reuters.com/business/finance/iraq-bans-8-local-banks-us-dollar-transactions-2024-02-04/">https://www.reuters.com/business/finance/iraq-bans-8-local-banks-us-dollar-transactions-2024-02-04/</a>.
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B. Whether the Imposition of Any Particular Special Measure Would
Create a Significant Competitive Disadvantage, Including Any Undue Cost
or Burden Associated With Compliance, for Financial Institutions
Organized or Licensed in the United States
While FinCEN assesses that the final rule will place some cost and
burden on covered financial institutions, these burdens are neither
undue nor inappropriate in view of the threat posed by the illicit
activity facilitated by Al-Huda Bank. As described in the NPRM, Al-Huda
Bank has had access to USD through the CBI dollar auction, which does
not require Iraqi banks to have direct USD correspondent relationships.
Further, as described above, Al-Huda Bank has no direct USD
correspondent relationships with U.S. financial institutions. Rather,
it accesses USD through its nested correspondent relationships,
including, but not limited to, six USD accounts outside the United
States. These accounts may be used for commercial payments, as well as
foreign exchange and money markets. Covered financial institutions and
transaction partners have ample opportunity to arrange for alternative
payment mechanisms in the absence of correspondent banking
relationships with Al-Huda Bank.
As such, a prohibition on correspondent banking with Al-Huda Bank
will impose minimal additional compliance costs for covered financial
institutions, which would most commonly involve merely adding Al-Huda
Bank to existing sanctions and money laundering screening tools. FinCEN
assesses that given the risks posed by Al-Huda Bank's facilitation of
money laundering, the additional
[[Page 55055]]
burden on covered financial institutions in preventing the opening of
correspondent accounts with Al-Huda Bank, as well as conducting due
diligence on foreign correspondent account holders and notifying them
of the prohibition, will be minimal and not undue.
C. The Extent to Which the Action or the Timing of the Action Would
Have a Significant Adverse Systemic Impact on the International
Payment, Clearance, and Settlement System, or on Legitimate Business
Activities of Al-Huda Bank
FinCEN assesses that imposing the final rule will have minimal
impact upon the international payment, clearance, and settlement
system. As a comparatively small bank, responsible for a nominal amount
of transaction volume in the region, Al-Huda Bank is not a systemically
important financial institution in Iraq, regionally, or globally.
FinCEN views that prohibiting Al-Huda Bank's access to U.S.-Iraq
correspondent banking channels should not affect overall cross-border
transaction volumes.
Further, a prohibition under special measure five will not prevent
Al-Huda Bank from conducting legitimate business activities in other
foreign currencies. In addition to the six correspondent accounts used
to access USD noted above, Al-Huda Bank currently holds two Euro
accounts and two United Arab Emirates dirham accounts.\14\ Provided
that its legitimate activities do not involve a correspondent account
maintained in the United States, and so long as Al-Huda Bank maintains
non-USD correspondent relationships in the region, the bank could
continue to engage in those activities.
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\14\ BankCheck, Al-Huda Bank--Iraq (accessed May 28, 2024),
available at <a href="https://bankcheck.app">https://bankcheck.app</a>.
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D. The Effect of the Action on United States National Security and
Foreign Policy
As described in the NPRM, evidence available to FinCEN has
demonstrated that Al-Huda Bank served as a significant conduit for the
financing of FTOs in violation of U.S. and international sanctions.
Imposing a prohibition under special measure five will: (1) limit Al-
Huda Bank's ability to facilitate illicit finance within an
international network of front companies and sanctions evasion
infrastructure supporting these FTOs, by removing its access to
correspondent accounts in the United States; and (2) raise awareness of
the way illicit actors exploit weaknesses in vulnerable jurisdictions
to circumvent sanctions and finance terrorism.
E. Consideration of Alternative Special Measures
In assessing the appropriate special measure to impose, FinCEN
considered alternatives to a prohibition on the opening or maintaining
in the United States of correspondent accounts, including the
imposition of one or more of the first four special measures, or
imposing conditions on the opening or maintaining of correspondent
accounts under special measure five. Having considered these
alternatives and for the reasons set out below, FinCEN assesses that
none of the other special measures available under section 311 would
appropriately address the risks posed by Al-Huda Bank and the urgent
need to prevent it from accessing USD through correspondent banking
entirely.
With the knowledge of Al-Huda Bank's chairman, Al-Huda Bank's abuse
of the dollar auction was obfuscated through the application of
numerous money laundering typologies, including the use of fraudulent
documentation, fake deposits, identity documents of the deceased, fake
companies, and counterfeit IQD, which were used to purchase USD and
support terrorist groups and militias. Taken as a whole, Al-Huda Bank's
illicit activities present a heightened risk of obscured transaction
counterparty identification that would be undetectable by covered
financial institutions. Indeed, a key feature of the facilitation of
funding for Iranian and Iran-aligned FTOs through Al-Huda Bank is the
use of fake companies to obscure the true beneficial owners and
ultimate destinations of funds involved in the transactions. Moreover,
this behavior provides opportunities for obscuring the identities of
transaction counterparties to correspondent banking relationship
providers.
Because of the nature, extent, and purpose of the obfuscation
engaged in by Al-Huda Bank, any special measure intended to mandate
additional information collection would likely be ineffective and
insufficient to determine the true identity of illicit finance actors.
For example, the provision under special measure one, that ``the
identity and address of the participants in a transaction or
relationship, including the identity of the originator of any funds
transfer'' be collected in records and reports, could be circumvented
by the operations of shell companies, wherein the reported identity of
the originator serves to obscure the true beneficial owner or
originator. This would accordingly be ineffective in preventing illicit
transactions. Al-Huda Bank's record of such circumvention suggests
special measure one would not adequately protect the U.S. financial
system from the threats posed by the bank.
Further, the requirements under special measures three and four,
that domestic financial institutions obtain ``with respect to each
customer (and each such representative), information that is
substantially comparable to that which the depository institution
obtains in the ordinary course of business with respect to its
customers residing in the United States'', are also likely to be
ineffective. First, Al-Huda Bank's use of nested correspondent account
access through layers of payment systems would render these alternative
measures ineffective. Only significant effort and expense by U.S.
institutions could fill this gap, which would impose a disproportionate
compliance burden and with no guarantee that the money laundering
threat would be addressed through customer due diligence research.
FinCEN also considered special measure two, which may require
domestic financial institutions to ``obtain and retain information
concerning the beneficial ownership of any account opened or maintained
in the United States by a foreign person.'' The agency determined this
special measure to be largely irrelevant since the concerns involving
Al-Huda Bank do not involve the opening or maintaining of accounts in
the U.S. by foreign persons.
FinCEN similarly assesses that merely imposing conditions under
special measure five would be inadequate to address the risks posed by
Al-Huda Bank's activities. Special measure five also enables FinCEN to
impose conditions as an alternative to a prohibition on the opening or
maintaining of correspondent accounts. Given Al-Huda Bank's consistent
and longstanding ties to terrorist organizations since its inception,
and its track record of obfuscating transactions and account holders,
FinCEN determined that imposing any condition would not be an effective
measure to safeguard the U.S. financial system. FinCEN assesses that
the billions of dollars supplied to terrorist groups through Al-Huda
Bank's exploitation of its access to USD, and the exposure of U.S.
financial institutions to Al-Huda Bank's illicit activity outweigh the
value in providing conditioned access to the U.S. financial system for
any purportedly legitimate business activity. Conditions on the opening
or maintaining of correspondent accounts
[[Page 55056]]
would likely be insufficient to prevent illicit financial flows through
the U.S. financial system, given Al-Huda Bank's use of fraudulent
documentation and front companies to obscure its financing of terrorist
groups in order to access USD. Given Al-Huda Bank's deliberate use of
these money laundering typologies, FinCEN cannot craft sufficient
conditions to enable covered financial institutions to open or maintain
correspondent accounts for Al-Huda Bank without introducing severe risk
to those financial institutions in processing transactions that
ultimately finance terrorism.
FinCEN, thus, assesses that any condition or additional
recordkeeping or reporting requirement would be an ineffective measure
to safeguard the U.S. financial system. Such measures would not prevent
Al-Huda Bank from accessing the correspondent accounts of U.S.
financial institutions, thus leaving the U.S. financial system
vulnerable to processing illicit transfers that are likely to finance
terrorist groups, posing a significant national security and money
laundering risk. In addition, no recordkeeping or reporting
requirements or conditions would be sufficient to guard against the
risks posed by a bank that processes transactions that are designed to
obscure the transactions' true nature and are ultimately for the
benefit of terrorist groups. For these reasons, and after thorough
consideration of alternate measures, FinCEN has determined that a
prohibition on opening or maintaining correspondent banking
relationships is the only special measure out of the special measures
available under section 311 that can adequately protect the U.S.
financial system from the illicit finance risk posed by Al-Huda Bank.
IV. Section-by-Section Analysis
A. 1010.663(a)--Definitions
1. Definition of Al-Huda Bank
The final rule defines the term ``Al-Huda Bank'' to mean all
subsidiaries, branches, and offices of Al-Huda Bank operating as a bank
in any jurisdiction. FinCEN is not currently aware of any subsidiary
banks or branches outside of Iraq.
2. Definition of Correspondent Account
The final rule defines the term ``correspondent account'' to have
the same meaning as the definition contained in 31 CFR
1010.605(c)(1)(ii). In the case of a U.S. depository institution, this
broad definition includes most types of banking relationships between a
U.S. depository institution and a foreign bank that are established to
provide regular services, dealings, and other financial transactions,
including a demand deposit, savings deposit, or other transaction or
asset account, and a credit account or other extension of credit.
FinCEN is using the same definition of ``account'' for purposes of this
final rule as is established for depository institutions in the final
rule implementing the provisions of section 312 of the USA PATRIOT Act,
requiring enhanced due diligence for correspondent accounts maintained
for certain foreign banks.\15\ Under this definition, ``payable-through
accounts'' are a type of correspondent account.
---------------------------------------------------------------------------
\15\ See 31 CFR 1010.605(c)(2)(i).
---------------------------------------------------------------------------
In the case of securities broker-dealers, futures commission
merchants, introducing brokers in commodities, and investment companies
that are open-end companies (mutual funds), FinCEN is also using the
same definition of ``account'' for purposes of this final rule as was
established for these entities in the final rule implementing the
provisions of section 312 of the USA PATRIOT Act, requiring due
diligence for correspondent accounts maintained for certain foreign
banks.\16\
---------------------------------------------------------------------------
\16\ See 31 CFR 1010.605(c)(2)(ii)-(iv).
---------------------------------------------------------------------------
3. Definition of Covered Financial Institution
In a change from the proposed rule,\17\ and consistent with prior
section 311 actions imposing special measure five, the final rule
defines the term ``covered financial institution'' by reference to 31
CFR 1010.605(e)(1), the same definition used in the BSA rule (31 CFR
1010.610) requiring the establishment of due diligence programs for
correspondent accounts for financial institutions. In general, this
definition includes the following:
---------------------------------------------------------------------------
\17\ When defining a covered financial institution, the proposed
regulatory text incorrectly referenced 31 CFR 1010.605(e)(2),
instead of 31 CFR 1010.605(e)(1). In addition, although the
regulatory impact analysis properly considered those financial
institutions listed in 31 CFR 1010.605(e)(1), it incorrectly cited
31 CFR 1010.100(t) (as did the section-by-section analysis).
---------------------------------------------------------------------------
<bullet> a bank;
<bullet> a broker or dealer in securities;
<bullet> a futures commission merchant or an introducing broker in
commodities; and
<bullet> a mutual fund.
4. Definition of Foreign Banking Institution
The final rule defines the term ``foreign banking institution'' to
mean a bank organized under foreign law, or an agency, branch, or
office located outside the United States of a bank. The term does not
include an agent, agency, branch, or office within the United States of
a bank organized under foreign law. This is consistent with the
definition of ``foreign bank'' under 31 CFR 1010.100(u). This final
rule interprets Al-Huda Bank to be a foreign banking institution.
5. Definition of Subsidiary
The final rule defines the term ``subsidiary'' to mean a company of
which more than 50 percent of the voting stock or analogous equity
interest is owned by another company.
B. 1010.663(b)--Prohibition on Accounts and Due Diligence Requirements
for Covered Financial Institutions
1. Prohibition on Opening or Maintaining Correspondent Accounts
Section 1010.663(b)(1) of the final rule prohibits covered
financial institutions from opening or maintaining in the United States
a correspondent account for, or on behalf of, Al-Huda Bank.
2. Prohibition on Use of Correspondent Accounts Involving Al-Huda Bank
Section 1010.663(b)(2) of the final rule requires covered financial
institutions to take reasonable steps to not process a transaction for
the correspondent account of a foreign banking institution in the
United States if such a transaction involves Al-Huda Bank. Such
reasonable steps are described in 1010.663(b)(3), which sets forth the
special due diligence requirements a covered financial institution is
required to take when it knows or has reason to believe that a
transaction involves Al-Huda Bank.
3. Special Due Diligence for Correspondent Accounts
As a corollary to the prohibition set forth in sections
1010.663(b)(1) and (b)(2), section 1010.663(b)(3) of the final rule
requires covered financial institutions to apply special due diligence
to all of their foreign correspondent accounts that is reasonably
designed to guard against such accounts being used to process
transactions involving Al-Huda Bank. As part of that special due
diligence, covered financial institutions are required to notify those
foreign correspondent account holders that the covered financial
institutions know or have reason to believe provide services to Al-Huda
Bank, that such correspondents may not provide Al-Huda Bank with access
to the correspondent account maintained at the covered financial
institution. A
[[Page 55057]]
covered financial institution may satisfy this notification requirement
using the following notice:
Notice: Pursuant to U.S. regulations issued under Section 311 of
the USA PATRIOT Act, see 31 CFR 1010.663, we are prohibited from
opening or maintaining in the United States a correspondent account
for, or on behalf of, Al-Huda Bank. The regulations also require us
to notify you that you may not provide Al-Huda Bank, including any
of its subsidiaries, branches, and offices access to the
correspondent account you hold at our financial institution. If we
become aware that the correspondent account you hold at our
financial institution has processed any transactions involving Al-
Huda Bank, including any of its subsidiaries, branches, and offices,
we will be required to take appropriate steps to prevent such
access, including terminating your account.
The purpose of the notice requirement is to aid cooperation with
correspondent account holders in preventing transactions involving Al-
Huda Bank from accessing the U.S. financial system. FinCEN does not
require or expect a covered financial institution to obtain a
certification from any of its correspondent account holders that access
will not be provided to comply with this notice requirement.
Methods of compliance with the notice requirement could include,
for example, transmitting a notice by mail, fax, or email. The notice
should be transmitted whenever a covered financial institution knows or
has reason to believe that a foreign correspondent account holder
provides services to Al-Huda Bank.
Special due diligence also includes implementing risk-based
procedures designed to identify any use of correspondent accounts to
process transactions involving Al-Huda Bank. A covered financial
institution is expected to apply an appropriate screening mechanism to
identify a funds transfer order that on its face lists Al-Huda Bank as
the financial institution of the originator or beneficiary, or
otherwise references Al-Huda Bank in a manner detectable under the
financial institution's normal screening mechanisms. An appropriate
screening mechanism could be one of the tools used by a covered
financial institution to comply with various legal requirements, such
as commercially available software programs used to comply with the
economic sanctions programs administered by OFAC.
4. Recordkeeping and Reporting
Section 1010.663(b)(4) of the final rule clarifies that the rule
does not impose any reporting requirement upon any covered financial
institution that is not otherwise required by applicable law or
regulation. A covered financial institution must, however, document its
compliance with the notification requirement described above.
V. Regulatory Impact Analysis
FinCEN has analyzed this final rule under Executive Orders 12866,
13563, and 14094, the Regulatory Flexibility Act,\18\ the Unfunded
Mandates Reform Act,\19\ and the Paperwork Reduction Act.\20\
---------------------------------------------------------------------------
\18\ 5 U.S.C. 603.
\19\ 2 U.S.C. 1532, Public Law 104-4 (Mar. 22, 1995).
\20\ 44 U.S.C. 3507(a)(1)(D).
---------------------------------------------------------------------------
As discussed above, the intended effects of the imposition of
special measure five to Al-Huda Bank are twofold. The rule is expected
to: (1) combat and deter money laundering in facilitation of terrorist
financing associated with Al-Huda Bank, and (2) prevent Al-Huda Bank
from using the U.S. financial system to enable its illicit finance
behavior. In the analysis below, FinCEN discusses the economic effects
that are expected to accompany adoption of the final rule and assess
such expectations in more granular detail. This discussion includes a
detailed explanation of certain ways FinCEN's conclusions may be
sensitive to methodological choices and underlying assumptions made in
drawing inferences from available data.
A. Executive Orders
Executive Orders 12866, 13563, and 14094 direct agencies to assess
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing rules, and of promoting
flexibility.
It has been determined that this final rule is not a significant
regulatory action under section 3(f) of Executive Order 12866, as
amended by Executive Order 14094. Accordingly, a regulatory impact
analysis is not required.
B. Regulatory Flexibility Act
When an agency issues a final rule, the Regulatory Flexibility Act
(RFA) requires the agency to ``prepare and make available for public
comment an initial regulatory flexibility analysis'' (IRFA) that will
``describe the impact of the proposed rule on small entities.'' \21\
However, Section 605 of the RFA allows an agency to certify a rule, in
lieu of preparing an analysis, if the final rule is not expected to
have a significant economic impact on a substantial number of small
entities. This final rule applies to all covered financial institutions
and affects a substantial number of small entities. However, for the
reasons described below, FinCEN assesses that these changes do not have
a significant economic impact on such entities.
---------------------------------------------------------------------------
\21\ 5 U.S.C. 603(a).
---------------------------------------------------------------------------
In addition to prohibiting covered financial institutions from
opening or maintaining in the United States a correspondent account
for, or on behalf of, Al-Huda Bank, this final rule requires that
covered financial institutions take reasonable measures to detect use
of their correspondent accounts to process transactions involving Al-
Huda Bank. All U.S. persons, including U.S. financial institutions,
currently must comply with OFAC sanctions, and U.S. financial
institutions generally have suspicious activity reporting requirements
and systems in place to screen transactions to comply with OFAC
sanctions and section 311 special measures administered by FinCEN. The
systems that U.S. financial institutions have in place to comply with
these requirements can easily be modified to adapt to this final rule.
Thus, the special due diligence that is required under the final rule--
i.e., preventing the processing of transactions involving Al-Huda Bank
and the transmittal of notification to certain correspondent account
holders--does not impose a significant additional economic burden upon
small U.S. financial institutions. For these reasons, FinCEN certifies
that the requirements contained in this rulemaking do not have a
significant economic impact on a substantial number of small entities.
C. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 \22\
(Unfunded Mandates Reform Act), requires that an agency prepare a
budgetary impact statement before promulgating a rule that may result
in expenditure by the state, local, and tribal governments, in the
aggregate, or by the private sector, of $100 million or more in any one
year, adjusted for inflation.\23\ If a budgetary impact statement is
required, section 202 of the Unfunded Mandates Reform Act also requires
an agency to identify and consider a reasonable number of
[[Page 55058]]
regulatory alternatives before promulgating a rule.\24\
---------------------------------------------------------------------------
\22\ 2 U.S.C. 1532, Public Law 104-4 (Mar. 22, 1995).
\23\ Id.
\24\ Id.
---------------------------------------------------------------------------
FinCEN has determined that this final rule will not result in
expenditures by state, local, and tribal governments, in the aggregate,
or by the private sector, of an annual $100 million or more, adjusted
for inflation ($184.7 million).\25\ Accordingly, FinCEN has not
prepared a budgetary impact statement or specifically addressed the
regulatory alternatives considered.
---------------------------------------------------------------------------
\25\ The Unfunded Mandates Reform Act requires an assessment of
mandates that will result in an annual expenditure of $100 million
or more, adjusted for inflation. The U.S. Bureau of Economic
Analysis reports the annual value of the gross domestic product
(GDP) deflator in the first quarter of 1995, the year of the
Unfunded Mandates Reform Act, as 66.452, and as 122.762 in the third
quarter of 2023, the most recent available. See U.S. Bureau of
Economic Analysis, ``Table 1.1.9. Implicit Price Deflators for Gross
Domestic Product'' (accessed Dec. 14, 2023) available at <a href="https://www.bea.gov/itable/">https://www.bea.gov/itable/</a>. Thus, the inflation adjusted estimate for $100
million is 122.762/66.452 x 100 = $184.7 million.
---------------------------------------------------------------------------
D. Paperwork Reduction Act
The recordkeeping and reporting requirements, referred to by the
Office of Management and Budget (OMB) as a collection of information,
contained in this final rule were submitted by FinCEN to the OMB for
review in accordance with the Paperwork Reduction Act of 1995 (PRA) and
were assigned OMB Control Number 1506-0079.\26\ Under the PRA, an
agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a valid
control number assigned by the OMB.
---------------------------------------------------------------------------
\26\ 44 U.S.C. 3507(a)(1)(D).
---------------------------------------------------------------------------
The notification requirement in section 1010.663(b)(3)(i)(A) is
intended to aid cooperation from foreign correspondent account holders
in preventing transactions involving Al-Huda Bank from being processed
by the U.S. financial system. The information required to be maintained
by section 1010.663(b)(4)(i) will be used by federal agencies and
certain self-regulatory organizations to verify compliance by covered
financial institutions with the notification requirements of section
663(b)(3)(i)(A). The collection of information is mandatory.
Frequency: As required.
Description of Affected Financial Institutions: Banks, broker-
dealers in securities, futures commission merchants, introducing
brokers in commodities, and mutual funds.
Estimated Number of Affected Financial Institutions: Approximately
15,000.\27\
---------------------------------------------------------------------------
\27\ This estimate is informed by public and non-public data
sources regarding both an expected maximum number of entities that
may be affected and the number of active, or currently reporting,
registered financial institutions.
Table 1--Estimates of Affected Financial Institutions by Type
------------------------------------------------------------------------
Number of
Financial institution type entities
------------------------------------------------------------------------
Banks \28\.................................................. \29\ 9,209
Broker-Dealers in securities \30\........................... \31\ 3,477
Mutual Funds \32\........................................... \33\ 1,495
Futures Commission Merchants \34\........................... \35\ 62
Introducing Brokers in Commodities \36\..................... \37\ 937
------------------------------------------------------------------------
Estimated Average Annual Burden in Hours per Affected Financial
Institution: The estimated average annual burden associated with the
collection of information in this final rule is one hour per affected
financial institution.
---------------------------------------------------------------------------
\28\ See 31 CFR 1010.605(e)(1)(i).
\29\ Bank data is as of December 14, 2023, from Federal Deposit
Insurance Corporation BankFind. See Federal Deposit Insurance
Corporation, BankFind, available at <a href="https://banks.data.fdic.gov/bankfind-suite/bankfind">https://banks.data.fdic.gov/bankfind-suite/bankfind</a>. Credit union data is as of December 31,
2023, from the National Credit Union Administration Quarterly Data
Summary Reports. See National Credit Union Administration, Quarterly
Data Summary Reports, available at <a href="https://ncua.gov/analysis/credit-union-corporate-call-report-data/quarterly-data-summary-reports">https://ncua.gov/analysis/credit-union-corporate-call-report-data/quarterly-data-summary-reports</a>.
\30\ 31 CFR 1010.605(e)(1)(ii).
\31\ According to the Securities and Exchange Commission (SEC),
there are 3,477 broker-dealers in securities as of December 2023.
See SEC, Company Information About Active Broker-Dealers, available
at <a href="https://www.sec.gov/help/foiadocsbdfoia">https://www.sec.gov/help/foiadocsbdfoia</a>.
\32\ 31 CFR 1010.605(e)(1)(iv).
\33\ According to the SEC, as of the third quarter of 2023,
there are 1,495 open-end registered investment companies that report
on Form N-CEN. See SEC, Form N-CEN Data Sets, available at <a href="https://www.sec.gov/dera/data/form-ncen-data-sets">https://www.sec.gov/dera/data/form-ncen-data-sets</a>.
\34\ 31 CFR 1010.605(e)(1)(iii).
\35\ According to the Commodity Futures Trading Commission
(CFTC), there are 62 futures commission merchants as of October 31,
2023. See CFTC, Financial Data for FCMs, available at <a href="https://www.cftc.gov/MarketReports/financialfcmdata/index.htm">https://www.cftc.gov/MarketReports/financialfcmdata/index.htm</a>.
\36\ 31 CFR 1010.605(e)(1)(iii).
\37\ According to National Futures Association, there are 937
introducing brokers in commodities as of November 30, 2023.
---------------------------------------------------------------------------
Estimated Total Annual Burden: Approximately 15,000 hours.
VI. Regulatory Text
List of Subjects in 31 CFR Part 1010
Administrative practice and procedure, Banks, Banking, Brokers,
Crime, Foreign banking, Terrorism.
Authority and Issuance
For the reasons set forth in the preamble, 31 CFR part 1010 is
amended as follows:
PART 1010--GENERAL PROVISIONS
0
1. The authority citation for part 1010 continues to read as follows:
Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314,
5316-5336; title III, sec. 314, Pub. L. 107-56, 115 Stat. 307; sec.
2006, Pub. L. 114-41, 129 Stat. 458-459; sec. 701 Pub. L. 114-74,
129 Stat. 599; sec. 6403, Pub. L. 116-283, 134 Stat. 3388.
0
2. Add Sec. 1010.663 to read as follows:
Sec. 1010.663 Special measures regarding Al-Huda Bank.
(a) Definitions. For purposes of this section, the following terms
have the following meanings.
(1) Al-Huda Bank. The term ``Al-Huda Bank'' means all subsidiaries,
branches, and offices of Al-Huda Bank operating as a bank in any
jurisdiction.
(2) Correspondent account. The term ``correspondent account'' has
the same meaning as provided in Sec. 1010.605(c)(1)(ii).
(3) Covered financial institution. The term ``covered financial
institution'' has the same meaning as provided in Sec. 1010.605(e)(1).
(4) Foreign banking institution. The term ``foreign banking
institution'' means a bank organized under foreign law, or an agency,
branch, or office located outside the United States of a bank. The term
does not include an agent, agency, branch, or office within the United
States of a bank organized under foreign law.
(5) Subsidiary. The term ``subsidiary'' means a company of which
more than 50 percent of the voting stock or analogous equity interest
is owned by another company.
(b) Prohibition on accounts and due diligence requirements for
covered financial institutions--(1) Prohibition on opening or
maintaining correspondent accounts for Al-Huda Bank. A covered
financial institution shall not open or maintain in the United States a
correspondent account for, or on behalf of, Al-Huda Bank.
(2) Prohibition on processing transactions involving Al-Huda Bank.
A covered financial institution shall take reasonable steps not to
process a transaction for the correspondent account in the United
States of a foreign banking institution if such a transaction involves
Al-Huda Bank.
(3) Special due diligence of correspondent accounts to prohibit
transactions. (i) A covered financial institution shall apply special
due diligence to its foreign correspondent accounts that is reasonably
designed to guard against their use to process transactions involving
Al-Huda Bank. At a minimum, that special due diligence must include:
[[Page 55059]]
(A) Notifying those foreign correspondent account holders that the
covered financial institution knows or has reason to believe provide
services to Al-Huda Bank that such correspondents may not provide Al-
Huda Bank with access to the correspondent account maintained at the
covered financial institution; and
(B) Taking reasonable steps to identify any use of its foreign
correspondent accounts by Al-Huda Bank, to the extent that such use can
be determined from transactional records maintained in the covered
financial institution's normal course of business.
(ii) A covered financial institution shall take a risk-based
approach when deciding what, if any, other due diligence measures it
reasonably must adopt to guard against the use of its foreign
correspondent accounts to process transactions involving Al-Huda Bank.
(iii) A covered financial institution that knows or has reason to
believe that a foreign bank's correspondent account has been or is
being used to process transactions involving Al-Huda Bank shall take
all appropriate steps to further investigate and prevent such access,
including the notification of its correspondent account holder under
paragraph (b)(3)(i)(A) of this section and, where necessary,
termination of the correspondent account.
(4) Recordkeeping and reporting. (i) A covered financial
institution is required to document its compliance with the
notification requirement set forth in paragraph (b)(3)(i)(A) of this
section.
(ii) Nothing in this paragraph (b) shall require a covered
financial institution to report any information not otherwise required
to be reported by law or regulation.
Andrea M. Gacki,
Director, Financial Crimes Enforcement Network.
[FR Doc. 2024-14415 Filed 7-2-24; 8:45 am]
BILLING CODE 4810-02-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.