Joint Fact Sheet on Foreign Correspondent Banking Supervision and Enforcement: U.S. Department of Treasury and Federal Banking Agencies Issue Joint Fact Sheet Aimed at Dispelling “Myths” About U.S. BSA/AML and Sanctions Supervisory Expectations and Enforcement Approach for Correspondent BankingSullivan & Cromwell LLP - September 2, 2016
On August 30, 2016, the U.S. Department of the Treasury (the “Treasury”) and the federal banking agencies (the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency) (collectively the “Federal Banking Agencies” and, together with the Treasury, the “Agencies”) issued a Joint Fact Sheet on Foreign Correspondent Banking (the “Fact Sheet”). The Fact Sheet, accompanied by a Treasury blog post issued the same day, is aimed at dispelling two “myths” about U.S. supervisory expectations that some believe are contributing to the so-called “de-risking” phenomenon. Those myths are: (1) U.S. banks are expected to conduct due diligence on the individual customers of the foreign banks for which they provide correspondent services, i.e., that they must “know” their “customers’ customers”; and (2) the Bank Secrecy Act/anti-money laundering (“BSA/AML”) and Office of Foreign Assets Control (“OFAC”) sanctions enforcement regime is one of “zero tolerance,” i.e., one in which any misstep will result in a public enforcement action. The de-risking in question involves U.S. banks terminating correspondent banking services for all (or most) banks from certain countries because of money laundering and sanctions risks in those countries. The Fact Sheet appears to be responsive to sharp criticism of the de-risking approach by the IMF, legislators, and others.
Various aspects of the Fact Sheet, however, may fail to persuade U.S. banks to discontinue, or reverse, their de-risking efforts. One such factor is the absence of three important constituencies from involvement in the issuance: the U.S. Department of Justice, state and local criminal authorities, and state bank regulatory authorities. Each has been aggressively pursuing violations related to BSA/AML and OFAC sanctions program compliance. A second factor is the often highly qualified language of the Fact Sheet as described below.
In summary, although the Fact Sheet undoubtedly represents an attempt to provide some helpful assurance, it may be unlikely, without more, to arrest the de-risking phenomenon to any significant extent.