On August 30, 2016, the U.S. Department of the Treasury and four U.S. federal banking regulators sought to correct a problem—at least in part one of their own creation—by issuing a “Joint Fact Sheet on Foreign Correspondent Banking” to clarify enforcement priorities regarding AML/BSA and countering the financing of terrorism (CFT) regimes. The Fact Sheet highlighted the importance of maintaining correspondent banking relationships with foreign financial institutions and the value of the free flow of monies within and across global economies.
The Fact Sheet, in conjunction with a blog post by Treasury, attempts to allay concerns raised by industry and groups such as the International Monetary Fund about the trend of “de-risking” by U.S. banks as a result of fear of aggressive AML/BSA enforcement by U.S. regulators and law enforcement. In particular, the Fact Sheet suggests that U.S. banks have overreacted to concerns over AML/BSA enforcement by unnecessarily terminating correspondent banking relationships with foreign banks. It notes that these relationships are crucial to the global economy and reflexive “de-risking” could destabilize or disrupt access to U.S. financing, hinder international trade, cross-border business, and charitable activities, and make claim remittances harder to effectuate.
The blog post and Fact Sheet—which claims to “dispel certain myths about U.S. supervisory expectations”—make two main points:
- There is no expectation of perfection, and U.S. authorities do not employ a “zero tolerance” standard regarding AML/BSA and CFT compliance failures. About 95 percent of AML/BSA and CFT compliance concerns and sanctions are resolved through cautionary letters and negotiations with the authorities. Penalties and enforcement actions generally will be sought only where enforcement authorities perceive a pattern of reckless and willful violations over a period of years with no effort from senior management to recognize red flags.
- There is no general expectation that a U.S. depository institution must perform due diligence on the individual customers of foreign financial institutions. Institutions should follow industry best practices to identify and manage the risk profiles of foreign financial institution clients. Due diligence is required regarding the types of customers served by a foreign financial institution, in order to assess specific risks posed by certain relationships, detect suspicious activity, and comply with U.S. economic sanctions.
The comments in the Fact Sheet and the blog post are welcome indicators that U.S. regulators and law enforcement authorities recognize that most AML/BSA and CFT compliance deficiencies do not merit enforcement actions or penalties. They also suggest that regulators and law enforcement authorities recognize that industry fears regarding enforcement—sometimes stoked by the government—can have unwanted and negative consequences, such as the unnecessary hindering of the international financial system. Ultimately, however, the Fact Sheet and the blog post merely offer a degree of clarification and insight by the government into its expectations for compliance. They do not have the force of law, nor can they predict precisely how individual regulators or enforcement personnel will act in specific cases.
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