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Bank Secrecy Act
Anti-Money Laundering
Examination Manual

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EXAMINATION PROCEDURES

Private Banking Due Diligence Program (Non-U.S. Persons)

 

Objective. Assess the bank’s compliance with the statutory and regulatory requirements to implement policies, procedures, and controls to detect and report money laundering and suspicious activity through private banking accounts established, administered, or maintained for non-U.S. persons. Refer to the expanded sections of the manual for discussions and examination procedures regarding specific money laundering risks associated with private banking.

1. Determine whether the bank offers private banking accounts in accordance with the regulatory definition of a private banking account. A private banking account means an account (or any combination of accounts) maintained at a financial institution covered by the regulation that satisfies all three of the following criteria:

  • Requires a minimum aggregate deposit of funds or other assets of not less than $1,000,000 (31 CFR 1010.605(m)(1)).
  • Is established on behalf of or for the benefit of one or more non-U.S. persons who are direct or beneficial owners of the account (31 CFR 1010.605(m)(2)).
  • Is assigned to, or is administered or managed by, in whole or in part, an officer, employee, or agent of the bank acting as a liaison between the bank and the direct or beneficial owner of the account (31 CFR 1010.605(m)(3)).

The final rule reflects the statutory definition found in the USA PATRIOT Act. If an account satisfies the last two criteria in the definition of a private banking account as described above, but the institution does not require a minimum balance of $1,000,000, then the account does not qualify as a private banking account under this rule. However, the account is subject to the internal controls and risk-based due diligence included in the institution’s general BSA/AML compliance program.136Refer to the expanded examination procedures, "Private Banking" and "Politically Exposed Persons" (PEPs), pages 278 and 294, respectively, for additional guidance.

2. Determine whether the bank has implemented due diligence policies, procedures, and controls for private banking accounts established, maintained, administered, or managed in the United States by the bank for non-U.S. persons. Determine whether the policies, procedures, and controls are reasonably designed to detect and report any known or suspected money laundering or suspicious activity conducted through or involving any private banking account.

3. Review the bank’s policies, procedures, and controls to assess whether the bank’s due diligence program includes reasonable steps to:

  • Ascertain the identity of the nominal and beneficial owners of a private banking account (31 CFR 1010.620(b)(1)).
  • Ascertain whether any nominal or beneficial owner of a private banking account is a senior foreign political figure (31 CFR 1010.620(b)(2)).
  • Ascertain the source(s) of funds deposited into a private banking account and the purpose and expected use of the private banking account for non-U.S. persons (31 CFR 1010.620(b)(3)).
  • Review the activity of the account to ensure that it is consistent with the information obtained about the client’s source of funds and with the stated purpose and expected use of the account, as needed, to guard against money laundering and to report any known or suspected money laundering or suspicious activity conducted to, from, or through a private banking account for non-U.S. persons (31 CFR 1010.620(b)(4)).

4. Review the bank’s policies, procedures, and controls for performing enhanced scrutiny to assess whether they are reasonably designed to detect and report transactions that may involve the proceeds of foreign corruption137The term "proceeds of foreign corruption" means any assets or property that is acquired by, through, or on behalf of a senior foreign political figure through misappropriation, theft, or embezzlement of public funds, the unlawful conversion of property of a foreign government, or through acts of bribery or extortion, and shall include any other property into which any such assets have been transformed or converted (31 CFR 1010.620(c)(2) ). for which a senior foreign political figure138The final rule defines a senior foreign political figure as: a current or former senior official in the executive, legislative, administrative, military, or judicial branches of a foreign government, whether or not they are or were elected officials; a senior official of a major foreign political party; and a senior executive of a foreign government-owned commercial enterprise. The definition also includes a corporation, business, or other entity formed by or for the benefit of such an individual. Senior executives are individuals with substantial authority over policy, operations, or the use of government-owned resources. Also included in the definition of a senior foreign political official are immediate family members of such individuals and persons who are widely and publicly known (or actually known) close associates of a senior foreign political figure. is a nominal or beneficial owner (31 CFR 1010.620(c)(1)).

Transaction Testing

5. On the basis of a risk assessment, prior examination reports, and a review of the bank’s audit findings, select a sample of customer files to determine whether the bank has ascertained the identity of the nominal and beneficial owners of, and the source of funds deposited into, private banking accounts for non-U.S. persons. From the sample selected determine the following:

  • Whether the bank’s procedures comply with internal policies and statutory requirements.
  • Whether the bank has followed its procedures governing risk assessment of private banking accounts for non-U.S. persons.
  • Whether the bank performs enhanced scrutiny of private banking accounts for which senior foreign political figures are nominal or beneficial owners, consistent with its policy, regulatory guidance, and statutory requirements.

6. On the basis of examination procedures completed, including transaction testing, form a conclusion about the ability of policies, procedures, and processes to meet regulatory requirements associated with private banking due diligence programs.

7. On the basis of the previous conclusion and the risks associated with the bank’s activity in this area, proceed to expanded examination procedures, if necessary.

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