FinCEN Advisory - FIN-2013-A008

Advisory Information

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FIN-2013-A008

Issued Date

December 04, 2013

Subject

Advisory on the FATF-Identified Jurisdictions with AML/CFT Deficiencies

On October 18, 2013, the Financial Action Task Force (FATF) updated its list of jurisdictions with strategic AML/CFT deficiencies. These changes may affect U.S. financial institutions’ obligations and risk-based approaches with respect to relevant jurisdictions.

As part of the FATF’s listing and monitoring process to ensure compliance with the international Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) standards, the FATF identified certain jurisdictions as having strategic deficiencies in their AML/CFT regimes.¹ The FATF updated its lists of jurisdictions that appear in two documents:² (I) jurisdictions that are subject to the FATF’s call for countermeasures or are subject to Enhanced Due Diligence (EDD) due to their AML/CFT deficiencies (referred to by the FATF as the 'FATF Public Statement’) and (II) jurisdictions identified by the FATF to have AML/CFT deficiencies (referred to by the FATF as ‘Improving Global AML/CFT Compliance: On-going Process’). Financial institutions should consider these changes when reviewing their obligations and risk-based approaches with respect to the jurisdictions noted below.

I. Jurisdictions that are subject to the FATF’s call for countermeasures
or are subject to EDD due to their AML/CFT deficiencies

The FATF has indicated that the following jurisdictions have deficiencies in their AML/CFT regimes and called upon its members and urged all jurisdictions to (A) impose countermeasures or (B) consider the risk arising from each jurisdiction due to a lack of sufficient progress in addressing AML/CFT deficiencies. FinCEN is advising U.S. financial institutions to apply enhanced duediligence for countries in category (B) (for additional details, see the FinCEN Guidance sectionbelow). Accordingly, all these jurisdictions are included in the FATF Public Statement.

Please click on each jurisdiction for additional information.

A. Countermeasures:
Iran and Democratic People’s Republic ofKorea (DPRK).

B. Enhanced Due Diligence:
Algeria, Ecuador, Ethiopia, Indonesia,Kenya, Myanmar, Pakistan, Syria, Tanzania,Turkey, and Yemen.

Summary of Changes to this List

Vietnam is now recognized as having madesignificant progress to address its FATFidentifiedstrategic AML/CFT deficiencies.Consequently, the FATF has now includedVietnam in its Improving Global AML/CFTCompliance: On-going Process documentand removed it from the FATF PublicStatement (see below).

While São Tomé and Príncipe has maderecent progress, its AML/CFT framework stillcontains a number of strategic deficiencies.Given the small size of this country’sfinancial sector and its low impact on theinternational financial system, however,

Despite Algeria’s high-level politicalcommitment to work with the FATF to addressits strategic AML/CFT deficiencies, Algeria hasnot made sufficient progress. Consequently,the FATF has now placed Algeria on the FATF PublicStatement and removed it from itsImproving Global AML/CFTCompliance: On-going Process document.

II. Jurisdictions identified by the FATF to have AML/CFT deficiencies

The FATF has identified the following jurisdictions as having deficiencies in their AML/CFTregimes, for which they have developed an action plan with the FATF. Consequently, thesejurisdictions are included in the following list of jurisdictions with AML/CFT deficiencies (asdescribed in the FATF’s Improving Global AML/CFTCompliance: On-going Process document.).

Please click on each jurisdiction for additional information.

Afghanistan, Albania, Angola,Antigua and Barbuda, Argentina, Bangladesh, Cambodia, Cuba,Iraq,
Kuwait,Kyrgyzstan, Lao PDR,Mongolia, Namibia, Nepal, Nicaragua,Sudan, Tajikistan, Vietnam, and Zimbabwe.

Summary of Changes to this List

Due to their significant progress inaddressing all or nearly all of their strategicAML/CFT deficiencies, Morocco and Nigeriahave been removed from the FATF listingand monitoring process. These jurisdictionswill work with their respective FATF-StyleRegional Bodies as they continue to addressthe full range of AML/CFT issues identifiedas part of the mutual evaluation process.

Vietnam has made progress in largelyaddressing its FATF action plan and is nowidentified on this list, having moved from theFATF Public Statement (see Section I above).

Algeria has not made sufficient progressin addressing its strategic AML/CFTdeficiencies; consequently, Algeria wasremoved from this list and moved to theFATF Public Statement (see Section I above).

Iraq has also been identified on this listbecause of strategic deficiencies in its AML/CFT regime. Iraq has made a high-levelpolitical commitment to work with theFATF and the Middle East & North AfricaFinancial Action Task Force to address itsdeficiencies.

FinCEN Guidance regarding jurisdictions listed in Section I of this Advisory

A. Jurisdictions Subject to Countermeasures
Jurisdictions in this section (Iran and DPRK) are subject to the FATF’s call on its members andother countries to apply countermeasures to protect the international financial system fromAML/CFT risks. U.S. financial institutions should continue to consult existing FinCEN and U.S.Department of the Treasury (Treasury) guidance on engaging in financial transactions with Iranand DPRK. Previous FinCEN advisories and guidance on Iran³ and DPRK⁴ remain in effect.With respect to Iran, U.S. financial institutions are subject to a broad range of restrictions andprohibitions due to a number of illicit financing risks, including money laundering, terroristfinancing, and weapons of mass destruction (WMD) proliferation financing. Financialinstitutions are reminded of the existing U.S. sanctions that are administered by the Departmentof the Treasury’s Office of Foreign Assets Control (OFAC), including but not limited to IranianGovernment-owned banks and other entities, as well as Iranian entities that have been linked toterrorist activity and the proliferation of WMDs. Information about these sanctions is availableon OFAC’s website http://www.treasury.gov/about/organizational-structure/offices/Pages/Office-of-Foreign-Assets-Control.aspx. Furthermore, on November 21,2011, Treasury issued a notice of proposed rulemaking to impose a special measure against Iranbased on its finding that Iran is a jurisdiction of “primary mon ey laundering concern” underSection 311 of the USA PATRIOT Act.⁵
In addition, financial institutions should be familiar with the financial provisions andprohibitions contained in United Nations Security Council Resolutions (UNSCRs) against Iran⁶and DPRK⁷. In particular, UNSCRs 1929 and 1803 call on all states to e xercise vigilance overactivities of financial institutions in their territories with all banks domiciled in Iran and theirbranches and subsidiaries abroad.
Existing U.S. sanctions – in particular, those under the North Korea Sanctions Regulations⁸and Executive Orders 13570 and 13551 – create a legal framework that limits U.S. financialinstitutions’ direct exposure to the types of North Korean financial or commercial transactionscontributing to DPRK’s proliferation activities that are the focus of UNSCRs 2087 and 2094, aswell as UNSCR 1718.
In June 2013, the FATF issued updated guidance to assist States in implementing their financialobligations for targeted financial sanctions and activity-based prohibitions pursuant to UNSCRsto address proliferation finance risks associated with Iran and DPRK.⁹
B. Jurisdictions Subject to Enhanced Due Diligence
Jurisdictions in this section (see below) have strategic AML/CFT deficiencies and have not madesufficient progress in addressing the deficiencies. In concurrence with the FATF’s decision,FinCEN is advising U.S. financial institutions of their increased obligations under Section 312 ofthe USA PATRIOT ACT, 31 USC § 5318(i). Accordingly, U.S. financial institutions should applyenhanced due diligence, as described under implementing regulations 31 CFR § 1010.610(b)and (c) when maintaining correspondent accounts for foreign banks operating under a bankinglicense issued by Algeria, Ecuador, Ethiopia, Indonesia,Kenya, Myanmar, Pakistan, Syria¹⁰, Tanzania,Turkey, and Yemen.
As required by the regulations implementing the Bank Secrecy Act (BSA), ¹¹ covered financialinstitutions should ensure that their enhanced due diligence programs include, at a minimum,steps to:

Conduct enhanced scrutiny of correspondent accounts to guard against money launderingand to identify and report any suspicious transactions, in accordance with applicable lawand regulation;
Determine whether the foreign bank for which the correspondent account is established ormaintained in turn maintains correspondent accounts for other foreign banks that use theforeign correspondent account established or maintained by the covered financial institutionand, if so, take reasonable steps to obtain information relevant to assess and mitigate moneylaundering risks associated with the foreign bank’s correspondent accounts for other foreignbanks, including, as appropriate, the identity of those foreign banks; and
Determine, for any correspondent account established or maintained for a foreign bankwhose shares are not publicly traded, the identity of each owner of the foreign bank and thenature and extent of each owner’s ownership interest.

FinCEN Guidance regarding jurisdictions listed in Section II of this Advisory

U.S. financial institutions should consider the risks associated with the AML/CFT deficienciesof the countries identified under this section (Afghanistan, Albania, Angola,Antigua and Barbuda, Argentina, Bangladesh, Cambodia, Cuba,Iraq,
Kuwait,Kyrgyzstan, Lao PDR,Mongolia, Namibia, Nepal, Nicaragua,Sudan, Tajikistan, Vietnam, and Zimbabwe.). Withrespect to these jurisdictions, U.S. financial institutions are reminded of their obligations tocomply with the general due diligence obligations under 31 CFR § 1010.610(a). As requiredunder 31 CFR § 1010.610(a), covered financial institutions should ensure that their due diligenceprograms, which address correspondent accounts maintained for foreign financial institutions,include appropriate, specific, risk-based, and, where necessary, enhanced policies, procedures,and controls that are reasonably designed to detect and report known or suspected moneylaundering activity conducted through or involving any correspondent account established,maintained, administered, or managed in the United States.

FinCEN General Guidance

For jurisdictions that have been recently removed from the FATF listing and monitoringprocess, financial institutions should take the FATF’s decisions and the reasons behind thedelisting into consideration when assessing risk.
If a financial institution knows, suspects, or has reason to suspect that a transaction involvesfunds derived from illegal activity or that a customer has otherwise engaged in activitiesindicative of money laundering, terrorist financing, or other violation of federal law orregulation, the financial institution shall then file a Suspicious Activity Report.¹²

Additional questions or comments regarding the contents of this Advisory should be addressed tothe FinCEN Resource Center at 703-905-3591. Financial institutions wanting to report suspicioustransactions that may relate to terrorist activity should call the Financial Institutions Toll-FreeHotline at (866) 556-3974 (7 days a week, 24 hours a day). The purpose of the hotline is to expeditethe delivery of this information to law enforcement. Financial institutions should immediatelyreport any imminent threat to local-area law enforcement officials.

¹ The FATF (www.fatf-gafi.org) is a 36-member intergovernmental policy making body that establishes internationalstandards to combat money laundering and counter the financing of terrorism and proliferation of weapons of massdestruction. The United States is a member of the FATF.

² The FATF public identification of countries with strategic AML/CFT deficiencies is in response to the G-20 leaders’ callfor the FATF to reinvigorate its process for assessing countries’ compliance with international AML/CFT standards.The G-20 leaders have consistently called for the FATF to issue regular updates on jurisdictions with strategicdeficiencies. Specifically within the FATF, the International Cooperation Review Group (ICRG) is tasked withleading the process to identify and monitor countries with AML/CFT deficiencies. For more information on the ICRGprocedures, please visit the FATF’s website – www.fatf-gafi.org/topics/high-riskandnon-cooperativejurisdictions/documents/moreabouttheinternationalco-operationreviewgroupicrg.html.

³FinCEN Advisories concerning Iran: FIN-2010-A010, FIN-2010-A008, FIN-2010-A002, FIN-2009-A007, FIN-2008-A002, and FIN-2007-A001.

⁴FinCEN Advisories pertaining to DPRK: FIN-2013-A005, FIN-2009-A002, and FinCEN Advisory – Issue 40.

⁵76 FR 72756 (Nov. 25, 2011). See FinCEN, Finding that the Islamic Republic of Iran is a Jurisdiction of Primary Money Laundering Concern.

⁶ UNSCRs 1929 (June 2010), 1803 (March 2008), 1747 (March 2007), and 1737 (December 2006). See www.un.org/en/documents/ for more information.

⁷ UNSCRs 2094 (March 2013), 2087 (January 2013), 1874 (June 2009), and 1718 (October 2006). Seewww.un.org/en/documents/ for more information.

⁸31 CFR part 510.

⁹ See www.fatf-gafi.org/topics/fatfrecommendations/documents/unscr-proliferation-wmd.html for further information.

¹⁰Previous FinCEN guidance on Syria remains in effect. This includes FIN-2013-A002 and FIN-2011-A010. Also, FinCEN’s guidance on the Commercial Bank of Syria remains in effect; see FIN-2011-A013.

¹¹ 31 CFR § 1010.610(b): Enhanced Due Diligence for correspondent accounts established, maintained, administered or managed in the United States for foreign banks.

¹² Required under 31 CFR § 1020.320, 1021.320, 1022.320, 1023.320, 1024.320, 1025.320, and 1026.320.