WASHINGTON U.S. banks have until Christmas to drop correspondent accounts with unregulated shell banks, according to guidelines issued by the Treasury Department last week.
And lest any hesitate to take the requirement seriously, the guidelines ask banks to cut off such relationships even sooner.
Treasury expects that covered financial institutions will promptly terminate any correspondent account with any foreign bank that it knows to be a shell bank that is not a regulated affiliate as described in this notice, said the guidelines, which were issued Tuesday.
Rodgin Cohen, a lawyer in the New York firm Sullivan & Cromwell, said this should present no major difficulty to the industry.
The problem with shell banks has been recognized for a while, he said. There are very few correspondent accounts left.
The guidelines are meant to clarify banks responsibilities under anti-laundering provisions of the anti-terrorism bill signed by President Bush in late October. The provisions include a crackdown on abuses of correspondent relationships, which U.S. and foreign banks establish with each other to make it easier to operate in each others markets. Such accounts, often with banks that exist in name only, have become popular tools of international terrorists and financial criminals.
As part of the guidelines, the Treasury devised a form banks can use to certify that their clients are on the level.
Foreign banks maintaining correspondent accounts with U.S. institutions will have to certify that they are not shell banks or are shell banks that are regulated affiliates of a depository institution with offices in the United States.
You have to commend Treasury for getting something out there, Mr. Cohen said. Guidance was sorely needed.
Bankers who worried that the securities industry would get a free pass on enforcement of the anti-laundering law can rest easier, the agency said.
Lovida Coleman, a lawyer at Sutherland, Asbill, & Brennan here, said the guidelines explain that the law also bars broker-dealers from having accounts with foreign shell banks or from using accounts to provide banking services indirectly to shell banks.
A broker or dealer registered with the Securities and Exchange Commission is considered a covered financial institution for those purposes, according to the guidelines, she said.
Still, the Treasury said it would soon issue rules further clarifying the responsibilities of broker-dealers that hold such accounts. The agency also said it plans to issue a separate rule to prohibit broker-dealers from offering accounts to foreign banks that are indirectly providing banking services to unregulated foreign shell banks.
That is to get at the second layer, Ms. Coleman said. It would require broker-dealers to dig deeper into their records because, though a named client may not be a shell bank, it could be making transactions on behalf of a shell bank.
This provision will make things harder for broker-dealers, said Ellen Zimiles, a principal in the professional services firm KPMG.
The securities side is not used to dealing with anti-money-laundering laws, she said. Theyll have to figure it out. Banks are used to it.
