USA PATRIOT Act Update Memorandum: U.S. Treasury Releases ...

1. General Requirements Under Section 312 as Originally Proposed
As proposed, Section 312 would require U.S. financial institutions to establish due
diligence policies, procedures and controls reasonably designed to detect and report
money laundering through correspondent accounts 6 and private banking accounts 7 that
U.S. financial institutions establish or maintain for foreign financial institutions and non-
U.S. persons, respectively. 8 In instances when a foreign customer poses a high risk, a
U.S. financial institution would be required to conduct enhanced due diligence. 9
2. Who Must Now Comply with Section 312
Originally, fourteen categories of U.S. financial institutions would have been required to
comply with rules implementing Section 312 of the USA PATRIOT Act. 10 Under the
Interim Final Rule implementing Section 312, the U.S. Treasury has designated the
following four categories of financial institutions as having to comply with Section 312:
(i) Banks 11 ;
(ii) Securities brokers and dealers (registered or required to register with the
SEC);
(iii) FCMs (registered or required to register with the CFTC); and
(iv) IBs (registered or required to register with the CFTC). 12
6 “Correspondent account” is defined to mean an “account established to receive deposits from, make
payments on behalf of a foreign financial institution, or handle other financial transactions related to such
institution.” 31 C.F.R. 103.175(c)(1).
7 “Private banking account” is defined to mean an account that (i) requires a minimum aggregate amount of
funds or other assets of not less than U.S.$ 1 million; (ii) is established on behalf of or for the benefit of
one or more individuals who have a direct or beneficial ownership interest in the account; and (iii) is
assigned to or is administered or managed by the covered financial institution. 31 C.F.R. 103.175(n).
8 See THSH USA PATRIOT Act Update Memorandum: Proposed Regulation to Implement Section 312;
Best Practices Identified by the SEC (discussing the due diligence to conduct with respect to correspondent
accounts and private banking accounts, respectively).
9 See e.g. 31 C.F.R. 103.176(b)-(c) (enhanced due diligence for foreign banks); 31 C.F.R. 103.178(c)
(enhanced due diligence for senior foreign political figures).
10 See supra note 4.
11 The term “banks” includes an insured bank (as defined in section 3(h) of the Federal Deposit Insurance
Act (12 U.S.C. 1813(h)); a commercial bank; an agency or branch of a foreign bank in the United States; a
federally insured credit union; a thrift institution; and a corporation acting under section 25A of the Federal
Reserve Act (12 U.S.C. 611 et seq). See U.S. Treasury and FinCEN commentary to Interim Final Rule.
12 See U.S. Treasury and FinCEN commentary to Interim Final Rule. Accordingly, the following financial
institutions that were originally required to implement due diligence programs pursuant to Section 312 of
the USA PATRIOT Act are now deferred from compliance: casinos, mutual funds, money services
businesses, and operators of a credit card system. See 31 C.F.R. 103.183(a); 31 C.F.R. 103.175(d)(1).
Furthermore, the deferral from compliance with Section 312 continue to apply to: dealers in precious
metals, stones or jewels; pawnbrokers; loan or finance companies; travel agencies; telegraph companies;
sellers of vehicles, including automobiles, airplanes, and boats; persons involved in real estate closings and
settlements’ private bankers; insurance companies; commodity pool operators (“CPOs”); commodity
trading advisors (“CTAs”); and investment companies other than mutual funds. See 31 C.F.R. 103.183(a);
U.S. Treasury and FinCEN commentary to Interim Final Rule, note 7.
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