FinCEN Guidance to Financial Institutions on Recent Events and the Commercial Bank of Syria

FinCEN Advisory

FIN-2011-A013
Issued:	August 10, 2011
Subject:	Guidance to Financial Institutions on the Commercial Bank of Syria

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In coordination with Wednesday's designation of the Commercial Bank of Syria for its provision of financial services to entities previously sanctioned by the United States for their proliferation activities, the Financial Crimes Enforcement Network (FinCEN) is issuing this Advisory today to alert U.S. financial institutions of information on the Commercial Bank of Syria's continued involvement in illicit financial activities.

On March 15, 2006, FinCEN issued a Final Rule under Section 311 of the USA PATRIOT Act prohibiting U.S. financial institutions from opening or maintaining a correspondent account in the United States for or on behalf of the Commercial Bank of Syria, directly or indirectly, and requiring all covered financial institutions to review their account records to ensure they do not maintain accounts directly for, or on behalf of, the Commercial Bank of Syria¹. This Final Rule followed a Notice of Proposed Rulemaking (NPRM) and Finding on May 18, 2004, which determined that the Commercial Bank of Syria was (1) used by persons associated with terrorist organizations; and (2) used as a conduit for the laundering of proceeds generated from the illicit sale of Iraqi oil.²

Since this Final Rule was issued, the Commercial Bank of Syria has engaged in transactions with multiple proliferation-related entities, including several named in U.S., EU, and UN sanctions, which led to today's designation of the Commercial Bank of Syria pursuant to U.S. counter-proliferation sanctions authorities. The Commercial Bank of Syria is believed to have been used by a provider of lethal support to Al -Qa'ida in Iraq.

Guidance

U.S. financial institutions are reminded that the Final Rule mentioned above imposed the fifth special measure under Section 311, prohibiting U.S. financial institutions from maintaining correspondent accounts for the Commercial Bank of Syria. While the Commercial Bank of Syria no longer maintains direct correspondent relationships with U.S. banks, financial institutions are reminded of their continuing obligation to exercise due diligence with respect to their correspondent accounts that is reasonably designed to guard against indirect use of those accounts by the Commercial Bank of Syria.³ Contrary to what might be expected, financial institutions are advised that the Commercial Bank of Syria continues to maintain U.S. dollar-denominated accounts at various banks throughout Europe, the Middle East, and Asia.

Financial institutions are advised that the Commercial Bank of Syria may attempt to circumvent the prohibitions in the special measure through "nested account" activity. Such activity generally involves a financial institution gaining anonymous access to a financial system by operating through a domestic correspondent account belonging to a third party foreign financial institution rather than maintaining its own correspondent account. Examples of potentially suspicious activity related to nested accounts may include, but are not limited to:

• Transactions to and from jurisdictions in which the foreign financial institution has no known business activities or interests.


• Transactions in which the total volume and frequency exceeds expected activity for the foreign financial institution, considering its customer base or asset size.

In addition to the requirements under the Final Rule discussed above, FinCEN reminds U.S. financial institutions of their requirement under the BSA to report suspicious transactions conducted or attempted by, at, or through the U.S. financial institution.⁴ A transaction is suspicious if it (a) involves funds derived from illegal activity, (b) is indicative of structuring, money laundering, terrorist financing, or any other violation of federal law or regulation, or (c) has no business or apparent lawful purpose, or is not the sort in which the customer is normally expected to engage, and the financial institution knows of no reasonable explanation for the transaction after examining the available facts.⁵

Questions or comments regarding the contents of this advisory should be addressed to the FinCEN Regulatory Helpline at 800-949-2732.

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¹ See generally 71 FR 13260, "Financial Crimes Enforcement Network: Amendment to the Bank Secrecy Act Regulations - Imposition of Special Measure Against Commercial Bank of Syria, Including Its Subsidiary, Syrian Lebanese Commercial Bank, as a Financial Institution of Primary Money Laundering Concern," [Final Rule] (March 15, 2006).http://www.fincen.gov/statutes_regs/patriot/pdf/noticeoffinalrule03152006.pdf. ² See generally, 69 FR 28098, "Financial Crimes Enforcement Network: Amendment to the Bank Secrecy Act Regulations - Imposition of Special Measure Against Commercial Bank of Syria, Including Its Subsidiary, Syrian Lebanese Commercial Bank, as a Financial Institution of Primary Money Laundering Concern," [Notice of Proposed Rulemaking] (May 18, 2004).http://www.fincen.gov/statutes_regs/patriot/pdf/311syrianprm.pdf. ³ 31 CFR 1010.653(b)(2).⁴ A transaction is suspicious if it falls within one of the categories enumerated in our suspicious activity reporting (SAR) rules. A transaction requires reporting if the transaction satisfies the monetary threshold in our SAR rules, and the financial institution "knows, suspects, or has reason to suspect" that the transaction is suspicious. Financial institutions should note that our rules allow for the voluntary filing of SARs. See, e.g., 31 CFR 1020.320.

⁵ Id.

FinCEN Advisory

FIN-2011-A010
Issued:	July 8, 2011
Subject:	Guidance to Financial Institutions on Recent Events in Syria

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The Financial Crimes Enforcement Network (FinCEN) is issuing this Advisory to U.S. financial institutions to take reasonable risk-based steps with respect to the potential increased movement of assets that may be related to the current unrest in Syria.¹ During this period of uncertainty, FinCEN is issuing this Advisory to remind U.S. financial institutions of their requirement to apply enhanced scrutiny for private banking accounts held by or on behalf of senior foreign political figures² and to monitor transactions that could potentially represent misappropriated or diverted state assets, proceeds of bribery or other illegal payments, or other public corruption proceeds.

Financial institutions should be aware of the possible impact the events in Syria may have on patterns of financial activity when assessing risks related to particular customers and transactions. For example, as a result of the unrest in Syria, information available to the U.S. Government indicates Rami Makhluf, a cousin to Syrian President Bashar Assad and prominent Syrian businessman, is taking steps to protect his money, properties and companies. Rami Makhluf was designated by the Department of the Treasury's Office of Foreign Assets Control (OFAC) on February 21, 2008 for improperly benefiting from and aiding the public corruption of Syrian regime officials.³ On May 18, 2011, OFAC also designated three companies and one individual for their links to Makhluf: Cham Holding and its Chairman Nabil Rafik al Kuzbari, Bena Properties, and Al Mashreq Investment Fund.⁴ Further, on July 10, 2008, OFAC identified Syriatel and Ramak, two companies in which Makhluf owns, directly or indirectly, a 50 percent or greater interest.⁵

The U.S. Government has reason to believe that Rami Makhluf is disassociating himself (in name only) from his businesses and looking to safely store his wealth outside of Syria. Financial institutions should be aware of risks associated with conducting transactions linked to Makhluf, as well as the requirements for enhanced scrutiny for private banking accounts held by or on behalf of senior foreign political figures under the Bank Secrecy Act.⁶

Guidance

If a financial institution knows, suspects, or has reason to suspect that a transaction relating to senior foreign political figures involves funds derived from illicit activity, if the transaction appears to have no business or lawful purpose, or if a customer has engaged in activities indicative of money laundering, terrorist financing, or any other violation of federal law or regulation, the financial institution must file a Suspicious Activity Report (SAR).⁷ Additionally, covered financial institutions are reminded of the regulations implementing Section 312 of the USA PATRIOT Act, (31 U.S.C. 5318(i)), which require a written due diligence program for private banking accounts held for non-U.S. persons designed to detect and report any known or suspected money laundering or other suspicious activity.⁸ In instances where senior foreign political figures maintain private banking accounts at a covered institution, those financial institutions are required to apply enhanced scrutiny of such accounts to detect and report transactions that may involve the proceeds of foreign corruption. ⁹

In April 2008, FinCEN issued Guidance to assist financial institutions on reporting suspicious activity regarding proceeds of foreign corruption. That Guidance also highlights potential indicators of transactions that may be related to proceeds of foreign corruption.¹⁰In May 2011, FinCEN released a SAR Activity Review - Trends Tips and Issues specifically on foreign corruption, which highlights general regulatory requirements, general due diligence procedures, and frequently asked questions related to senior foreign political figures and corruption.¹¹ Financial institutions may find the Guidance document and SAR Activity Review useful in assisting with suspicious activity monitoring and due diligence requirements related to senior foreign political figures.

Questions or comments regarding the contents of this advisory should be addressed to the FinCEN Regulatory Helpline at 800-949-2732.

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¹ For information from the United States Department of State regarding developments in Syria, please see http://www.travel.state.gov/travel/cis_pa_tw/cis/cis_1035.html. ² "Senior foreign political figure" means a current or former senior official of a foreign government or of a major foreign political party; a senior executive of a foreign government-owned commercial enterprise; a corporation, business, or other entity that has been formed by, or for the benefit of, any such individual; the immediate family members of any such individual; and a person who is widely and publicly known (or is actually known by the relevant covered financial institution) to be a close associate of such individual. For the purposes of this definition, "senior official or executive" means an individual with substantial authority over policy, operations, or the use of government-owned resources and "immediate family member" means spouses, parents, siblings, children and a spouse's parents and siblings. See 31 CFR 1010.620(c) and 31 CFR 1010.605(p). ³ Office of Foreign Assets Control, "Changes to List of Specially Designated Nationals and Blocked Persons Since January 1, 2008." (February 21, 2008).http://www.treasury.gov/resource-center/sanctions/SDN-List/Documents/sdnew08.pdf, and see generally, HP-834, "Rami Makhluf Designated for Benefiting from Syrian Corruption" (February 21, 2008). http://www.treasury.gov/press-center/press-releases/Pages/hp834.aspx.⁴ Office of Foreign Assets Control, "Changes to List of Specially Designated Nationals and Blocked Persons Since January 1, 2011." (May 18, 2011).http://www.treasury.gov/ofac/downloads/t11sdnew.pdf, and see generally,TG-1181, "Administration Takes Additional Steps to Hold the Government of Syria Accountable for Violent Repression Against the Syrian People" (May 18, 2011).http://www.treasury.gov/press-center/press-releases/Pages/tg1181.aspx.⁵ Office of Foreign Assets Control, "Changes to List of Specially Designated Nationals and Blocked Persons Since January 1, 2008." (July 10, 2008). http://www.treasury.gov/press-center/press-releases/Pages/hp1075.aspx, and see generally, HP-1075, "Treasury Targets Rami Makhluf's Companies" (July 10, 2008). http://www.treasury.gov/press-center/press-releases/Pages/hp1075.aspx. ⁶ See 31 CFR 1010.620(c) and 31 CFR 1010.605(p). ⁷ See, e.g., 31 CFR § 1020.320. ⁸ See, generally, 31 CFR 1010.620.⁹ 31 CFR 1010.620(c).¹⁰ See "Guidance to Financial Institutions on Filing Suspicious Activity Reports Regarding the Proceeds of Foreign Corruption," FIN-2008-G005 (April 17, 2008).http://www.fincen.gov/statutes_regs/guidance/html/fin-2008-g005.html. 

¹¹ The SAR Activity Review - Trends Tips & Issues, Issue 19 (May 2011) [Published under the auspices of the BSA Advisory Group],http://www.fincen.gov/news_room/rp/files/sar_tti_19.pdf.