U.S.A. Patriot Act Representation (Foreign Banks)

The full title is Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001

The act was signed into law by President George W. Bush on October 26, 2001. It was renewed in 2006 and again in 2011 and is set to expire in 2019.

To deter and punish terrorist acts in the United States and around the world as well as enhance law enforcement investigatory tools, and other purposes, some of which include:

• To strengthen U.S. measures to prevent, detect and prosecute international money laundering and financing of terrorism;
• To subject to special scrutiny foreign jurisdictions, foreign financial institutions, and classes of international transactions or types of accounts that are susceptible to criminal abuse;
• To require all appropriate elements of the financial services industry to report potential money laundering;
• To strengthen measures to prevent use of the U.S. financial system for personal gain by corrupt foreign officials and facilitate repatriation of stolen assets to the citizens of countries to whom such assets belong.

A foreign bank is a bank organized under foreign law and located outside of the United States. A bank includes offices, branches, and agencies of commercial banks or trust companies, private banks, national banks, thrift institutions, credit unions, and other organizations chartered under banking laws and supervised by banking supervisors of any state

A correspondent account for a foreign bank is any account to receive deposits from, make payments or other disbursements on behalf of a foreign bank, or handle other financial transactions related to the foreign bank. This allows the bank to offer various services to their customers such as foreign exchange and foreign currency denominated loans and deposits, despite their not having a bank license for the foreign country in that country’s currency. Such accounts are necessary for international trade that requires people and businesses to pay for things in a currency other than their own.
The USA PATRIOT Act includes specific provisions designed to limit the use of correspondent accounts for money laundering activity. These provisions are contained in sections 312, 313 and 319(b) and involve limitations on shell bank relationships as well as enhanced due diligence and record keeping requirements.

A shell bank is a financial institution that does not have a physical presence in any country. In order to prevent money laundering, Subtitle A of the USA PATRIOT Act specifically prohibits such institutions, with the exception of shell banks that are affiliate (under the control) of a bank that has a physical presence in the U.S. or if the foreign shell bank is subject to supervision by a banking authority in the non-U.S. country regulating the affiliated depository institution, credit union, or foreign bank.

To facilitate the government’s ability to seize illicit funds of individuals and entities located in foreign countries by authorizing the Attorney General or the Secretary of the Treasury to issue a summons or subpoena to any foreign bank that maintains a correspondent account in the U.S. for records related to such accounts, including records outside the U.S. relating to the deposit of funds into the foreign bank. Section 319 (b) of the act also requires U.S. banks to maintain records identifying an agent for service of legal process, like United Corporate Services, for its correspondent accounts.

If a foreign bank fails to comply with or contest the summons or subpoena, any covered financial institution with which the foreign bank maintains a correspondent account must terminate the account upon notice from the Secretary or the Attorney General.