US Correspondent Account Rules: 31 CFR 1010.610 and .630

A foreign bank that holds an account with a US bank can move money through the US financial system, so the US bank is exposed to whatever that foreign bank's customers are doing. FinCEN's rules for correspondent accounts, in Subpart F of 31 CFR Part 1010, require US financial institutions to run due diligence on those relationships and ban them outright for foreign shell banks. This guide summarises two of those rules, sections 1010.610 and 1010.630. It supports our Correspondent Banking Financial Crime Risk course overview and builds on our guide to FATF correspondent banking guidance.

Section 1010.610: the due diligence program

Under section 1010.610(a), a covered financial institution must maintain a risk-based due diligence program, with enhanced measures where necessary, to detect and report known or suspected money laundering through US correspondent accounts held for foreign financial institutions. The program forms part of the institution's anti-money laundering program. It must include three elements: determining whether the account is subject to the enhanced requirements in paragraph (b); assessing the account's money laundering risk; and applying risk-based controls with periodic reviews of account activity to check it matches expected activity.

The risk assessment must consider factors such as the foreign institution's business and markets, the account's type and purpose, the nature and duration of the relationship, the AML regime of the relevant jurisdictions, and the foreign institution's known AML record.

Enhanced due diligence for higher-risk foreign banks

Paragraph (c) says the enhanced requirements apply to correspondent accounts for foreign banks operating under one of three types of licence: an offshore banking licence; a licence issued by a country designated as non-cooperative with international AML principles by an intergovernmental body of which the United States is a member, with the US representative's concurrence; or a licence issued by a country that the Secretary of the Treasury has designated as warranting special measures because of money laundering concerns.

For those accounts, paragraph (b) requires the institution to take reasonable steps to:

• conduct enhanced scrutiny, including reviewing the foreign bank's AML program, monitoring account transactions, and identifying the persons who can direct payable-through account transactions and the sources and beneficial owners of funds in those accounts;
• determine whether the foreign bank provides correspondent services to other foreign banks and, if so, obtain information to assess the associated risks; and
• for banks whose shares are not publicly traded, identify each owner and the nature and extent of their interest, where an owner is a person who directly or indirectly owns, controls or can vote 10 percent or more of any class of securities of the bank.

When due diligence cannot be completed

Paragraph (d) requires the program to include procedures for cases where the institution cannot perform the required due diligence. The rule lists options such as refusing to open the account, suspending transactions, filing a suspicious activity report, or closing the account. As we read the text, these are options the procedures must address, not a mandatory closure rule.

Section 1010.630: shell banks and ownership records

Section 1010.630(a) says a covered financial institution may not open or maintain a US correspondent account for a foreign shell bank, and must take reasonable steps to make sure a foreign bank's account is not being used to serve a shell bank indirectly. The prohibition does not bar accounts or services for a regulated affiliate. The section also requires records for each foreign bank whose shares are not publicly traded, covering its owners and the name and street address of a US-resident agent authorised to accept legal process for the account. No owner records are needed if the foreign bank must file Form FR Y-7 identifying its current owners.

The certification safe harbour and deadlines

Under section 1010.630(b), compliance is deemed met for a foreign bank if the institution obtains a certification, or recertification, at least once every three years. For accounts opened after 28 October 2002, the certification is due within 30 calendar days of opening. Where the institution knows or suspects that information is out of date, paragraph (c) requires it to ask the bank to verify or correct it, with a verification deadline of 90 calendar days. If a deadline is missed, the accounts must be closed within a commercially reasonable time, with no new positions or transactions except those needed to close, and they cannot be reopened until the certification is obtained. The institution is not liable in court or arbitration for terminating accounts under that paragraph. Paragraph (e) requires the institution to keep the originals of documents received from the foreign bank, and originals or copies of documents it relied on, for at least five years after the account ends.

Using this in a correspondent banking role: our suggestions

These steps are our suggestions, not requirements in the regulation.

• Keep a register showing, for each foreign bank account, whether the enhanced licence tests are met and when the certification expires.
• Diarise the three-year recertification and the 30-day deadline for new accounts.
• Record the reasoning behind each periodic review, not only the date it happened.
• Test how the bank identifies nested relationships, where the respondent itself serves other banks.

For structured learning, browse our CPD courses.

What we could not confirm

We read the text of sections 1010.610 and 1010.630 on Cornell's Legal Information Institute site, not the official eCFR copy, so check the current official text. The pages did not reproduce the definitions of "covered financial institution" and "correspondent account", and we did not read section 1010.620 on private banking accounts in full. We did not review FinCEN guidance or enforcement actions on these rules. This post covers US rules only. It is general information, not legal advice.