Defense Act Expands Scope of Foreign Bank Records U.S. Authorities Can Obtain
15 Jan 2021

U.S. authorities have more power to obtain documents from foreign banks with U.S. correspondent accounts under recently passed defense-policy legislation.

A provision of the National Defense Authorization Act, approved Jan. 1, allows the U.S. Treasury secretary or attorney general to subpoena records related to any account at a foreign bank with correspondent accounts in the U.S. The law applies to records held in the U.S. or abroad that are subject to federal criminal investigations or civil forfeiture actions.

Previously, the U.S. government’s authority was limited to records related to the correspondent accounts, including those related to the deposit of funds into a foreign bank.

The provision, while a major step toward revamping safeguards in the correspondent banking system, may increase risks and challenges for foreign financial institutions with accounts in the U.S., policy observers said.

Foreign banks maintain accounts at U.S. banks to access the U.S. financial system. The accounts allow them to access services and products that may not be available in their home jurisdictions.

Some foreign financial institutions can pose higher money-laundering risks to their U.S. bank correspondents because they aren’t subject to the same regulatory requirements, according to the Federal Financial Institutions Examination Council. Some investigations have shown that the correspondent banking system has been used by drug traffickers and others to launder funds, the council said.

The defense legislation contained other provisions aimed at curbing illicit finance, paving the way for an overhaul of U.S. anti-money-laundering rules.

Under the provision, if a foreign financial institution with a U.S. correspondent account is served with a subpoena, it would need to produce all requested records and authenticate the records without notifying any account holder. The financial institution can petition the relevant U.S. district court to modify or quash the subpoena, according to the law. The foreign bank can be held liable for monetary penalties and risk losing its corresponding relationship if it doesn’t comply with the subpoena, according to the law.

By Mengqi Sun, The Wall Street Journal, 14 January 2021

Read more at The Wall Street Journal

RiskScreen: Tackling Financial Crime with Smart Technology

Advance your CPD minutes for this content, by signing up and using the CPD Wallet

FREE CPD Wallet