Published March 25, 2011
March 25, 2011 – WASHINGTON (Reuters) - Financial regulators have clarified that banks can provide services to foreign diplomatic missions and still comply with anti-money laundering laws after several major banks moved to close embassy accounts.
In guidance issued on Thursday, the Federal Reserve Board, the Office of the Comptroller of the Currency and other regulators said they do not expect financial institutions to define or treat foreign mission customers as necessarily posing a higher level of risk than other customers.
It is up to the financial institution to assess and understand risks to stay in compliance with the Bank Secrecy Act, they said.
At a January meeting between diplomats and U.S. Treasury and State Department officials at the United Nations, envoys from China, South Africa, Egypt, Turkey, Morocco, Iran, the Palestinian Authority and other missions said they had been hit by the bank cutbacks. Others, from Britain, Germany and Russia, said they were not affected.
Some envoys said at the time that banks were feeling overburdened by surveillance, reporting and compliance costs associated with the foreign mission accounts. The Bank Secrecy act is designed to prevent transfers of money from corruption, terrorist financing, drug trafficking or weapons proliferation through the U.S. financial system.
JP Morgan Chase & Co. last September told diplomatic missions in a letter obtained by Reuters that it had "made the decision to close its division that serves diplomatic and foreign government entities." The bank had termed it a "business decision" but gave no further explanation.
"By clarifying our expectations, the agencies are confirming that the financial institutions have the flexibility to provide services to foreign missions while also remaining in compliance with the BSA," the regulators said in a statement.
The agencies, which also include the Treasury's Financial Crimes Enforcement Network, the National Credit Union Administration and the Office of Thrift Supervision, said they expected banks to have risk controls systems in place that can adequately manage the varying degrees of risks in dealing with foreign missions.
"The agencies will not direct or require any financial institution to close or refuse a particular account or relationship, except in extraordinary circumstances" such as when violations of law are identified, the regulators said.
(Reporting by David Lawder; Editing by Andrea Ricci)