FinCEN (the Financial Crimes Enforcement Network) is a bureau of the US Department of the Treasury that provides guidance to financial institutions on how to identify and prevent money laundering, terrorist financing, and other financial crimes. FinCEN also collects, analyzes, and shares financial intelligence with domestic and international partners to combat financial crime.

The Financial Crimes Enforcement Network (FinCEN) CDD final rule refers to Customer Due Diligence and requires financial institutions to identify and report information about beneficial owners of legal entity customers when those legal entities open new accounts. The rule requires that financial institutions collect, at a minimum, the beneficial owners’ names, dates of birth, and addresses. The rule also requires financial institutions to verify the identity of each beneficial owner, which may include obtaining copies of documents such as driver’s licenses or passports.

The purpose of the final rule is to help combat money laundering, terrorist financing, and other financial crimes by providing greater transparency into the ownership and control of legal entity customers. The information collected and reported will enable law enforcement, financial institutions, and other regulatory authorities to better identify, investigate, and prosecute money laundering, terrorism financing, and other financial crimes.

The Final Rule for Proposed Rulemaking

Prior to the final rule is established, Agencies can, by following the Administrative Procedures Act (APA) publish a Notice of Proposed Rulemaking, an NPRM. The NPRM is an official document, published in the Federal Register.  The findings of the Agency are complemented with public comments and form the basis for the final rule.

Agencies derive their powers from Acts of Congress. To ensure that public authorities operate within their mandate and do not misunderstand, exceed, or abuse their legal powers, or breach rights that are protected under common law, the legality of public functions can be challenged by judicial review. Judicial review is discretionary, based on the lawfulness and process and is not concerned with the merits of the decision under review. There is no right to judicial review and claimants must seek for ‘leave’ by the court. Contrary to the appeals court, judicial review cannot be challenged in the courts.

Section 311 of the US Patriot Act

A foreign bank of primary money laundering concern is a foreign financial institution that is identified by the U.S. Treasury Department as posing a significant risk of being used to facilitate money laundering and other financial crimes. Such banks are subject to special monitoring by U.S. authorities, and may be subject to enhanced due diligence and other regulatory measures.

Section 311 of the USA PATRIOT Act, also known as the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, enables the U.S. Secretary of the Treasury to issue special regulations, orders, and directives to foreign financial institutions and domestic financial institutions that deal with foreign financial institutions. The purpose of Section 311 is to protect the United States financial system from money laundering and terrorist financing. The Secretary of the Treasury can designate a foreign jurisdiction, foreign financial institution, class of international transactions, or type of account as “primary money laundering concern.” In such instances, U.S. financial institutions may be prohibited from opening or maintaining correspondent or payable-through accounts for the designated foreign financial institution. Additionally, the Secretary of the Treasury may require U.S. financial institutions to take special measures to protect against money laundering or terrorist financing.

Foreign financial institutions can be designated a Primary Institute of Money Laundering Concern by FinCEN. The Notice of Proposed Rulemaking then allows for a removal of the institution directly and indirectly from engaging in US Dollar transactions. Both the NPRM and the Final Rule isolate the financial institution and initiate private sector response. The Final Rule therefore often leads to the closure of the financial institution.