How Does a Foreign Bank Account Work?

Two Types of Accounts
Foreign bank accounts basically come in two types. The typical passbook account and secret accounts. The passbook account is a secure bank account with some degree of confidentiality, but otherwise it is a typical account run in much the way accounts in U.S. banks operate. Secret accounts are more secure, with security features for accessing such as passwords and account book verification.
Opening an Account
To open an account, you need to find someone in the country the bank is located to help you get all of the necessary paperwork filled out and turned in. In the matter of a normal bank account, it is pretty straight forward, just as it is in the U.S. The bank however will have to have a reason for the account, such as a business venture or an access for family overseas.

As for secret accounts, like the ones where there are no names, just account numbers, a facilitator is used to help open the account. The facilitator will make sure the person is who he says he is and that he is on the up and up. This means he will make sure the person wanting to open the account is not trying to do so for tax evasion purposes. Once this is checked the account will be opened. Depending on the size of the account, the person requiring the account might be asked to go to the country in question to fill out paperwork in person.
Reporting
Even if you do have a bank account in a foreign country, this does not get you out of filing the funds or interest earned from them, on your U.S. tax return. Most overseas banks make sure that you are willing and able to file your U.S. taxes with a claim to the foreign accounts. The form that must be filled out is TD F 90-22.1. It should be filled out by individuals and companies alike but is only required for accounts that hold more than $10,000 at any point during the year. If a person fails to file on a foreign account and the IRS discovers the issue, there can be consequences such as jail or fines up to $500,000.

Guide to Reporting foreign financial account

The U.S. government wants U.S. persons (individuals and legal entities) to give them the details of their foreign bank or other financial accounts. Enforcement is "encouraged" by means of very heavy penalties for even minor infractions.

The information required includes


the name, address, birthdate and ID # of those with either a financial interest in the account(s) or signature authority over the accounts, and

the name and full address of the foreign financial institutions and the account number of each financial account, plus

the maximum balance in each account during the calendar year.


The rules are brief and ambiguous and the exceptions are buried in the fine print. But the potential penalties for a failure to disclose offshore financial accounts are severe -- even if the failure is not intentional.

The Guide to Reporting Offshore Financial Accounts by Vernon Jacobs is the most extensive source of information available about the requirements to disclose foreign accounts and the various legal exceptions that are available.

The foreign account information gives the government the ability to identify everyone who has money outside the U.S. and the information is available to federal, state and local law enforcement officials with virtually non-existent privacy protection.

However, there are legal exceptions to having to file this report (TDF 90-22.1) and many taxpayers are confused about what constitutes a financial account, a foreign account, a financial interest, an indirect interest or signature authority. This book explains these and other related terms in plain English.

This extensive 152 page book includes the full text of the applicable laws, the Form TD F 90-22.1, IRS instructions and selected (non repetitive) information from over 100 web sites that include information about the Foreign Financial Account Report.

The guide also includes answers to dozens of questions received by the author from members of the Jacobs Report who have posed questions regarding the requirements for filing the report about their foreign financial accounts. It also includes IRS answers to questions from tax advisors during a national phone forum in late 2007 and a copy of the related part of the Internal Revenue Manual used by IRS field agents during audits.


This is the most extensive source of information available on the subject of the foreign bank account reporting form TD F 90-22.1


The e-book (digital) version is $38. A PDF copy of the report will be delivered to your web browser within a minute (or less) after placing your order. (The e-book edition is recommended for international orders.) There are no restrictions on printing the e-book.

A printed edition is available for $57.00 which includes shipping via U.S. Priority mail in the U.S. The printed edition of the report is published in a three ring binder. Delivery usually takes from three to five work days.

A full copy of the report is also included in the International Wealth Protection Online Library, which includes all of the e-books, reports, newsletters and articles published by Offshore Press, Inc. Subscriptions to the online digital library are $240 for one year.

Those who prefer to order with a check or money order should send it to Offshore Press, Inc., PO Box 8137, Prairie Village, KS 66208

If you are disappointed with the book for any reason, we will refund your money without any hassle or delay.

Vern Jacobs
Offshore Press, Inc.

As required by U.S. Treasury Regulations governing tax practitioners, any written tax advice contained herein cannot be used by any taxpayer for the purpose of avoiding certain tax penalties that may be imposed under the Internal Revenue Code. For further details see http://www.offshorepress.com/vkjcpa/disclosurerules.htm

Report of Foreign Bank and Financial Accounts

Reporting Foreign Bank Accounts
You must report accounts you hold in foreign banks and other financial institutions if your total balance is $10,000 or greater.
The $10,000 threshold is for your aggregate account balances. In other words, your total across all your foreign accounts.

If you earn dividends or interest in these accounts, that income is reported on Form 1040 Schedule B, and you would check the box in Part III Line 7a and indicate the country or countries where you have accounts. Additionally, any foreign taxes paid on your interest and dividends may qualify for the Foreign Tax Credit on Form 1116.
You report each foreign financial account you hold on Treasury Department Form 90-22.1 (PDF, 8 pages includes instructions).

You will provide information on all your financial accounts held in foreign countries, including:

•Bank accounts (checking and savings)
•Investment accounts
•Mutual funds
•Retirement accounts
•Securities and other brokerage accounts
•Debit card and prepaid credit card accounts
Example: John and Lisa Smith are US citizens living and working in Switzerland. They have checking, savings, and retirement accounts in Switzerland. Their highest balance for the year were $1,000 in checking, $2,500 in savings, and $8,500 in an annuity retirement fund. Since the total of all their accounts exceeds $10,000, they are required to file TD F 90-22.1 to report the accounts they own.

Foreign Pension Accounts
Foreign pension accounts may not have to be reported on the foreign bank account report. You only need to report those bank accounts which you own or have an interest in. Pension accounts that are owned and controlled by your employer or by a foreign government are not owned by you. While you hope to utilize those funds in the future, you have no control over those assets, and they do not count towards your $10,000 limit.
However, retirement savings accounts which you own and control, such as accounts similar to individual retirement accounts, annuities, and 401k-type plans would need to be reported. "Generally, a right to a pension from an employer would not be reportable because all the employee has is an agreement from the employer to pay a pension. The employee does not have a financial interest in a financial account. If, however, the employer maintained a separate financial account with funds that the employee has a right to, then the employee may be required to file [Form 90-22.1] for the account. Therefore, retirement accounts that a person maintains with a financial institution, such as accounts that are similar to IRA accounts in the U.S., and annuity type accounts generally would be reportable," according to an IRS spokesperson in Washington, DC.


When to File
Treasury Form 90-22.1 is due June 30th of each year to report foreign bank accounts owned in the previous year. The instructions for this form does not make this clear, but the foreign bank account report must be received by the Treasury Department by June 30th, instead of being postmarked by that date. Quoting from the Internal Revenue Manual section 4.26.16.3.7, "The FBAR is considered filed when it is received in Detroit, not when it is postmarked." (The Internal Revenue Manual is an internal document outlining how work is processed.)
What if you miss the filing deadline? You should file TD F 90-22.1 to report your foreign bank accounts even if you miss the June 30th deadline. Why? There are very stiff penalties for willfully failing to file this report.

What should you do if you are filing the Foreign Bank Account Report (Form TD F 90-22.1) after the deadline? You should file the form, and you should attach a brief explanation of why you are filing late. While there are stiff penalties for failing to file the form, those penalties may be waived based on your particular situation. Under no circumstances should you not file Form TD F 90-22.1, since that would be a willful failure to fail. According to an IRS spokesperson in Washington, DC,

The law governing form TD F 90-22.1 "provides for a nonwillful penalty of up to $10,000 per violation for violations occurring after October 22, 2004. This penalty will be waived, however, if the person can show reasonable cause for the violation and if the person provides a late-filed [Form TD F 90-22.1] with the information that should have been reported earlier.
"IRS will consider the facts and circumstances of each case in determining whether penalties are appropriate. Persons who have not timely filed [Foreign Bank Account Reports] should attach a statement explaining why the [Form] was not timely filed."

The IRS and the Treasury Department are becoming more interested in having this foreign bank account reports filed. The IRS has even initiated a voluntary disclosure program for taxpayers who need to report previously unreported foreign income and to file late foreign bank account reports. Persons considering this voluntary disclosure program, which ends on September 23, 2009, should consult with an attorney, certified public accountant, or enrolled agent. Additional information about this program can be found in this FAQ about voluntary disclosure from the IRS Web site.

Where to File
Mail your completed and signed TD F 90-22.1 to the Treasury Department at the following address:
Department of the Treasury
Post Office Box 32621
Detroit, MI 48232-0621
Do not mail TD F 90-22.1 with your tax return, and do not mail the form to the IRS.
You can, however, hand-deliver TD F 90-22.1 to any local office of the Internal Revenue Service, and they will forward the form to the Department of the Treasury for processing. Many US embassies will also accept your foreign bank account report, and they will forward it to the Treasury.


Forms and Instructions
You can obtain TD F 90-22.1 (PDF, 8 pages) along with instructions for filling out the form from the IRS Website.

Foreign Financial Accounts Reporting Requirements

With the globalization of the economy, more and more people in the U.S. have foreign financial accounts. While there are many legitimate reasons to own foreign financial accounts, there are also responsibilities that go along with owning such accounts. Foreign account owners must remember that they may have to report their accounts to the government, even if the accounts do not generate any taxable income.

Who is required to report their foreign accounts to the government, and how do they do so? The Bank Secrecy Act requires U.S. persons who own a foreign bank account, brokerage account, mutual fund, unit trust, or other financial account to file a Form TD F 90-22.1, Report of Foreign Bank and Financial Authority (FBAR), if:

The person has financial interest in, signature authority, or other authority over one or more accounts in a foreign country, and
The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.
A U.S. person is:

A citizen or resident of the United States, or
Any domestic legal entity such as a partnership, corporation, estate or trust.
A foreign country includes all geographical areas outside the United States, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, and the territories and possessions of the United States (including Guam, American Samoa, and the United States Virgin Islands). An account in an institution known as a United States “military banking facility” is not considered to be an account in a foreign country.

The FBAR is not an income tax return and should not be mailed with any income tax returns. The FBAR must be mailed on or before June 30 of the following year to: U.S. Department of the Treasury, P.O. Box 32621, Detroit, MI 48232-0621.

Unlike with federal income tax returns, requests for an extension of time to file an FBAR are not granted.

A person having signature or other authority over, but no financial interest in, a foreign financial account may be excepted from filing an FBAR if they are an officer or employee of a federally-regulated bank or a federally-regulated publicly traded corporation. See the FBAR instructions for more information about this exception.

Why is it important to file the FBAR? The FBAR is required because foreign financial institutions that do not conduct business in the United States may not be subject to the same reporting requirements that domestic financial institutions are subject to (such as the requirement to file a Form 1099 to report interest paid to an account holder). Although there are legitimate purposes for having a foreign account, the FBAR is a tool to help the U.S. government identify persons who may be using foreign financial accounts to circumvent U.S. law.

Such individuals may be participating in economic crimes such as income tax evasion or embezzlement, or they may be trying to fund other illegal activity like drug trafficking or even terrorist activities.

Also, there are serious consequences for foreign account holders who choose not to honor their FBAR filing requirements. Account holders who do not comply with the FBAR reporting requirements may be subject to civil penalties, criminal penalties or both.

For an FBAR violation occurring after Oct. 22, 2004, the maximum civil penalty for a willful violation of the FBAR reporting and recordkeeping requirements is the greater of $100,000 or 50% of the balance in the account at the time of the violation. Non-willful violations can result in a penalty as high as $10,000 for each violation. Criminal violations of the FBAR rules can result in a fine and/or five years in prison.

More information on FBAR filing exceptions can be obtained on this Web site, the Money Services Businesses’ Web site at www.msb.gov and the Financial Crimes Enforcement Network’s Web site at www.fincen.gov. Help in completing Form TD F 90-22.1 is available at 1-800-800-2877, option 2. The form is available online at www.irs.gov and www.msb.gov or may be ordered by telephone at 1-800-829-3676. Questions regarding the FBAR may also be sent to FBARquestions@irs.gov.

Reporting of Foreign Financial Accounts

US citizens, residents, or persons doing business in the United States, who maintain an account with a foreign financial entity must keep records and file reports regarding that account with the Treasury Department. The information must be submitted on Form TD F 90-22.1 (the Form) annually, on or before June 30, of the succeeding year.

Penalties
Failure to file the Form, prior to the date of enactment of the American Jobs Creation Act in 2004, could result in penalties, only if, the failure to file was willful. If willful, the civil penalty for failure to file was the amount of the transaction or the value of the account up to $100,000; the minimum penalty being $25,000. Criminal penalties, also, exist for failure to file.

The American Jobs Creation Act, in order to increase voluntary compliance, institutes a civil penalty (this is of greater consequence than IRS penalties) for failure to file, regardless of whether the failure was willful. The penalty for a non willful failure to file may be up to $10,000 per account and may be raised for reasonable cause. The new law, also, increases the penalties for willful failure to file to the greater of $100,000 or 50% of the amount of the transaction or account balance, whichever is greater.

Who Must File
The instructions for the Form provide that it must be filed by each US person, who has a financial interest or signature authority, or other authority over any financial accounts, including bank, securities, or other types of financial accounts in a foreign country, if the aggregate balance for the foreign financial accounts exceeds $10,000 at any time during the calendar year reported on. Exceptions exist for employees of banks and officers or employees of certain publicly listed companies. A US person is defined as a citizen of the US, a domestic partnership, a domestic corporation or a domestic trust. Foreign financial accounts which must be reported include any bank, securities, securities derivatives or other financial instruments accounts outside the US, Guam, Puerto Rico and the Virgin Islands.

Individuals and the university are asked on Form 1040 and Form 990T, respectively whether they have an interest in or signature authority over a foreign financial account. Annually, UW indicates that it has an interest in or signature authority over such accounts on Form 990T and has filed the Form. There has been no effort to inform individuals who exercise the signature authority on behalf of UW that they, too, are required to file the Form annually. It is likely that the questions regarding foreign accounts that appear on Schedule B of Form 1040 are being answered incorrectly by individuals with signature authority over UW accounts because they are thinking of their own personal financial accounts when completing their Form 1040's.

Foreign Correspondent Account Recordkeeping and Due Diligence—Overview

Objective. Assess the bank’s compliance with statutory and regulatory requirements for correspondent accounts for foreign shell banks, foreign correspondent account recordkeeping, and due diligence programs to detect and report money laundering and suspicious activity. Refer to the expanded sections of the manual for discussions and examination procedures regarding specific money laundering risks associated with foreign correspondent accounts.

One of the central goals of the Patriot Act was to protect access to the U.S. financial system by requiring certain records and due diligence programs for foreign correspondent accounts. In addition, the Patriot Act prohibits accounts with foreign shell banks. Foreign correspondent accounts, as noted in past U.S. Senate investigative reports 98 are a gateway into the U.S. financial system. This section of the manual covers the regulatory requirements established by sections 312, 313, and 319(b) of the Patriot Act and by the implementing regulations at 31 CFR 103.175, 103.176, 103.177, and 103.185. Additional discussions and procedures regarding specific money laundering risks for foreign correspondent banking activities, such as pouch activity, U.S. dollar drafts, and payable through accounts, are included in the expanded sections.

Foreign Shell Bank Prohibition and Foreign Correspondent Account Recordkeeping
On October 28, 2002, final regulations (31 CFR 103.177 and 103.185) implementing sections 313 and 319(b) of the Patriot Act became effective. The regulations implemented provisions of the BSA that relate to foreign correspondent accounts.

For purposes of 31 CFR 103.177 and 103.185, a "correspondent account" is an account established by a bank for a foreign bank to receive deposits from, or to make payments or other disbursements on behalf of the foreign bank, or to handle other financial transactions related to the foreign bank. An "account" means any formal banking or business relationship established to provide regular services, dealings, and other financial transactions. It includes a demand deposit, savings deposit, or other transaction or asset account and a credit account or other extension of credit (31 CFR 103.175(d)). Accounts maintained by foreign banks for financial institutions covered by the rule are not "correspondent accounts" subject to this regulation.99

Under 31 CFR 103.177 a bank is prohibited from establishing, maintaining, administering, or managing a correspondent account in the United States for, or on behalf of, a foreign shell bank. A foreign shell bank is defined as a foreign bank without a physical presence in any country.100 An exception, however, permits a bank to maintain a correspondent account for a foreign shell bank that is a regulated affiliate.101 31 CFR 103.177 also requires that a bank take reasonable steps to ensure that any correspondent account established, maintained, administered, or managed in the United States for a foreign bank is not being used by that foreign bank to provide banking services indirectly to foreign shell banks.

Certifications
A bank that maintains a correspondent account in the United States for a foreign bank must maintain records in the United States identifying the owners of each foreign bank.102 A bank must also record the name and street address of a person who resides in the United States and who is authorized, and has agreed, to be an agent to accept service of legal process.103 Under 31 CFR 103.185, a bank must produce these records within seven days upon receipt of a written request from a federal law enforcement officer.

The U.S. Treasury, working with the industry and federal banking and law enforcement agencies, developed a "certification process" to assist banks in complying with the recordkeeping provisions. This process includes certification and recertification forms. While banks are not required to use these forms, a bank will be "deemed to be in compliance" with the regulation if it obtains a completed certification form from the foreign bank and receives a recertification on or before the three-year anniversary of the execution of the initial or previous certification. 104

Account Closure
The regulation also contains specific provisions as to when banks must obtain the required information or close correspondent accounts. Banks must obtain certifications (or recertifications) or otherwise obtain the required information within 30 calendar days after the date an account is established and at least once every three years thereafter. If the bank is unable to obtain the required information, it must close all correspondent accounts with the foreign bank within a commercially reasonable time.

Verification
A bank should review certifications for reasonableness and accuracy. If a bank at any time knows, suspects, or has reason to suspect that any information contained in a certification (or recertification), or that any other information it relied on is no longer correct, the bank must request that the foreign bank verify or correct such information, or the bank must take other appropriate measures to ascertain its accuracy. Therefore, banks should review certifications for potential problems that may warrant further review, such as use of post office boxes or forwarding addresses. If the bank has not obtained the necessary or corrected information within 90 days, it must close the account within a commercially reasonable time. During this time, the bank may not permit the foreign bank to establish any new financial positions or execute any transactions through the account, other than those transactions necessary to close the account. Also, a bank may not establish any other correspondent account for the foreign bank until it obtains the required information.

A bank must also retain the original of any document provided by a foreign bank, and retain the original or a copy of any document otherwise relied on for the purposes of the regulation, for at least five years after the date that the bank no longer maintains any correspondent account for the foreign bank.

Subpoenas
Under section 319(b) of the Patriot Act, the Secretary of the Treasury or the U.S. Attorney General may issue a subpoena or summons to any foreign bank that maintains a correspondent account in the United States to obtain records relating to that account, including records maintained abroad, or to obtain records relating to the deposit of funds into the foreign bank. If the foreign bank fails to comply with the subpoena or fails to initiate proceedings to contest that subpoena, the Secretary of the Treasury or the U.S. Attorney General (after consultations with each other) may, by written notice, direct a bank to terminate its relationship with a foreign correspondent bank. If a bank fails to terminate the correspondent relationship within ten days of receipt of notice, it could be subject to a civil money penalty of up to $10,000 per day until the correspondent relationship is terminated.

Requests for AML Records by Federal Regulator
Also, upon request by its federal regulator, a bank must provide or make available records related to AML compliance of the bank or one of its customers, within 120 hours from the time of the request (31 USC 5318(k)(2)).

Special Due Diligence Program for Foreign Correspondent Accounts
Section 312 of the Patriot Act added subsection (i) to 31 USC 5318 of the BSA. This subsection requires each U.S. financial institution that establishes, maintains, administers, or manages a correspondent account in the United States for a foreign financial institution to take certain AML measures for such accounts. In addition, section 312 of the Patriot Act specifies additional standards for correspondent accounts maintained for certain foreign banks.

On January 4, 2006, FinCEN published a final regulation (31 CFR 103.176) implementing the due diligence provisions of 31 USC 5318(i)(1). Subsequently, on August 9, 2007, FinCEN published an amendment to that final regulation, implementing the enhanced due diligence provisions of 31 USC 5318(i)(2) with respect to correspondent accounts established or maintained for certain foreign banks.

General Due Diligence
31 CFR 103.176(a) requires banks to establish a due diligence program that includes appropriate, specific, risk-based, and, where necessary, enhanced policies, procedures, and controls that are reasonably designed to enable the bank to detect and report, on an ongoing basis, any known or suspected money laundering activity conducted through or involving any correspondent account established, maintained, administered, or managed by the bank in the United States for a foreign financial institution ("foreign correspondent account").105

Due diligence policies, procedures, and controls must include each of the following:

Determining whether each such foreign correspondent account is subject to enhanced due diligence (refer to "Enhanced Due Diligence" below).
Assessing the money laundering risks presented by each such foreign correspondent account.
Applying risk-based procedures and controls to each such foreign correspondent account reasonably designed to detect and report known or suspected money laundering activity, including a periodic review of the correspondent account activity sufficient to determine consistency with information obtained about the type, purpose, and anticipated activity of the account.
Risk assessment of foreign financial institutions. A bank’s general due diligence program must include policies, procedures, and processes to assess the risks posed by the bank’s foreign financial institution customers. A bank’s resources are most appropriately directed at those accounts that pose a more significant money laundering risk. The bank’s due diligence program should provide for the risk assessment of foreign correspondent accounts considering all relevant factors, including, as appropriate:

The nature of the foreign financial institution’s business and the markets it serves.
The type, purpose, and anticipated activity of the foreign correspondent account.
The nature and duration of the bank’s relationship with the foreign financial institution (and, if relevant, with any affiliate of the foreign financial institution).
The AML and supervisory regime of the jurisdiction that issued the charter or license to the foreign financial institution and, to the extent that information regarding such jurisdiction is reasonably available, of the jurisdiction in which any company that is an owner of the foreign financial institution is incorporated or chartered.
Information known or reasonably available to the bank about the foreign financial institution’s AML record, including public information in standard industry guides, periodicals, and major publications.
Banks are not required to evaluate all of the above factors for every correspondent account.

Monitoring of foreign correspondent accounts. As part of ongoing due diligence, banks should periodically review their foreign correspondent accounts. Monitoring will not, in the ordinary situation, involve scrutiny of every transaction taking place within the account, but, instead, should involve a review of the account sufficient to ensure that the bank can determine whether the nature and volume of account activity is generally consistent with information regarding the purpose of the account and expected account activity and to ensure that the bank can adequately identify suspicious transactions.

An effective due diligence program will provide for a range of due diligence measures, based upon the bank’s risk assessment of each foreign correspondent account. The starting point for an effective due diligence program, therefore, should be a stratification of the money laundering risk of each foreign correspondent account based on the bank’s review of relevant risk factors (such as those identified above) to determine which accounts may require increased measures. The due diligence program should identify risk factors that would warrant the institution conducting additional scrutiny or increased monitoring of a particular account. As due diligence is an ongoing process, a bank should take measures to ensure account profiles are current and monitoring should be risk-based. Banks should consider whether risk profiles should be adjusted or suspicious activity reported when the activity is inconsistent with the profile.

Enhanced Due Diligence
31 CFR 103.176(b) requires banks to establish risk-based enhanced due diligence policies, procedures, and controls when establishing, maintaining, administering, or managing a correspondent account in the United States for certain foreign banks (as identified in 31 CFR 103.176(c) operating under any one or more of the following:

An offshore banking license.106
A banking license issued by a foreign country that has been designated as non-cooperative with international AML principles or procedures by an intergovernmental group or organization of which the United States is a member, and with which designation the United States representative to the group or organization concurs.107
A banking license issued by a foreign country that has been designated by the Secretary of the Treasury as warranting special measures due to money laundering concerns.
If such an account is established or maintained, 31 CFR 103.176(b) requires the bank to establish enhanced due diligence policies, procedures, and controls to ensure that the bank, at a minimum, takes reasonable steps to:

Determine, for any such foreign bank whose shares are not publicly traded, the identity of each of the owners of the foreign bank, and the nature and extent of the ownership interest of each such owner.108
Conduct enhanced scrutiny of such account to guard against money laundering and to identify and report any suspicious transactions in accordance with applicable laws and regulations. This enhanced scrutiny is to reflect the risk assessment of the account and shall include, as appropriate:
Obtaining and considering information relating to the foreign bank’s anti-money laundering program to assess the risk of money laundering presented by the foreign bank’s correspondent account.
Monitoring transactions to, from, or through the correspondent account in a manner reasonably designed to detect money laundering and suspicious activity.
Obtaining information from the foreign bank about the identity of any person with authority to direct transactions through any correspondent account that is a payable through account, and the sources and the beneficial owner of funds or other assets in the payable through account.
Determine whether the foreign bank for which the correspondent account is maintained in turn maintains correspondent accounts for other foreign banks that use the foreign bank’s correspondent account and, if so, take reasonable steps to obtain information relevant to assess and mitigate money laundering risks associated with the foreign bank’s correspondent accounts for other foreign banks, including, as appropriate, the identity of those foreign banks.
In addition to those categories of foreign banks identified in the regulation as requiring enhanced due diligence, banks may find it appropriate to conduct additional due diligence measures on foreign financial institutions identified through application of the bank’s general due diligence program as posing a high risk for money laundering. Such measures may include any or all of the elements of enhanced due diligence set forth in the regulation, as appropriate for the risks posed by the specific foreign correspondent account.

As also noted in the above section on general due diligence, a bank’s resources are most appropriately directed at those accounts that pose a more significant money laundering risk. Accordingly, where a bank is required or otherwise determines that it is necessary to conduct enhanced due diligence in connection with a foreign correspondent account, the bank may consider the risk assessment factors discussed in the section on general due diligence when determining the extent of the enhanced due diligence that is necessary and appropriate to mitigate the risks presented. In particular, the anti-money laundering and supervisory regime of the jurisdiction that issued a charter or license to the foreign financial institution may be especially relevant in a bank’s determination of the nature and extent of the risks posed by a foreign correspondent account and the extent of the enhanced due diligence to be applied.

Special Procedures When Due Diligence Cannot Be Performed
A bank’s due diligence policies, procedures, and controls established pursuant to 31 CFR 103.176(a) mmust include procedures to be followed in circumstances when appropriate due diligence or enhanced due diligence cannot be performed with respect to a foreign correspondent account, including when the bank should:

Refuse to open the account.
Suspend transaction activity.
File a SAR.
Close the account.
Applicability Dates
General Due Diligence
The general due diligence requirements of 31 CFR 103.176(a) apply to each foreign correspondent account established on or after July 5, 2006 (i.e., a bank’s general due diligence policies, procedures, and controls required by 31 CFR 103.176(a) must be applied to all foreign correspondent accounts opened on or after July 5, 2006).

In addition, the general due diligence requirements of 31 CFR 103.176(a) are retroactive to previously established accounts. For foreign correspondent accounts established prior to July 5, 2006, 31 CFR 103.176(e) provided that the general due diligence requirements of the regulation became effective October 2, 2006 (i.e., by October 2, 2006, a bank must have begun application of the general due diligence policies, procedures, and controls designed pursuant to 31 CFR 103.176(a) to all foreign correspondent accounts in existence before July 5, 2006).

Enhanced Due Diligence
Pursuant to 31 CFR 103.176(f), banks that are not otherwise exempt must apply the enhanced due diligence requirements of 31 CFR 103.176(b) to all correspondent accounts established for or on behalf of the foreign banks identified in 31 CFR 103.176(c) on or after February 5, 2008 (i.e., a bank’s enhanced due diligence policies, procedures, and controls required by 31 CFR 103.176(b) must be applied to all correspondent accounts opened for such foreign banks on or after February 5, 2008).

Additionally, the enhanced due diligence requirements of 31 CFR 103.176(b) are also retroactive to previously established accounts. For correspondent accounts opened for the foreign banks identified in 31 CFR 103.176(c) prior to February 5, 2008, 31 CFR 103.176(f) provides that the enhanced due diligence requirements of the regulation are effective May 5, 2008, (i.e., by May 5, 2008, a bank must have begun application of the enhanced due diligence policies, procedures, and controls designed pursuant to 31 CFR 103.176(b) to all correspondent accounts opened for such foreign banks in existence before February 5, 2008).

Until such time that the enhanced due diligence requirements of 31 CFR 103.176(b) become applicable, banks that are not otherwise exempt must continue following the enhanced due diligence requirements set forth in the statute (31 USC 5318(i)(2)).