Alert February 05, 2008

FinCEN Releases New Interpretation of the Term “Correspondent Account” for Purposes of Section 312 of the Patriot Act

The Financial Crimes Enforcement Network (“FinCEN”) issued interpretive guidance regarding the term “correspondent account” for purposes of Section 312 of the Patriot Act (“Section 312”).  Specifically, FinCEN’s guidance clarifies that the presentation of a negotiable instrument for payment by a U.S. covered financial institution to a foreign financial institution does not establish a “correspondent account” and does not trigger the due diligence requirements of Section 312.

Under Section 312, U.S. covered financial institutions – including banks, securities broker-dealers, and others – must conduct certain due diligence when establishing correspondent accounts for foreign financial institutions.  Such diligence must be risk-based and on-going over the term of the correspondent account. 

FinCEN’s guidance addresses whether Section 312’s due diligence requirements apply when a covered financial institution receives a negotiable instrument, such as a check or draft, from one of its customers for presentment to a foreign financial institution.  The guidance clarifies that the “transaction-by-transaction presentation” of negotiable instruments to foreign paying institutions does not establish a correspondent account for purposes of the due diligence requirements of Section 312.  Importantly, FinCEN states that the result does not differ “[r]egardless of the volume or frequency” with which a covered financial institution may present negotiable instruments to a particular foreign financial institution for payment.