The Financial Crimes Enforcement Network (“FinCEN”) issued guidance [FIN-2008-R008] that clarifies the Bank Secrecy Act (“BSA”) obligations of clearing broker-dealers establishing fully disclosed clearing relationships with foreign financial institutions. The guidance addressed several issues, including whether a fully disclosed clearing relationship between a U.S. clearing firm and a foreign introducing firm is a “correspondent account” for purposes of Patriot Act Section 312 and whether a U.S. clearing firm must obligate the foreign firm to comply with the BSA with respect to any of the foreign firm’s underlying accounts that are introduced to the clearing firm.
FinCEN began by noting that a clearing relationship between a foreign firm and a U.S. clearing firm constitutes a “formal relationship” and, therefore, a “correspondent account” and “account” for purposes of the Patriot Act. Accordingly, FinCEN noted that the U.S. firm would need (a) to conduct due diligence on the foreign introducing firm under Patriot Act Section 312, and (b) to identify and verify the identity of the foreign introducing firm under Patriot Act Section 326.At the same time, FinCEN noted that the clearing firm is not obligated to look through the foreign firm to perform due diligence on any underlying customers who may be introduced to the U.S. firm pursuant to the clearing arrangement. FinCEN also stated that the U.S. clearing broker-dealer is not required to obligate the foreign firm to comply with the BSA or to apply the customer identification program (“CIP”) requirements to underlying accounts of the foreign firm. Instead, according to FinCEN, the clearing firm is expected to monitor the transactions of the underlying customers, incorporating any information the clearing firm obtains about these customers in the ordinary course of the clearing firm’s business.