International Law Advisory - Department of Treasury Issues Final Rule Against Commercial Bank of Syria

Yesterday, the Department of Treasury, Financial Crimes Enforcement Network (FinCEN) issued a final rule relating to the Commercial Bank of Syria and its subsidiary, the Syrian Lebanese Commercial Bank.  See attached  or access at  it here.

The rule is expected to be published in the Federal Register early next week.  It will take effect within 30 days of its publication. 

Syria has been designated a State Sponsor of Terrorism by the U.S. Government for over two decades, and an increasing number of restrictions have been placed on the country.  In May 2004, pursuant to Section 311 of the USA Patriot Act, the Treasury Department found the Commercial Bank of Syria, which is owned by the Government of Syria, to be of “primary money laundering concern.”

In light of this finding, the final rule issued yesterday prohibits “covered financial institutions” - including U.S. banks, brokers or dealers in securities, futures commission merchants, introducing brokers, or mutual funds - from opening or maintaining a correspondent account for or on behalf of the Commercial Bank of Syria.  In addition, all such financial institutions are required to apply due diligence measures to their correspondent accounts to prevent unauthorized indirect use of the accounts by the Commercial Bank of Syria.  According to the notice, the due diligence measures must, at a minimum, notify correspondent account holders that “the account may not be used to provide [the] Commercial Bank of Syria with access to the covered financial institution."  The Department specifically stated that financial institutions will not be required to obtain certification from correspondent account holders that they will comply with the requirement. 

The rule also requires financial institutions to “take reasonable steps to identify any indirect use of its correspondent accounts by [the] Commercial bank of Syria, to the extent that such use can be determined from transactional records maintained by the covered institution in the normal course of business."  Measures could include screening funds transfers to ensure that an order referencing the Commercial Bank of Syria on its face is not processed.  The rule acknowledged that not all financial institutions are capable of conducting sophisticated screening of funds transfers, and therefore suggested that such institutions adopt additional due diligence measures based on the risk faced by the institution.

If a financial institution learns that a foreign bank is using a correspondent account to provide indirect access to the Commercial Bank of Syria, the financial institution “must take all appropriate steps to prevent such indirect access including, when necessary, terminating the correspondent account.”  Termination of a correspondent account  must occur within a “commercially reasonable” period of time, but may occur after the financial institution has afforded the foreign bank “a reasonable opportunity to take corrective action.”  The account may be reestablished if the financial institution “determines that the account will not be used to provide banking services indirectly to the Commercial Bank of Syria.”  The rule establishes no new reporting requirements, but does require financial institutions to maintain records related to its compliance with this rule.

We will continue to keep you apprised of any developments related to sanctions against Syria or Syrian entities.  If you have any questions in the meantime, please contact Ed Krauland at 202-429-8083, or Meredith Rathbone at 202-429-6437.