When a U.S. bank provides correspondent accounts to foreign banks, one of the requirements under the USA Patriot Act is for the foreign banks to complete a Certification Regarding Correspondent Accounts for Foreign Banks. This Certification requires the appointment of a Process Agent. To explain this requirement and the role of the Process Agent under these provisions, let’s begin with some background information.
Events of September 11, 2001 Lead to Enactment of USA Patriot Act
After September 11, 2001, Congress enacted the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, also referred to as the USA Patriot Act. The Act, which was signed into law by President Bush on October 26, 2001, is designed to:
- Deter and punish terrorist acts in the United States and around the world
- Enhance law enforcement investigatory tools
- Detect and prosecute international money laundering and financing of terrorism and other purposes.
Required Certification Regarding Correspondent Accounts for Foreign Banks
In September 2002, the Financial Crimes Enforcement Network (“FinCEN”) of the Treasury Department issued rules to tighten the due diligence process when a U.S. bank provides correspondent accounts to foreign banks. A comprehensive overview of the FinCen requirements is outlined in Foreign Correspondent Account Recordkeeping, Reporting and Due Diligence - Overview. Under these rules, foreign banks are required to complete a Certification Regarding Correspondent Accounts for Foreign Banks (the “Certification”). Pursuant to Section 313(a) of the USA Patriot Act, a covered financial institution (generally any U.S. bank or broker dealer in securities) is prohibited from establishing, maintaining, administering, or managing a correspondent account in the U.S. for, or on behalf of, a foreign shell bank.
Foreign banks completing the Certification must include:
- The name of the foreign bank
- The correspondent accounts covered by the Certification (this may apply to one or more accounts)
- The physical address and country where the foreign bank is authorized to conduct its banking activities
- A certification that it does not use any correspondent accounts to provide banking services to a foreign shell bank
- Ownership information of the foreign bank
- An agreement to notify each covered financial institution, at which it maintains any correspondent account, of any change in facts reported in the Certification within 30 calendar days of the change.
USA Patriot Act Requirement to Appoint a Process Agent
Since foreign banks generally do not have a presence in the U.S., they often engage a professional process agent to satisfy the requirement under Section 313(a) of the USA Patriot Act to “maintain . . . the name and address of an agent in the United States designated to receive service of legal process for the foreign bank for records related to the correspondent account”. The name and address of the process agent is included under Part F of the Certification.Pursuant to 31 U.S.C. 5318(k), the role of the process agent is to receive service of process on behalf of the foreign bank from the Secretary of the Treasury or the Attorney General of the United States.
It’s important to appoint a process agent under a Certification by a foreign bank who understands the significance of the role and follows the guidelines below to ensure compliance with the USA Patriot Act.
- Maintain tight internal controls: A process agent must maintain a tight internal control system to manage process agent appointments.
- Understand limited scope of role: A professional process agent understands that the role is limited only to receiving and forwarding service of process on behalf of the foreign bank from the Secretary of the Treasury or the Attorney General of the United States. The process agent must understand what documentation it is required to receive on behalf of the foreign bank and, equally important, what should not be received.
- Respond and act quickly: The process agent should understand that any service of process received is time sensitive, and should have a strict protocol to ensure prompt delivery to the designated contact at the foreign bank.
- Understands the recertification process: Foreign banks are required to update the Certification at least one time every 3 years. When contacted to verify that it continues to act as process agent for a foreign bank, a professional process agent understands that the timeliness of its response is also important and promptly confirms in writing that it maintains an active record as process agent on behalf of such foreign bank undergoing the recertification process.
Failure to Comply Can Result in Closure of All Correspondent Accounts
Any non-compliance with the USA Patriot Act by a foreign bank in connection with maintaining the effectiveness of the Certification, recertification every three years and notice of any changes within 30 days will result in the closure of all correspondent accounts. Engaging a professional process agent that understands its role and is prepared to verify that it has been appointed and continues to act in such capacity is a very important consideration for any foreign bank maintaining correspondent accounts with U.S. covered financial institutions.
 A “correspondent account” is an account established to receive deposits from or make payments on behalf of a foreign financial institution, or handle other financial transactions related to such institution.
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.