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Treasury Employs USA PATRIOT Act Authorities to Designate Two Foreign Banks as "Primary Money Laundering Concerns"

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In another step to protect the integrity of the U.S. financial system and identify rogue financial institutions, the U.S. Department of the Treasury today designated two foreign banks – First Merchant Bank of the TurkishRepublic of Northern Cyprus (TRNC) and Infobank of Belarus – as financial institutions of primary money laundering concern, pursuant to Section 311 of the USA PATRIOT Act.

We continue to use our authority under Section 311 of the USA PATRIOT Act to protect the U.S. financial system from corrupt financial institutions such as these, said Stuart Levey, Treasury's Under Secretary for Terrorism and Financial Intelligence.   Today's designation alerts the global financial community of the threat posed by these entities.   It also serves notice to others that there will be significant consequences for institutions that launder tainted money or engage in similar corruption: we will cut you off from the U.S financial system.  

In conjunction with this designation, Treasury's Financial Crimes Enforcement Network issued two Notices of Proposed Rulemaking (NPRM) imposing a special measure against the two banks that would prohibit covered financial institutions from establishing, maintaining, administering or managing in the any correspondent account in the United States for or on behalf of First Merchant Bank or Infobank.   In addition, covered financial institutions would be required to apply special due diligence to their correspondent accounts to guard against their indirect use by First Merchant Bank or Infobank.

First Merchant Bank, which operates out of offices in Lefkosa/Nicosia, TRNC, is a privately owned commercial bank specializing in the provision of commercial and investment banking services to individual and corporate offshore customers.   First Merchant Bank is licensed as an offshore bank in the TRNC, a jurisdiction with inadequate anti-money laundering controls, particularly those applicable to the jurisdiction's offshore sector.  

First Merchant Bank is also involved in the marketing and sale of fraudulent financial products and services.   The institution has been used as a conduit for the laundering of fraudulently obtained funds.   In addition, the individuals who own, control, and operate First Merchant Bank have links with organized crime and apparently have used First Merchant Bank to launder criminal proceeds.  

Infobank is a privately owned Belarusian bank that is licensed to engage in foreign exchange transactions.   Infobank is being designated today for its complicity in laundering funds derived from fraudulent transactions involving Iraq.   Infobank laundered funds for the former Iraqi regime of Saddam Hussein that were derived from schemes to circumvent the United Nations Oil-for-Food (OFF) program, including illegal surcharges and inflated contracts.   These funds were then laundered through several other foreign banks and shell corporations.   Finally, proceeds from the illegal surcharges and inflated contracts either were returned to the Iraqi government – in violation of OFF program conditions – or were used to purchase weapons or finance military training through Infobank and its subsidiary.           

Title III of the PATRIOT Act amends the anti-money laundering provisions of the Bank Secrecy Act (BSA) to promote the prevention, detection and prosecution of international money laundering and the financing of terrorism.   Section 311 authorizes the Secretary of the Treasury – in consultation with DOJ, the State Department and appropriate Federal financial regulators – to designate a foreign jurisdiction, institution, class of transactions or type of account to be of primary money laundering concern and to require U.S. financial institutions to take certain special measures against the designee.

These special measures range from enhanced recordkeeping or reporting obligations to a requirement to terminate correspondent banking relationships with the designated entity.   The measures are meant to provide Treasury with a range of options to most effectively target specific money laundering and terrorist financing

Most recently, the Treasury Department used the authority of Section 311 to designate the Commercial Bank of Syria (CBS) and its subsidiary Syrian Lebanese Commercial Bank and issued a notice of proposed rule-making that would prohibit any U.S. bank, broker-dealer, futures commission merchant, introducing broker or mutual fund from opening or maintaining a correspondent account for or on behalf of CBS.   Correspondent accounts involving CBS would have to be terminated without exception.  

Last November Treasury also authorized Section 311 against two Burmese banks, Myanmar Mayflower Bank and Asia Wealth Bank, two banks that within that jurisdiction that are heavily implicated in facilitating the notorious drug trafficking organizations in Southeast Asia.   Since the PATRIOT Act was signed into law in October 2001, the Bush Administration has also taken action, pursuant to Section 311, against the foreign jurisdictions of Burma, Nauru and the Ukraine.