80 FR 74064 - Imposition of Special Measure Against FBME Bank Ltd., Formerly Known as the Federal Bank of the Middle East Ltd., as a Financial Institution of Primary Money Laundering Concern

DEPARTMENT OF THE TREASURY
Financial Crimes Enforcement Network

Federal Register Volume 80, Issue 228 (November 27, 2015)

On July 29, 2015, FinCEN issued a Final Rule imposing the fifth special measure against FBME Bank Ltd. (FBME), formerly known as the Federal Bank of the Middle East, Ltd., with an effective date of August 28, 2015. On August 27, 2015, the United States District Court for the District of Columbia granted FBME's motion for a preliminary injunction and enjoined the Final Rule from taking effect. On November 6, 2015, the Court granted the Government's motion for voluntary remand to allow for further rulemaking proceedings. FinCEN is hereby re-opening the Final Rule to solicit additional comment in connection with the rulemaking, particularly with respect to the unclassified, non-protected documents that support the rulemaking and whether any alternatives to the prohibition of the opening or maintaining of correspondent accounts with FBME would effectively mitigate the risk to domestic financial institutions.

[Federal Register Volume 80, Number 228 (Friday, November 27, 2015)]
[Proposed Rules]
[Pages 74064-74067]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-30119]


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DEPARTMENT OF THE TREASURY

Financial Crimes Enforcement Network

31 CFR Part 1010

RIN 1506-AB27


Imposition of Special Measure Against FBME Bank Ltd., Formerly 
Known as the Federal Bank of the Middle East Ltd., as a Financial 
Institution of Primary Money Laundering Concern

AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.

ACTION: Proposed rule; re-opening of comment period and availability of 
supplemental information.

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SUMMARY: On July 29, 2015, FinCEN issued a Final Rule imposing the 
fifth special measure against FBME Bank Ltd. (FBME), formerly known as 
the Federal Bank of the Middle East, Ltd., with an effective date of 
August 28, 2015. On August 27, 2015, the United States District Court 
for the District of Columbia granted FBME's motion for a preliminary 
injunction and enjoined the

[[Page 74065]]

Final Rule from taking effect. On November 6, 2015, the Court granted 
the Government's motion for voluntary remand to allow for further 
rulemaking proceedings. FinCEN is hereby re-opening the Final Rule to 
solicit additional comment in connection with the rulemaking, 
particularly with respect to the unclassified, non-protected documents 
that support the rulemaking and whether any alternatives to the 
prohibition of the opening or maintaining of correspondent accounts 
with FBME would effectively mitigate the risk to domestic financial 
institutions.

DATES: Written comments on this document must be submitted on or before 
January 26, 2016.

ADDRESSES: You may submit comments, identified by 1506-AB27, by any of 
the following methods:
     Federal E-rulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments. Include 1506-AB27 in 
the submission.
     Mail: The Financial Crimes Enforcement Network, P.O. Box 
39, Vienna, VA 22183. Include 1506-AB27 in the body of the text. Please 
submit comments by one method only.
     Absent a sufficient showing that a submission warrants 
confidential treatment, comments submitted in response to this document 
will become a matter of public record. Therefore, you should generally 
only submit information that you wish to make publicly available.
    Inspection of comments: The public dockets for FinCEN can be found 
at www.Regulations.gov. Proposed and final rules published by FinCEN in 
the Federal Register are searchable by docket number, RIN, or document 
title, among other things, and the docket number, RIN, and title may be 
found at the beginning of the document. FinCEN uses the electronic, 
Internet-accessible dockets at Regulations.gov as their complete 
docket; all hard copies of materials that should be in the docket, 
including public comments, are electronically scanned and placed in the 
docket. In general, FinCEN will make all comments publicly available by 
posting them on http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: The FinCEN Resource Center at (800) 
767-2825.

SUPPLEMENTARY INFORMATION: 

I. Regulatory Background

    On July 22, 2014, FinCEN published in the Federal Register a Notice 
of Finding (NOF) in which the Director of FinCEN explained that 
reasonable grounds exist for concluding that FBME Bank Ltd. (FBME) is a 
financial institution of primary money laundering concern pursuant to 
Section 311 of the USA PATRIOT Act (Section 311),\1\ which is codified 
at 31 U.S.C. 5318A. FinCEN's NOF identified two main areas of concern: 
(i) FBME's facilitation of money laundering, terrorist financing, 
transnational organized crime, fraud schemes, sanctions evasion, 
weapons proliferation, corruption by politically-exposed persons, and 
other financial crime; and (ii) FBME's weak anti-money laundering 
controls, which allow its customers to perform a significant volume of 
obscured transactions and activities through the U.S. financial system. 
Simultaneously with the issuance of the NOF, FinCEN also published in 
the Federal Register a related Notice of Proposed Rulemaking (NPRM) 
proposing the imposition of the fifth special measure available under 
Section 311 against FBME.\2\ In particular, FinCEN proposed to prohibit 
covered U.S. financial institutions from opening or maintaining a 
correspondent account in the United States for, or on behalf of, FBME. 
On July 29, 2015, after considering comments from the public on these 
documents, and other information available to FinCEN, including both 
public and non-public reporting, FinCEN published in the Federal 
Register a Final Rule imposing the fifth special measure as proposed in 
the NPRM, with an effective date of August 28, 2015.\3\
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    \1\ Uniting and Strengthening America by Providing Appropriate 
Tools Required to Intercept and Obstruct Terrorism Act of 2001, 
Public Law 107-56.
    \2\ 79 FR 42486 (July 22, 2014) (RIN 1506-AB27).
    \3\ 80 FR 45057 (July 29, 2015) (RIN 1506-AB27).
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    FBME filed suit on August 7, 2015 in the United States District 
Court for the District of Columbia and sought a preliminary injunction 
against the Final Rule. On August 27, 2015, the Court granted the 
motion for preliminary injunction and enjoined the Final Rule from 
taking effect.\4\ In its order, the Court found that FBME was likely to 
succeed on the merits of two of its claims: (i) That FinCEN provided 
insufficient notice of unclassified, non-protected information on which 
it relied during the rulemaking proceedings, and (ii) that FinCEN 
failed to adequately consider at least one potentially significant, 
viable, and obvious alternative to the special measure it imposed.\5\ 
On November 6, 2015, the Court granted FinCEN's motion for voluntary 
remand so that FinCEN may engage in further rulemaking to address the 
procedural issues identified by the Court in enjoining the Final Rule. 
Accordingly, FinCEN is issuing this document to solicit additional 
comment regarding the Section 311 rulemaking related to FBME. In 
addition, FinCEN is making available for comment the unclassified, non-
protected material that FinCEN relied upon and intends to rely upon 
during the rulemaking proceeding.\6\ That unclassified, non-protected 
material is available at www.regulations.gov [Fincen-2014-0007]. Those 
comments previously submitted in connection with the rulemaking need 
not be resubmitted, as FinCEN will consider all comments received to 
date. In addition, if FinCEN decides to consider any additional 
unclassified, non-protected material other than that provided in the 
comments, such information will be added to www.regulations.gov 
[Fincen-2014-0007].
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    \4\ FBME Bank Ltd. v. Lew, No. 1:15-cv-01270, 2015 WL 5081209 
(D.D.C. Aug. 27, 2015).
    \5\ Id. at *5.
    \6\ As previously disclosed in the litigation involving the 
Final Rule, FinCEN notes that it does not intend to rely on three 
documents that were originally included in its administrative record 
supporting the NOF and NPRM: Two were law enforcement sensitive 
documents and the other was mistakenly included.
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II. Proposed Imposition of the Fifth Special Measure

    On October 26, 2001, the President signed into law the Uniting and 
Strengthening America by Providing Appropriate Tools Required to 
Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56 (the 
USA PATRIOT Act). Title III of the USA PATRIOT Act amends the anti-
money laundering provisions of the Bank Secrecy Act (BSA), codified at 
12 U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5314, 5316-
5332, to promote the prevention, detection, and prosecution of 
international money laundering and the financing of terrorism. 
Regulations implementing the BSA appear at 31 CFR chapter X. The 
authority of the Secretary of the Treasury to administer the BSA and 
its implementing regulations has been delegated to the Director of 
FinCEN.
    Section 311 of the USA PATRIOT Act grants the Director of FinCEN 
the authority, upon finding that reasonable grounds exist for 
concluding that a foreign jurisdiction, foreign financial institution, 
class of transactions, or type of account is of ``primary money 
laundering concern,'' to require domestic financial institutions and 
financial agencies to take certain ``special measures'' to address the 
primary money laundering concern. The special measures enumerated under 
Section 311 are prophylactic safeguards

[[Page 74066]]

that defend the U.S. financial system from money laundering and 
terrorist financing. FinCEN may impose one or more of these special 
measures in order to protect the U.S. financial system from these 
threats. To that end, special measures one through four, codified at 31 
U.S.C. 5318A(b)(1-4), impose additional recordkeeping, information 
collection, and information reporting requirements on covered U.S. 
financial institutions. The fifth special measure, codified at 31 
U.S.C. 5318A(b)(5), allows the Director to prohibit or impose 
conditions on the opening or maintaining of correspondent or payable-
through accounts for the identified institution by U.S. financial 
institutions.
    Given FinCEN's finding that FBME is of primary money laundering 
concern, in the Final Rule, FinCEN imposed the fifth special measure's 
prohibition on the opening or maintaining of a correspondent account in 
the United States for FBME. In further evaluation of alternative 
measures pursuant to the Court's November 6, 2015 opinion and order, 
FinCEN is reopening the Final Rule to solicit additional comment. 
First, FinCEN seeks comment on whether any of special measures one 
through four under Section 311 with respect to covered U.S. financial 
institutions' activities involving FBME would be an effective 
alternative to mitigate the risk posed by FBME, as explained in the 
Notice of Finding. FinCEN also seeks comment on whether, pursuant to 
special measure five of Section 311, FinCEN should impose conditions, 
rather than a prohibition, on the opening or maintaining of 
correspondent accounts with FBME.

III. Request for Comments

    FinCEN invites comments on all aspects of this rulemaking, 
including, but not limited to, the following:
    1. The unclassified, non-protected information that FinCEN intends 
to rely upon during the rulemaking proceeding; \7\
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    \7\ FinCEN anticipates that certain confidential business 
information (``CBI'') pertaining to FBME will not be made available. 
To the extent documents containing such CBI can be disclosed 
publicly in redacted form, they will be added to 
www.regulations.gov.
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    2. Whether any of special measures one through four under Section 
311 with respect to covered U.S. financial institutions' activities 
involving FBME would be an effective alternative to mitigate the risk 
posed by FBME as explained in the Notice of Finding;
    3. Whether, pursuant to special measure five of Section 311, FinCEN 
should impose conditions, rather than a prohibition, on the opening or 
maintaining of correspondent accounts with FBME as an effective 
alternative to mitigate the risk posed by FBME as explained in the 
Notice of Finding; and
    4. Any material developments that have occurred with respect to 
FBME since the issuance of the NOF and NPRM on July 22, 2014, including 
whether reasonable grounds continue to exist for concluding that FBME 
is a primary money laundering concern.

IV. Regulatory Flexibility Act

    When an agency issues a rulemaking proposal, the Regulatory 
Flexibility Act (RFA) requires the agency to ``prepare and make 
available for public comment an initial regulatory flexibility 
analysis'' that will ``describe the impact of the proposed rule on 
small entities.'' (5 U.S.C. 603(a)). Section 605 of the RFA allows an 
agency to certify a rule, in lieu of preparing an analysis, if the 
proposed rulemaking is not expected to have a significant economic 
impact on a substantial number of small entities. FinCEN previously 
provided information about the number and types of entities that would 
be affected by the earlier proposal to impose special measure five.\8\ 
FinCEN is restating that information in this document so that persons 
may comment on FinCEN's proposed certification concerning whether the 
imposition of any of the special measures would have a significant 
economic impact on a substantial number of small entities. As explained 
in more detail, the limited number of foreign banking institutions with 
which FBME maintains or will maintain accounts will likely limit the 
number of affected covered financial institutions to the largest U.S. 
banks, which actively engage in international transactions.
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    \8\ 79 FR 42486, 42489 (July 22, 2014) and 80 FR 45057, 45063 
(July 29, 2015).
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A. Estimate of the Number of Small Entities to Whom Any of Special 
Measures One Through Five Would Apply

    For purposes of the RFA, both banks and credit unions are 
considered small entities if they have less than $500,000,000 in 
assets.\9\ Of the estimated 7,000 banks, 80 percent have less than 
$500,000,000 in assets and are considered small entities.\10\ Of the 
estimated 7,000 credit unions, 94 percent have less than $500,000,000 
in assets.\11\
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    \9\ Table of Small Business Size Standards Matched to North 
American Industry Classification System Codes, Small Business 
Administration Size Standards (SBA Jan. 22, 2014) [hereinafter SBA 
Size Standards].
    \10\ Federal Deposit Insurance Corporation, Find an Institution, 
http://www2.fdic.gov/idasp/main.asp; select Size or Performance: 
Total Assets, type Equal or less than $: ``500000'' and select Find.
    \11\ National Credit Union Administration, Credit Union Data, 
http://webapps.ncua.gov/customquery/ select Search Fields: Total 
Assets, select Operator: Less than or equal to, type Field Values: 
``500000000'' and select Go.
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    Broker-dealers are defined in 31 CFR 1010.100(h) as those broker-
dealers required to register with the Securities and Exchange 
Commission (SEC). Because FinCEN and the SEC regulate substantially the 
same population, for the purposes of the RFA, FinCEN relies on the 
SEC's definition of small business as previously submitted to the Small 
Business Administration (SBA). The SEC has defined the term ``small 
entity'' to mean a broker or dealer that: (a) Had total capital (net 
worth plus subordinated liabilities) of less than $500,000 on the date 
in the prior fiscal year as of which its audited financial statements, 
were prepared pursuant to Rule 17a-5(d) or, if not required to file 
such statements, a broker or dealer that had total capital (net worth 
plus subordinated debt) of less than $500,000 on the last business day 
of the preceding fiscal year (or in the time that it has been in 
business if shorter); and (b) is not affiliated with any person (other 
than a natural person) that is not a small business or small 
organization as defined in this release.\12\ Based on SEC estimates, 17 
percent of broker-dealers are classified as ``small'' entities for 
purposes of the RFA.\13\
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    \12\ 17 CFR 240.0-10(c).
    \13\ 76 FR 37572, 37602 (June 27, 2011) (the SEC estimates 871 
small broker-dealers of the 5,063 total registered broker-dealers).
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    Futures commission merchants (FCMs) are defined in 31 CFR 
1010.100(x) as those FCMs that are registered or required to be 
registered as a FCM with the Commodity Futures Trading Commission 
(CFTC) under the Commodity Exchange Act (CEA), except persons who 
register pursuant to section 4f(a)(2) of the CEA, 7 U.S.C. 6f(a)(2). 
Because FinCEN and the CFTC regulate substantially the same population, 
for the purposes of the RFA, FinCEN relies on the CFTC's definition of 
small business as previously submitted to the SBA. In the CFTC's 
``Policy Statement and Establishment of Definitions of `Small Entities' 
for Purposes of the Regulatory Flexibility Act,'' the CFTC concluded 
that registered FCMs should not be considered to be small entities for 
purposes of the RFA.\14\ The CFTC's determination in this regard was 
based, in part, upon the obligation of registered

[[Page 74067]]

FCMs to meet the capital requirements established by the CFTC.
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    \14\ 47 FR 18618, 18619 (Apr. 30, 1982).
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    For purposes of the RFA, an introducing broker-commodities dealer 
is considered small if it has less than $35,500,000 in gross receipts 
annually.\15\ Based on information provided by the National Futures 
Association (NFA), 95 percent of introducing brokers-commodities 
dealers have less than $35.5 million in Adjusted Net Capital and are 
considered to be small entities.
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    \15\ SBA Size Standards at 28.
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    Mutual funds are defined in 31 CFR 1010.100(gg) as those investment 
companies that are open-end investment companies that are registered or 
are required to register with the SEC. Because FinCEN and the SEC 
regulate substantially the same population, for the purposes of the 
RFA, FinCEN relies on the SEC's definition of small business as 
previously submitted to the SBA. The SEC has defined the term ``small 
entity'' under the Investment Company Act to mean an investment company 
that, together with other investment companies in the same group of 
related investment companies, has net assets of $50 million or less as 
of the end of its most recent fiscal year.\16\ Based on SEC estimates, 
7 percent of mutual funds are classified as ``small entities'' for 
purposes of the RFA under this definition.\17\
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    \16\ 17 CFR 270.0-10.
    \17\ 78 FR 23637, 23658 (April 19, 2013).
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B. Special Measures One Through Five

    As noted above, 80 percent of banks, 94 percent of credit unions, 
17 percent of broker-dealers, 95 percent of introducing brokers-
commodities, zero FCMs, and 7 percent of mutual funds are small 
entities. The limited number of foreign banking institutions with which 
FBME maintains or will maintain accounts will likely limit the number 
of affected covered financial institutions to the largest U.S. banks, 
which actively engage in international transactions. Thus, the 
imposition of the recordkeeping, information collection, or reporting 
provisions in any of special measures one through four would not impact 
a substantial number of small entities. Similarly, the imposition of 
the prohibition on maintaining correspondent accounts for foreign 
banking institutions that engage in transactions involving FBME under 
the fifth special measure, together with related notice and special due 
diligence, would not impact a substantial number of small entities. 
Finally, imposing conditions on the opening or maintenance of such a 
correspondent account under special measure five would not impact a 
substantial number of small entities.

C. Certification

    For these reasons, FinCEN certifies that the proposals contained in 
this rulemaking would not have a significant impact on a substantial 
number of small businesses.
    FinCEN invites comments from members of the public who believe 
there would be a significant economic impact on small entities from the 
imposition of any of special measures one through five.

Jamal El-Hindi,
Deputy Director, Financial Crimes Enforcement Network.
[FR Doc. 2015-30119 Filed 11-25-15; 8:45 am]
BILLING CODE 4810-02-P