In the waning days of the Trump Presidency a little known act – the “Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2019” – was passed into law as part of the reconciled National Defense Authorization Act for Fiscal Year 2021 (H.R. 6395). Overcoming a Presidential Veto, the passed enactments ushered in broad changes to US anti-money laundering, financial crime and tax evasion laws.
As it stands, today America’s treasury and justice departments can subpoena any account records from a foreign bank that maintains correspondent accounts with banks in the United States.
USD accounts
America is unique in that all USD transactions must be cleared by a USD correspondent bank account. Under U.S. law, only a bank licensed in the United States can provided such accounts. If a foreign banks wants to offer products involving USD accounts, make USD investments and so forth, that bank must have a USD correspondent bank account.
Establishing such a correspondent account with an American financial institution is not an easy affair. There a strict regulatory requirements imposed on such relationships and U.S. banks are increasingly becoming more resistant to establishing such links with offshore banks, as fines and sanctions may be imposed on the U.S. bank by U.S. regulatory agencies.
New powers of subpoena
The changes give very broad subpoena powers to the Treasury Department and DOJ. Either department can obtain banking information from foreign banks in furtherance of U.S. criminal investigations (money laundering, tax crimes), violations of the U.S. Bank Secrecy Act (FBAR), the new anti-money laundering rules and civil forfeitures actions.
To quote: The scope includes “any records relating to the correspondent account or any account at the foreign bank, including records maintained outside of the United States.” That means any information from a foreign bank on any account it maintains, worldwide. Non-U.S. banking secrecy laws be damned.
If a foreign bank fails to comply, it faces civil penalties of USD $50,000 per day. The U.S. financial institution in the correspondent relationship with that foreign bank will be required to terminate the USD correspondent account within 10 business days of such notice or face daily penalties of USD $25,000. This all but certain ensures that failure to comply results in expulsion from the USD system.
Additionally, any officer, director, partner, employee, etc. of the foreign bank that is served with such a subpoena is prohibited from notifying the account holder (or any person named in the subpoena) that any such subpoena in fact exists (or its contents thereof).
Conclusion
Given the totality of potential loss for the foreign bank (losing its U.S. correspondent bank account), it is exceedingly unlikely that the foreign bank will not turn over account information and documentation that may be subject to a subpoena.