U.S. regulators: banks can keep embassy accounts

WASHINGTON, March 25 (Reuters) – Financial regulators have
clarified that U.S. banks can provide services to foreign
diplomatic missions and still comply with anti-money laundering
laws after several major U.S banks moved to close embassy
accounts.

In guidance issued on Thursday, the Federal Reserve Board,
the Office of the Comptroller of the Currency and other
regulators said they do not expect financial institutions to
define or treat foreign mission customers as necessarily posing
a higher level of risk than other customers.

It is up to the financial institution to assess and
understand risks to stay in compliance with the Bank Secrecy
Act, they said.

Closures of foreign diplomatic mission accounts by a number
of banks have caused headaches for many foreign countries,
whose embassies have been shopping around for new accounts with
banks, with little success.

At a January meeting between diplomats and U.S. Treasury
and State Department officials at the United Nations, envoys
from China, South Africa, Egypt, Turkey, Morocco, Iran, the
Palestinian Authority and other missions said they had been hit
by the bank cutbacks. Others, from Britain, Germany and Russia,
said they were not affected.

Some envoys said at the time that banks were feeling
overburdened by surveillance, reporting and compliance costs
associated with the foreign mission accounts. The Bank Secrecy
act is designed to prevent transfers of money from corruption,
terrorist financing, drug trafficking or weapons proliferation
through the U.S. financial system.

JP Morgan Chase & Co. (JPM.N: Quote, Profile, Research) last September told
diplomatic missions in a letter obtained by Reuters that it had
“made the decision to close its division that serves diplomatic
and foreign government entities.” The bank had termed it a
“business decision” but gave no further explanation.

The regulators said in the guidance that banks could enter
into written agreements with foreign missions that clearly
define the terms of use for the accounts. Banks also could
offer limited purpose accounts for items like payroll, office
rent and maintenance only, they said.

“By clarifying our expectations, the agencies are
confirming that the financial institutions have the flexibility
to provide services to foreign missions while also remaining in
compliance with the BSA,” the regulators said in a statement.

The agencies, which also include the Treasury’s Financial
Crimes Enforcement Network, the National Credit Union
Administration and the Office of Thrift Supervision, said they
expected banks to have risk controls systems in place that can
adequately manage the varying degrees of risks in dealing with
foreign missions.

“The agencies will not direct or require any financial
institution to close or refuse a particular account or
relationship, except in extraordinary circumstances” such as
when violations of law are identified, the regulators said.
(Reporting by David Lawder; Editing by Andrea Ricci)

U.S. regulators: banks can keep embassy accounts