Foreign Shell Banks – Prohibited Relationships

U.S. financial institutions are prohibited from opening accounts for or doing business with foreign shell banks.

Foreign shell banks are financial firms that have no physical address in any country.

In prohibiting U.S. firms from engaging in financial transactions with such shell banks, regulators voiced the concern that “foreign shell banks which are generally not subject to regulation are considered to present an unacceptable risk of involvement in money laundering or terrorist financing.”

To ensure that such foreign shell banks do not have access to the U.S. financial system, regulators prohibited U.S. financial institutions from having correspondent accounts for any foreign shell bank.

Foreign Shell Banks - Prohibited Relationships

Foreign Shell Banks

Note that financial firms are not prohibited from doing business with foreign banks or correspondent banks. The prohibition applies only to “foreign shell banks.”

However, section 319(b) of the USA PATRIOT Act mandates that financial firms maintain records of the owners of foreign banks to which correspondent accounts are being opened. Banks are also required to maintain the name, address, and information of an agent of the foreign bank in the United States.

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