Legislation will Significantly Increase Due Diligence Requirements on Correspondent Accounts

by Jeremy Paner

Recent Congressional action indicates that the Hizballah International Financing Prevention Amendments Act of 2017 is soon likely to become law.  The sanctions authorities under this Act are redundant of existing designation criteria.  However, largely unnoticed enhanced due diligence requirements will pose a significant burden on most large U.S. financial institutions.

Section 203 of the Act (Modification of Report on Activities of Foreign Governments to Disrupt Activities of Hizballah; Reports on Membership in Hizballah) will impose enhanced due diligence requirements on correspondent or payable-through accounts held for foreign financial institutions determined to provide financial services to persons operating in jurisdictions hospitable to Hizballah outside of Lebanon.  The imposition of the enhanced due diligence requirements will require two determinations by the U.S. Department of the Treasury, presumably by the Financial Crimes Enforcement Network.

First, the government will determine which jurisdictions outside of Lebanon are hospitable to Hizballah.[1]  Next, the government will determine which foreign financial institutions provide significant financial services to persons operating in those jurisdictions.  U.S. financial institutions would then be required to establish enhanced due diligence policies, procedures, and controls on accounts held for those foreign financial institutions.

The U.S. Department of the Treasury has consistently taken action over the past decade reflecting its position that Syria and Venezuela are welcoming to Hizballah.  Those jurisdictions are therefore the most likely to be identified under the Act, and foreign financial institutions that provide significant financial services to anyone operating in those jurisdictions will trigger the enhanced due diligence requirements.

Consider the following example.  A large, international Dutch bank provides significant financial services to a Venezuelan entity that are neither prohibited/restricted nor sanctionable under U.S. law.  U.S. banks would be required to establish enhanced due diligence policies, procedures, and controls on the accounts it holds for the Dutch bank.

We will continue to monitor developments in legislation effecting anti-money laundering controls and publish updates as significant developments arise.


[1] The Act limits the jurisdictions to those “outside of Lebanon that expressly consent to, or with knowledge allow, the use of their territory by Hizballah to carry out terrorist activities, including training, financing, and recruitment.” Sec. 203 (F).