The Office of Foreign Missions (OFM) plays a pivotal role in facilitating information on banking between foreign missions, commercial banking institutions, other offices in the Department, and other US Government entities.
Over the past several years many foreign missions have faced challenges securing banking services. Today, there are fewer banks in the United States that are prepared or willing to service the financial needs of foreign missions than there were five years ago.
While some financial institutions have made business decisions to cease providing financial services to foreign missions and/or their members, those actions are internal business decisions by the financial institutions based on their determinations of their ability or willingness to manage the operational burdens, costs, and risks associated with providing financial services to foreign missions. The U.S. Government does not direct financial institutions to accept or maintain financial relationships, including for foreign missions and their members.
Foreign missions may contact OFM at OFMAccounts@state.gov when they are encountering issues in maintaining banking services and when they are seeking banking services. Among other things, OFM can assist missions by:
- advising individual missions of banking best practices in the United States;
- providing general information on banking and points of contact at banking institutions that are involved in the foreign mission banking sector;
- issuing a letter to use with prospective banks, which confirms the individual’s accreditation and official position information;
- assisting missions in acquiring Employee Identification Numbers (EIN) from the Internal Revenue Service; and
- putting missions in contact with other relevant offices in the Department, when needed.
OFM has hosted two banking seminars for the foreign missions community in the Department of State’s George C. Marshall Auditorium June 6, 2013, and January 14, 2015, where prominent banks discussed banking, the laws and regulations surrounding it, and best practices in account management. A recording of the January 14 Seminar can be viewed here.
Missions are encouraged to review Diplomatic Note No. 14-1235, dated July 11, 2014. Excerpts from this note are provided below:
- Compliance with Banking Laws and Regulations – Why and How
- Limitations on Foreign Mission Bank Accounts – For Official Use Only
- Establishing and Maintaining a Banking Relationship – Communicate with the Bank
- Opening an Account – Documentation and Information a Bank Will Expect
- Currency Transaction Reporting – What are CTRs
- Suspicious Activity Reporting – What are SARs
- Recommended “Best Practices” – Formula for Successful Banking
U.S. financial institutions must comply with a number of U.S. laws and associated regulations in the conduct of their business, including when extending services to foreign missions. To respond to these requirements, financial institutions establish compliance programs to address the risks posed by customer relationships and the financial services they offer to their clients. These risks are determined by financial institutions’ internal assessments, which are based on multiple factors determined by the financial institution.
Factors that financial institutions operating in the United States may consider when developing their compliance programs include, among others:
- the nature of the business relationship;
- the clientele (financial institutions often consider accounts where funds cross national borders – including those of foreign missions – as being higher risk); and
- the volume, value, and types of transactions, including international transactions.
Banks and regulators may consider foreign mission accounts to pose a heightened risk, including in the following circumstances:
- accounts are from countries that have been identified as higher risk;
- substantial currency transactions take place in the accounts;
- account activity is not consistent with the purpose of the account;
- accounts directly fund personal expenses of foreign nationals, including but not limited to expenses for college students; and
- official embassy business is conducted through personal accounts.
As established in the Department’s diplomatic note of March 25, 1987, the U.S. Government views the use of the premises or other property of foreign missions to engage in any activity that is not incidental to the maintenance and operation of the mission or post, or incidental to the performance of diplomatic and consular functions, as being incompatible with the status of those establishments. In this respect, in the view of the United States, the use of bank accounts belonging to or held by foreign missions for transactions unrelated to the maintenance, operation, or performance of diplomatic and consular functions is incompatible with the status of the missions and of the privileges and immunities accorded for the efficient performance of diplomatic and consular functions. Accordingly, the Chiefs of Mission are reminded of the obligation to ensure that bank accounts belonging to or held by their missions are not used for such activities.
In accordance with U.S. laws and regulations and international standards, banks seek transparency, predictability, and responsiveness from their clients. As foreign mission accounts could potentially increase the customer-risk profile, important risk-mitigation processes might be enacted, including the negotiation of a Services Agreement specific to the mission.
With a better understanding of the compliance requirements placed on financial institutions, foreign missions can take steps to promote an ongoing relationship and avoid problems that may jeopardize the ability or willingness of a bank to continue its provision of services. In addition to concluding a Services Agreement, these steps can include, among others:
- carefully abiding by the terms of the Services Agreement(s);
- discussing with the bank, in advance, any desired changes to the Agreement;
- informing the bank, also in advance, of any transactions that might appear to be outside the Agreement;
- being responsive to requests from the bank for additional information about transactions.
If a bank cannot fully understand a foreign mission’s account, the bank may view the mission’s business as posing an unacceptable level of risk to the institution. The Department wishes to stress that multiple issues, including but not limited to account activity that appears inconsistent with the purpose of the account, may result in an account’s suspension or closure.
U.S. financial institutions are expected to understand their customers and assess the risks of their relationships and accounts, including their foreign mission accounts, and take appropriate steps to manage risks. In line with international standards adopted by the Financial Action Task Force, U.S. laws and regulations require financial institutions to perform customer due diligence (CDD), including obtaining, verifying, and recording information that identifies persons who open an account. Additionally, financial institutions might request similar information for persons who use an account, are associated with an account, or are responsible for overseeing an account or relationship. Consistent with CDD requirements, missions seeking to open an account:
- will be asked to provide their mission’s name, principal place of business, and other identifying information;
- should ensure that the bank has accurate contact information for all account holders, signatories (at least two are required), and managers;
- will be asked to provide information associated with their account’s signatories, which may include their names, positions, addresses, dates of birth, and other information determined by the bank;
- may be asked to provide the bank with their Employer Identification Number; and
- will normally be asked by the bank to provide a completed IRS Form W-8EXP (Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding).
The Bank Secrecy Act (BSA) requires that banks understand the nature of their customers’ business, including expected transactions, and monitor their transactions for potentially unusual activity. Pursuant to the BSA, financial institutions are required to complete and file Currency Transaction Reports (CTRs) for any transactions in currency equal to or greater than $10,000. This may also include multiple transactions totaling more than $10,000 during any one business day if they are by or on behalf of the same person or entity.
To facilitate compliance with this law, a foreign mission may be requested by its bank to provide additional information concerning a transaction or series of transactions. The completion of a CTR does not indicate any wrongdoing; however, any attempt to avoid or circumvent the reporting requirements is a violation of U.S. law.
In certain circumstances banks are required to file a Suspicious Activity Report (SAR) with the Financial Crimes Enforcement Network, which is the United States’ financial intelligence unit. Banks are required to file a SAR when they know, suspect, or have reason to suspect that transactions or other activity at their institution involve certain types of action, including some criminal violations, transactions over certain monetary thresholds, and transactions that may involve attempts to evade regulatory or other lawful practices.
A SAR and any information that reveals the existence of a SAR are confidential and may only be disclosed to law enforcement and regulatory agencies, as permitted by statute. A bank may not disclose to a customer the contents of a SAR nor whether a SAR has been filed.
Foreign missions should strive to engage in predictable transactions and to answer a bank’s transaction questions in a timely manner.
Representatives of the banking community have recommended concrete steps which foreign missions could follow to help maintain constructive relationships with banks in the United States. These best practices include:
- Anticipate questions about your banking practices and work with banks in a transparent, non-evasive manner;
- Notify banks of any unusual, non-routine transactions such as: large wire transfers into or out of an account, large cash requests, cash payments to individuals or other entities, or any other transaction activity that is out of the ordinary;
- Avoid dealing in cash – convert to other methods of payments/receipts such as credit or debit cards, wire transfers, or other electronic payment methods;
- Avoid sending or accepting wire transfers from other foreign governments without prior notification to the receiving bank as to the size, purpose, and rationale of the transfer;
- Understand CTR requirements. Attempts to avoid the CTR requirement for currency transactions of more than $10,000 by making several smaller deposits (“structuring”) is against the law;
- Ensure the mission has at least two account signatories, reconciles accounts continuously (at least monthly), exercises good financial controls, and audits its bank activity at least annually; and
- Notify the bank immediately if any unusual or suspicious activity is detected.