A government official confirmed that the Indian Banks’ Association (IBA) has sought government intervention and guidance on the issue. Banks have said that this provision would lead to cost overruns and any shortfall in compliance could have dire consequences.
The NDAA covers parts of combat money launderingThe Terrorist Financing and Counterfeiting Act of 2019 is significantly increasing the reach of the authorities foreign bank If they have a correspondent account with a US financial institution.
It allows the Department of Justice and the Treasury Department to submit records of such a foreign bank. Importantly, this provision can be applied regardless of whether the correspondent account was used for a potential violation of US law.
Application will be selective, feel bankers
Correspondent bank accounts of US financial institutions were the first to appear through the US Patriot Act 2001 to prevent money laundering and terror financing. “The banks have raised certain concerns which are being looked into. The issues will also be discussed with the Reserve Bank of India and any decision will be taken accordingly,” the official cited above said.
Though Indian banks are compliant with the Foreign Account Tax Compliance Act (FATCA), Indian regulators should guide banks on the provisions of NDAA applicable to them, experts said.
- Banks raise concerns about customer privacy, data privacy and national security
- Reach Government through IBA
- Banks already comply with FATCA regulation
- Government will hold talks with regulator RBI on the issue
- Regulations allow the US government to summon foreign-based bank data If the foreign bank has a US correspondent account
Jayakrishnan said, “This amendment will result in additional overheads on foreign banks that have correspondent accounts in the US, with the risk of non-compliance with financial penalties as well as terminating correspondent relationships with correspondent accounts in the US.” which may inevitably result in loss of business share.” Gee, Partner, Financial Services Consulting, Grant Thornton India.
According to Jayakrishnan, Indian banks that have contact accounts with banks in the US will have to consolidate and limit such accounts within the US to balance business volume with compliance cost and legal risk. “Banks will need to strengthen the scrutiny of transactions on such correspondent accounts to protect themselves from possible involvement in such investigations,” he said.
Bankers are of the view that the implementation of this amended provision would be selective and relevant only in cases where there is court intervention. A bank official familiar with the developments said, “But there is a need for clarity and that is why we have approached the government.”