Amended in Assembly April 15, 2013

California Legislature—2013–14 Regular Session

Assembly Bill No. 978

Introduced by Assembly Member Blumenfield

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(Coauthors: Assembly Members Brown, Fox, and Medina)

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February 22, 2013

An act to begin insert amend Section 500 of, and to end insert add Section 465 to begin insert , end insert the Financial Code, relating to financial institutions.

LEGISLATIVE COUNSEL’S DIGEST

AB 978, as amended, Blumenfield. Financial institutions: Iran sanctions.

Existing law, the Financial Institutions Law, provides for the regulation and licensure of financial institutions by the Department of Financial Institutions and the Commissioner of Financial Institutions. On July 1, 2013, the Governor’s Reorganization Plan No. 2 of 2012 transfers the responsibilities of the department and commissioner to the Department of Business Oversight and the Commissioner of Business Oversight, as specified. A willful violation of specified provisions of the Financial Institutions Law, or a rule or order issued pursuant to the Financial Institutions Law by certain licensees, is a crime.

The federal Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 requires the Secretary of the Treasury to prescribe regulations to prohibit, or impose strict conditions on, the opening or maintaining in the United States of a correspondent account or a payable-through account by a foreign financial institution that the Secretary of the Treasury finds knowingly engages in certain activities related to the Government of Iran, subject to specified penalties. The federal act also requires the Secretary of the Treasury to prescribe regulations to require a domestic financial institution maintaining a correspondent account or payable-through account in the United States for a foreign financial institution to perform an audit of prohibited activities that may be carried out by the foreign financial institution, report to the Department of the Treasury with respect to transactions or other financial services provided with respect to a prohibited activity, certify that the foreign financial institution is not knowingly engaging in any prohibited activity, to the best of its knowledge, and establish due diligence policies, procedures, and controls reasonably designed to detect whether the Secretary of the Treasury has found the foreign financial institution to knowingly engage in any prohibited activity.

This bill would require the commissioner to prescribe regulations to require a licensee under the Financial Institutions Law that maintains a correspondent account or a payable-through account with a foreign financial institution to establish due diligence policies, procedures, and controls begin delete reasonably designed to determine whether the Secretary of the Treasury has determined that the foreign financial institution is knowingly engaged in activities that are subject to sanctions under end delete begin insert to comply with end insert the federal Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010. The bill would also require begin delete the commissioner to prescribe regulations to require end delete a licensee begin delete to certify annually to the commissioner that, to the best of the knowledge of the licensee, the foreign financial institution end delete begin insert that maintains a correspondent account or a payable-through account to establish at every 12 end insert begin insert -month examination period that it end insert is not knowingly begin delete engaged in activities that are subject to sanctions under the federal act end delete begin insert engaging with a foreign financial institution in violation of the sanctions under the federal Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 and authorizes the commissioner to assess an administrative fine not exceeding $100,000 per occurrence against a licensee that fails to comply with this requirement. The bill would require the commissioner to refer all pertinent information relative to possible violations of the federal Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 to the Secretary of the United States Treasury within 10 days of receipt and authorizes him or her to cooperate with any federal investigation pursuant to the act. The bill would also prohibit a licensee from maintaining a correspondent account or a payable-through account with any foreign financial institution that the United States Treasury Department’s Office of Foreign Assets Control has placed on the federal list of Foreign Financial Institutions Subject to Part 561 end insert .

Because a willful violation of a regulation adopted by the commissioner may be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

SECTION 1.  

The Legislature hereby finds and declares all of
the following:

(a) In imposing United States sanctions on Iran, Congress and
the President have determined that the illicit nuclear activities of
the Government of Iran, combined with its development of
unconventional weapons and ballistic missiles, and its support of
international terrorism, represent a serious threat to the security
of the United States, Israel, and other United States allies in Europe,
the Middle East, and around the world.

(b) On July 1, 2010, President Barack Obama signed into law
H.R. 2194, the federal Comprehensive Iran Sanctions,
Accountability, and Divestment Act of 2010 (Public Law 111-195),
which puts strict limits on any foreign financial institution’s ability
to open or maintain a correspondent account or a payable-through
account with United States financial institutions if the Secretary
of the Treasury determines that such a foreign financial institution
knowingly does any of the following:

(1) Facilitates the efforts of the Government of Iran to acquire
or develop weapons of mass destruction or their delivery systems.

(2) Provides support for organizations designated by the United
States as foreign terrorist organizations.

(3) Facilitates the activities of persons subject to financial
sanctions pursuant to United Nations Security Council resolutions
imposing sanctions on Iran.

(4) Engages in money laundering or carries out any activity
listed above.

(5) Facilitates a significant transaction or transactions or
provides significant financial services for Iran’s Revolutionary
Guard Corps or its agents or affiliates, or any financial institution
whose property or interests in property are blocked pursuant to
federal law in connection with Iran’s proliferation of weapons of
mass destruction or their delivery systems, or Iran’s support for
international terrorism.

(c) The federal Comprehensive Iran Sanctions, Accountability
and Divestment Act (Public Law 111-195) imposes civil and
criminal penalties on United States financial institutions that know
or should have known that foreign financial institutions that
maintain correspondent accounts or payable-through accounts with
them are facilitating activities subject to sanctions.

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(d) On December 21, 2011, President Obama signed into law
H.R. 1540, the federal National Defense Authorization Act for
Fiscal Year 2012 (Public Law 112-81), which, subject to certain
exceptions, places strict limits on any foreign financial institution’s
ability to open or maintain a correspondent account or a
payable-through account with United States financial institutions
if the Secretary of the Treasury determines that a foreign financial
institution knowingly conducted or facilitated any significant
financial transaction with the Central Bank of Iran.

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(d)

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begin insert (e) end insert  The serious and urgent nature of the threat from Iran
demands that states work together with the federal government
and American allies to do everything possible, diplomatically,
politically, and economically to prevent Iran from acquiring a
nuclear weapons capability.

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(e)

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begin insert (f) end insert  There are moral and reputational reasons for this state to not
engage in business with foreign companies that have business
activities benefitting foreign states, such as Iran, that commit
egregious violations of human rights, proliferate nuclear weapons
capabilities, and support terrorism.

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(f)

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begin insert (g) end insert  In 2010, California enacted Chapter 573 of the Statutes of
2010 (Assembly Bill 1650 of the 2009-10 Regular Session) to
prohibit companies with certain investments in Iran from bidding
on or entering into contracts for goods or services with state or
local governments.

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(g)

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begin insert (h) end insert  The concerns of the State of California regarding Iran are
strictly the result of the actions of the Government of Iran.

SEC. 2.  

Section 465 is added to the Financial Code, to read:

465.  

(a)  begin delete (1) end delete begin delete   end delete The commissioner shall prescribe regulations to
require a licensee that maintains a correspondent account or a
payable-through account with a foreign financial institution to
establish due diligence policies, procedures, and controls
begin delete reasonably designed to determine whether the Secretary of the
Treasury has determined that the foreign financial institution is
knowingly engaged in activities that are subject to sanctions under end delete
begin insert to comply with end insert the federal Comprehensive Iran Sanctions,
Accountability, and Divestment Act of 2010 (Public Law 111-195).
begin insert The regulations may include an affirmative responsibility to notify
the commissioner or other official identified in the regulation of
potential irregularities that the licensee may come across during
its normal course of business. end insert

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(b) A licensee that maintains a correspondent account or a
payable-through account with a foreign financial institution shall
establish, at every 12-month examination period pursuant to
subdivision (d) of Section 500, that the licensee is not knowingly
engaging with a foreign financial institution in violation of the
sanctions under the federal Comprehensive Iran Sanctions,
Accountability, and Divestment Act of 2010.

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(2) The commissioner shall prescribe regulations to require a
licensee to certify annually to the commissioner that, to the best
of the knowledge of the licensee, the foreign financial institution
is not knowingly engaged in activities that are subject to sanctions
under the federal Comprehensive Iran Sanctions, Accountability,
and Divestment Act of 2010 (Public Law 111-195).

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(c) No licensee shall maintain a correspondent account or a
payable-through account with any foreign financial institution
that the United States Treasury Department’s Office of Foreign
Assets Control has placed on the federal list of Foreign Financial
Institutions Subject to Part 561.

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(d) The commissioner shall review all federal regulations related
to financial institution compliance with the federal Comprehensive
Iran Sanctions, Accountability, and Divestment Act of 2010 within
60 days of implementation and consider modification of the
regulations subject to this section.

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(e) The commissioner may assess an administrative fine of up
to, but not exceeding, one hundred thousand dollars ($100,000)
per occurrence against a licensee that fails to comply with
subdivision (b).

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(f) The commissioner shall refer all pertinent information
relative to possible violations of the federal Comprehensive Iran
Sanctions, Accountability, and Divestment Act of 2010 to the
Secretary of the United States Treasury within 10 days of receipt.
The commission may cooperate with any federal investigation
pursuant to the federal Comprehensive Iran Sanctions,
Accountability, and Divestment Act of 2010.

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(b)

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begin insert (g) end insert  For purposes of this section, the terms “correspondent
account” and “payable-through account” have the same meanings
as used in the federal Comprehensive Iran Sanctions,
Accountability, and Divestment Act of 2010 (Public Law 111-195).

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begin insert SEC. 3. end insert   

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begin insert Section 500 of the end insert begin insert Financial Code end insert begin insert is amended to read: end insert

500.  

(a) (1) For purposes of this section, “foreign bank” means
the business in this state of every foreign (other nation) bank
licensed under Article 3 (commencing with Section 1800) of
Chapter 20 of Division 1.1.

(2) For purposes of this subdivision, an examination made by
the commissioner in conjunction with or with assistance from a
bank regulatory agency of the United States, of a state of the United
States, or of a foreign nation is deemed to be an examination caused
by the commissioner.

(3) No provision of this subdivision shall be deemed to require
that the commissioner cause an examination to be made onsite at
the offices of a bank.

(4) The commissioner shall cause every California state bank
and every foreign bank to be examined to the extent and whenever
and as often as the commissioner shall deem it advisable, but in
no case less frequently than once every 12 months, except that the
following banks shall be examined pursuant to federal law no less
frequently than state banks and foreign banks that meet the
respective federal criteria:

(A) California state banks that meet the criteria set forth in
Section 1820(d)(4) of Title 12 of the United States Code.

(B) Foreign banks that meet the criteria set forth in Section
211.26(c)(2) of Title 12 of the Code of Federal Regulations.

(5) The examinations required by paragraph (4) may be
conducted in alternate examination periods, as appropriate, if the
commissioner determines that an examination of the state bank by
the appropriate federal regulator, insuring or guaranteeing
corporation during the intervening examination period carries out
the purpose of this section. The commissioner may not accept two
consecutive examinations, or two consecutive examination reports,
made by federal regulators, insuring or guaranteeing corporations,
or agencies with respect to the condition of the state bank.

(6) The commissioner shall cause every California state trust
company to be examined to the extent and whenever and as often
as the commissioner shall deem it advisable, but in no case less
frequently than once every 24 months.

(7) The commissioner may examine subsidiaries of every
California state bank, state trust company, and foreign (other
nation) bank licensed under Article 3 (commencing with Section
1800) of Chapter 20 of Division 1.1 to the extent and whenever
and as often as the commissioner shall deem it advisable.

(b) The commissioner may at any time examine any of the
following:

(1) Any office of a bank organized under the laws of this state.

(2) Any office of a foreign (other state) bank that maintains an
office in this state.

(3) Any office of a foreign (other nation) bank that maintains
an office in this state.

(c) The officers and employees of every California state bank,
California state trust company, and foreign bank being examined
shall exhibit to the examiners, on request, any or all of its securities,
books, records, and accounts and shall otherwise facilitate the
examination so far as it may be in their power.

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(d) (1) The commissioner shall require that any licensee that
maintains a correspondent account or a payable-through account
with a foreign financial institution shall, when under examination
pursuant to paragraph (4) of subdivision (a), demonstrate that the
licensee is in compliance with state regulations for the
implementation of the federal Comprehensive Iran Sanctions,
Accountability, and Divestment Act of 2010 (Public Law 111-195).

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(2) In any examination period in which the commissioner has
accepted an examination by an appropriate federal regulator for
compliance with paragraph (4) of subdivision (a), a licensee that
maintains a correspondent account or a payable-through account
with a foreign financial institution shall submit a declaration of
compliance with the regulations adopted pursuant to Section 465.
The declaration shall be submitted to the commissioner within 30
days of the completion of the examination.

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begin delete SEC. 3. end delete
begin insert SEC. 4. end insert   

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.