Amended in Assembly April 25, 2013

Amended in Assembly April 15, 2013

California Legislature—2013–14 Regular Session

Assembly BillNo. 978


Introduced by Assembly Member Blumenfield

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

February 22, 2013


An act tobegin delete amend Section 500 of, and to add Section 465 to,end deletebegin insert add Section 25 toend insert the Financial Code, relating to financial institutions.

LEGISLATIVE COUNSEL’S DIGEST

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

Existing lawbegin delete, the Financial Institutions Law,end deletebegin insert generallyend insert provides for the regulation and licensure of financial institutionsbegin insert, including, but not limited to, banks and credit unions,end insert by thebegin delete 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 theend delete Department of Business Oversight and the Commissioner of Business Oversight, as specified.begin delete 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.end delete

The federal Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010begin insert imposes federal sanctions against the Government of Iran, as specified, and, among other duties,end insert 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 commissionerbegin delete 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 to comply with the federal Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010. The bill would also require a licensee that maintains a correspondent account or a payable-through account to establish at every 12-month examination period that it 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 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 deletebegin insert, when conducting specified examinations, to ensure that a licensee that maintains a correspondent account or payable-through account is in compliance with the federal Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, associated federal regulations, and any related presidential executive orders. The bill also authorizes the commissioner to bring an action for a violation of the act, as specified, and requires the commissioner to forward evidence of a violation to the United States Department of the Treasury. This bill would become inoperative when certain conditions are met.end insert

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

end delete
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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.

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

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Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: begin deleteyes end deletebegin insertnoend insert.

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

P3    1

SECTION 1.  

The Legislature hereby finds and declares all of
2the following:

3(a) In imposing United States sanctions on Iran, Congress and
4the President have determined that the illicit nuclear activities of
5the Government of Iran, combined with its development of
6unconventional weapons and ballistic missiles, and its support of
7international terrorism, represent a serious threat to the security
8of the United States, Israel, and other United States allies in Europe,
9the Middle East, and around the world.

10(b) On July 1, 2010, President Barack Obama signed into law
11H.R. 2194, the federal Comprehensive Iran Sanctions,
12Accountability, and Divestment Act of 2010 (Public Law 111-195),
13which puts strict limits on any foreign financial institution’s ability
14to open or maintain a correspondent account or a payable-through
15account with United States financial institutions if the Secretary
16of the Treasury determines that such a foreign financial institution
17knowingly does any of the following:

18(1) Facilitates the efforts of the Government of Iran to acquire
19or develop weapons of mass destruction or their delivery systems.

P4    1(2) Provides support for organizations designated by the United
2States as foreign terrorist organizations.

3(3) Facilitates the activities of persons subject to financial
4sanctions pursuant to United Nations Security Council resolutions
5imposing sanctions on Iran.

6(4) Engages in money laundering or carries out any activity
7 listed above.

8(5) Facilitates a significant transaction or transactions or
9provides significant financial services for Iran’s Revolutionary
10Guard Corps or its agents or affiliates, or any financial institution
11whose property or interests in property are blocked pursuant to
12federal law in connection with Iran’s proliferation of weapons of
13mass destruction or their delivery systems, or Iran’s support for
14international terrorism.

15(c) The federal Comprehensive Iran Sanctions, Accountability
16and Divestment Act (Public Law 111-195) imposes civil and
17criminal penalties on United States financial institutions that know
18or should have known that foreign financial institutions that
19maintain correspondent accounts or payable-through accounts with
20them are facilitating activities subject to sanctions.

21(d) On December 21, 2011, President Obama signed into law
22H.R. 1540, the federal National Defense Authorization Act for
23Fiscal Year 2012 (Public Law 112-81), which, subject to certain
24exceptions, places strict limits on any foreign financial institution’s
25ability to open or maintain a correspondent account or a
26payable-through account with United States financial institutions
27if the Secretary of the Treasury determines that a foreign financial
28institution knowingly conducted or facilitated any significant
29financial transaction with the Central Bank of Iran.

30(e) The serious and urgent nature of the threat from Iran
31demands that states work together with the federal government
32and American allies to do everything possible, diplomatically,
33politically, and economically to prevent Iran from acquiring a
34nuclear weapons capability.

35(f) There are moral and reputational reasons for this state to not
36engage in business with foreign companies that have business
37activities benefitting foreign states, such as Iran, that commit
38egregious violations of human rights, proliferate nuclear weapons
39capabilities, and support terrorism.

P5    1(g) In 2010, California enacted Chapter 573 of the Statutes of
22010 (Assembly Bill 1650 of the 2009-10 Regular Session) to
3prohibit companies with certain investments in Iran from bidding
4on or entering into contracts for goods or services with state or
5local governments.

6(h) The concerns of the State of California regarding Iran are
7strictly the result of the actions of the Government of Iran.

8begin insert

begin insertSEC. 2.end insert  

end insert

begin insertSection 25 is added to the end insertbegin insertFinancial Codeend insertbegin insert, to read:end insert

begin insert
9

begin insert25.end insert  

(a) The commissioner, when conducting examinations
10under Section 500 or Section 14250, shall ensure that a licensee
11that maintains a correspondent account or payable-through
12account is in compliance with the Comprehensive Iran Sanctions,
13Accountability, and Divestment Act of 2010 (Public Law 111-195),
14associated federal regulations, and any related presidential
15executive orders. If the commissioner finds that a licensee is in
16violation, the commissioner may bring an action in accordance
17with Section 566 or Section 16200, and shall forward evidence of
18the violation to the United States Department of the Treasury.

19(b) This section shall become inoperative if both of the following
20conditions occur:

21(1) Iran is removed from the United States Department of State’s
22list of countries that have been determined to repeatedly provide
23support for acts of international terrorism.

24(2) Pursuant to the appropriate federal statute, the President
25determines and certifies to the appropriate committee of the United
26States Congress that Iran has ceased its efforts to design, develop,
27manufacture, or acquire a nuclear explosive device or related
28materials and technology.

end insert
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29

SEC. 2.  

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

30

465.  

(a) The commissioner shall prescribe regulations to
31require a licensee that maintains a correspondent account or a
32payable-through account with a foreign financial institution to
33establish due diligence policies, procedures, and controls to comply
34with the federal Comprehensive Iran Sanctions, Accountability,
35and Divestment Act of 2010 (Public Law 111-195). The regulations
36may include an affirmative responsibility to notify the
37commissioner or other official identified in the regulation of
38potential irregularities that the licensee may come across during
39its normal course of business.

P6    1(b) A licensee that maintains a correspondent account or a
2payable-through account with a foreign financial institution shall
3establish, at every 12-month examination period pursuant to
4subdivision (d) of Section 500, that the licensee is not knowingly
5engaging with a foreign financial institution in violation of the
6sanctions under the federal Comprehensive Iran Sanctions,
7Accountability, and Divestment Act of 2010.

8(c) No licensee shall maintain a correspondent account or a
9payable-through account with any foreign financial institution that
10the United States Treasury Department’s Office of Foreign Assets
11Control has placed on the federal list of Foreign Financial
12Institutions Subject to Part 561.

13(d) The commissioner shall review all federal regulations related
14to financial institution compliance with the federal Comprehensive
15Iran Sanctions, Accountability, and Divestment Act of 2010 within
1660 days of implementation and consider modification of the
17regulations subject to this section.

18(e) The commissioner may assess an administrative fine of up
19to, but not exceeding, one hundred thousand dollars ($100,000)
20per occurrence against a licensee that fails to comply with
21subdivision (b).

22(f) The commissioner shall refer all pertinent information
23relative to possible violations of the federal Comprehensive Iran
24Sanctions, Accountability, and Divestment Act of 2010 to the
25Secretary of the United States Treasury within 10 days of receipt.
26The commission may cooperate with any federal investigation
27pursuant to the federal Comprehensive Iran Sanctions,
28Accountability, and Divestment Act of 2010.

29(g) For purposes of this section, the terms “correspondent
30account” and “payable-through account” have the same meanings
31as used in the federal Comprehensive Iran Sanctions,
32Accountability, and Divestment Act of 2010 (Public Law 111-195).

33

SEC. 3.  

Section 500 of the Financial Code is amended to read:

34

500.  

(a) (1) For purposes of this section, “foreign bank” means
35the business in this state of every foreign (other nation) bank
36licensed under Article 3 (commencing with Section 1800) of
37Chapter 20 of Division 1.1.

38(2) For purposes of this subdivision, an examination made by
39the commissioner in conjunction with or with assistance from a
40bank regulatory agency of the United States, of a state of the United
P7    1States, or of a foreign nation is deemed to be an examination caused
2by the commissioner.

3(3) No provision of this subdivision shall be deemed to require
4that the commissioner cause an examination to be made onsite at
5the offices of a bank.

6(4) The commissioner shall cause every California state bank
7and every foreign bank to be examined to the extent and whenever
8and as often as the commissioner shall deem it advisable, but in
9no case less frequently than once every 12 months, except that the
10following banks shall be examined pursuant to federal law no less
11frequently than state banks and foreign banks that meet the
12respective federal criteria:

13(A) California state banks that meet the criteria set forth in
14Section 1820(d)(4) of Title 12 of the United States Code.

15(B) Foreign banks that meet the criteria set forth in Section
16211.26(c)(2) of Title 12 of the Code of Federal Regulations.

17(5) The examinations required by paragraph (4) may be
18conducted in alternate examination periods, as appropriate, if the
19commissioner determines that an examination of the state bank by
20the appropriate federal regulator, insuring or guaranteeing
21corporation during the intervening examination period carries out
22the purpose of this section. The commissioner may not accept two
23consecutive examinations, or two consecutive examination reports,
24made by federal regulators, insuring or guaranteeing corporations,
25or agencies with respect to the condition of the state bank.

26(6) The commissioner shall cause every California state trust
27company to be examined to the extent and whenever and as often
28as the commissioner shall deem it advisable, but in no case less
29frequently than once every 24 months.

30(7) The commissioner may examine subsidiaries of every
31California state bank, state trust company, and foreign (other
32nation) bank licensed under Article 3 (commencing with Section
331800) of Chapter 20 of Division 1.1 to the extent and whenever
34and as often as the commissioner shall deem it advisable.

35(b) The commissioner may at any time examine any of the
36following:

37(1) Any office of a bank organized under the laws of this state.

38(2) Any office of a foreign (other state) bank that maintains an
39office in this state.

P8    1(3) Any office of a foreign (other nation) bank that maintains
2an office in this state.

3(c) The officers and employees of every California state bank,
4California state trust company, and foreign bank being examined
5shall exhibit to the examiners, on request, any or all of its securities,
6books, records, and accounts and shall otherwise facilitate the
7examination so far as it may be in their power.

8(d) (1) The commissioner shall require that any licensee that
9maintains a correspondent account or a payable-through account
10with a foreign financial institution shall, when under examination
11pursuant to paragraph (4) of subdivision (a), demonstrate that the
12licensee is in compliance with state regulations for the
13implementation of the federal Comprehensive Iran Sanctions,
14Accountability, and Divestment Act of 2010 (Public Law 111-195).

15(2) In any examination period in which the commissioner has
16accepted an examination by an appropriate federal regulator for
17compliance with paragraph (4) of subdivision (a), a licensee that
18maintains a correspondent account or a payable-through account
19with a foreign financial institution shall submit a declaration of
20compliance with the regulations adopted pursuant to Section 465.
21The declaration shall be submitted to the commissioner within 30
22days of the completion of the examination.

23

SEC. 4.  

No reimbursement is required by this act pursuant to
24Section 6 of Article XIII B of the California Constitution because
25the only costs that may be incurred by a local agency or school
26district will be incurred because this act creates a new crime or
27infraction, eliminates a crime or infraction, or changes the penalty
28for a crime or infraction, within the meaning of Section 17556 of
29the Government Code, or changes the definition of a crime within
30the meaning of Section 6 of Article XIII B of the California
31Constitution.

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