BILL NUMBER: AB 978 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 25, 2013
AMENDED IN ASSEMBLY APRIL 15, 2013
INTRODUCED BY Assembly Member Blumenfield
(Coauthors: Assembly Members Brown, Fox, and Medina)
FEBRUARY 22, 2013
An act to amend Section 500 of, and to add Section 465
to, add Section 25 to 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,
generally provides for the regulation and licensure of
financial institutions , including, but not limited to, banks
and credit unions, 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 imposes federal sanctions against the
Government of Iran, as specified, and, among other duties,
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 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. ,
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.
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 no .
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.
(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.
(e) 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.
(f) 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.
(g) 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.
(h) The concerns of the State of California regarding Iran are
strictly the result of the actions of the Government of Iran.
SEC. 2. Section 25 is added to the
Financial Code , to read:
25. (a) The commissioner, when conducting examinations under
Section 500 or Section 14250, shall ensure that a licensee that
maintains a correspondent account or payable-through account is in
compliance with the Comprehensive Iran Sanctions, Accountability, and
Divestment Act of 2010 (Public Law 111-195), associated federal
regulations, and any related presidential executive orders. If the
commissioner finds that a licensee is in violation, the commissioner
may bring an action in accordance with Section 566 or Section 16200,
and shall forward evidence of the violation to the United States
Department of the Treasury.
(b) This section shall become inoperative if both of the following
conditions occur:
(1) Iran is removed from the United States Department of State's
list of countries that have been determined to repeatedly provide
support for acts of international terrorism.
(2) Pursuant to the appropriate federal statute, the President
determines and certifies to the appropriate committee of the United
States Congress that Iran has ceased its efforts to design, develop,
manufacture, or acquire a nuclear explosive device or related
materials and technology.
SEC. 2. Section 465 is added to the Financial
Code, to read:
465. (a) 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 to comply
with the federal Comprehensive Iran Sanctions, Accountability, and
Divestment Act of 2010 (Public Law 111-195). 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.
(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.
(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.
(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.
(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).
(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.
(g) 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).
SEC. 3. Section 500 of the Financial Code is
amended to read:
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.
(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).
(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.
SEC. 4. 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.