ndian banks have raised concerns over the US rule that seeks mandatory sharing of customer details with US authorities under that country’s expanded National Defense Authorization Act (NDAA), which took effect on January 1. According to a report in the Economic Times, banks have approached the government with their concerns over the US rule and have sought the Centre’s response.
The publication citing a government official confirmed that the Indian Banks’ Association (IBA) has sought government intervention and guidance on the issue. Banks have pointed out that the provision will raise costs and any compliance shortfall can have serious implications.
The NDAA incorporates parts of the Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2019, significantly enhancing the reach of authorities over foreign banks if they have a correspondent account with an American financial institution.
It allows the Department of Justice and the Department of Treasury to subpoena records of such a foreign bank. Importantly, this provision can be invoked without regard to whether the correspondent account was used for potential violation of US law or not.
The correspondent bank accounts of US financial institutions first came under watch through the US Patriot Act of 2001 to prevent money laundering and terror financing.
“The banks have raised some concerns which are being looked at. The issues will also be discussed with the RBI and accordingly any decision will be taken,” the financial daily quoted the above-mentioned official as saying. Although Indian banks are compliant with the Foreign Account Tax Compliance Act (Fatca), Indian regulators should guide banks on the provisions of the NDAA that apply to them, experts said.
“This amendment will result in additional overheads on foreign banks that have correspondent accounts in the US for responding to any subpoenas with the risk of noncompliance being both financial penalty as well termination of correspondent relationships that essentially may cause loss of business share,” the Et report quoted as saying Jaikrishnan G, partner, financial services consulting, Grant Thornton Bharat.
Bankers are of the view that the application of this amended provision will be selective and only relevant in cases where there is court intervention. “But clarity is needed and that is why we have approached the government,” the publication quoted a bank executive aware of the developments as saying.
