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UNITED STATES OF AMEIIICA BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, U.C. ) In the Matter of 1 BANCO DE, CHILE Santiago, Chile 1 1 1 1 BANCO DE CHILE MIAMI BRANCH Miami, Florida ) Docket NOS. 05-001-B-FR 05-00 1-B-FRB Cease and Desist Order Issued Upon Consent Pursuant to the Federal Deposit Insurance Act, as Amended WHEREAS, the Board of Governors of the Federal Reserve System (the “Board of Governors”) issues this Cease and Desist Order (the “Order”) against Banco de Chile (the “Bank”), a f o r e i p bank as defined in section 3101(7) of the International Banking Act (12 U.S.C. 3101(7)) and the Miami branch of the Bank (the “Miami Branch”); WHEREAS, the Bank and the Mianii Branch are taking steps to address deficiencies relating to compliance with applicable federal laws, rules, and regulations relating to anti-money laundering (“AMY’) policies and procedures, including the Currency and Foreign Transactions Reporting Act, 3 I U.S.C. 531 I etm.(the Bank Secrecy Act or “BSA“), as amended by the USA PATRIOT Act; the rules and regulations issued thereunder by the U.S. Department of the Treasury (3 I C.F.R. Part 103); and the suspicious activity reporting requirements of Regulation K of the Board of Governors (12 C.F.R. 21 124(Q); WHEREAS, to address the deficiencies in the Miami Branch’s policies, procedures, and internal controls relating to AML, the Bank and the Miami Branch are consenting to the issuance of this Ordcr by the Board of Governors; and WHEREAS, on February I , 2005, the hoard ofdirectors of the Bank, at a duly constituted meeting. adopted a resolution authorizing and directing the General blannger to enter into this Order on behalf ofthe Bank and the Mana$ng Director ofthe International Area to enter into this Order on behalf of the Miami Branch, and consenting to compliance wilh each and every applicable provision of this Order by thc Bank, the Miami Branch, and their institutionaffiliated parties, as defined in sections 3(u) and 8(b)(4) of thc Federal Deposit Insurance Act, as amended (12 U.S.C. 1813(u) and 1818(b)(4)), and waiving any and all rights theBankor the Miami Branch may have pursuant to section 8 of the FDI Act (12 U.S.C. 18 18) to: (i) a hearing for the purpose of taking evidence on any matters set forth in this Order; (ii) judicial review of this Order; and (iii) challenge or contest, in any manner, the basis, issuance, validity, terms, effectiveness or enforceability of this Order or any provisions hereof. NOW, THEREFORE, before the taking of any testimony or adjudication of, or finding on any issue of fact or law herein, and without this Order constituting an admission of any allegation made or implied by the Board of Governors in connection with this proceeding; LT IS HEREBY ORDERED that, pursuant to sections 8(b)(l) and (4) ofthe FDI Act (12 U.S.C. 1818(b)(l) and (4)), the Bank, the Miami Branch, and their institution-affiliated parties cease and desist and take the following affirmative actions: Anti-Money Laundering Compliance 1. Within 90 days of this Order, the Bank and the Miami Branch shall jointly submit to the Federal Reserve Bank of Atlanta (the “Rescrv-e Bank”) an acceptable written AML program designed to ensure the Miami Branch’s compliance with all applicable provisions of the BSA and the rules and regulations issued thereunder. The program shall include provisions for updates on an ongoing basis as necessary to incorporate anicndmcnts to the BSA and the rules and regu!ations issued thereunder. The program shall at a minimum provide for: (a) Enhanced internal controls, pai.ticiilarly in the area of account opening and transaction monitoring, to ensure compliance with all recordkeeping and reporting requirements; (b) the indepcndent testing of compliance with the BSA and the rnles and regulations issued thcrcunder through regular comprehensive compliance audits that are fully documented and conducted by qualified parties who are independent of the Bank’s and the Miami Branch’s compliance function; (c) the management of the Miami Branch’s AML program by a qualified compliance officer, who is supported by adequate staffing levels, who is located at the Miami Branch, and who has responsibility for overseeing and monitoring the Miami Branch’s compliance with all BSA-related laws and regulations and its adherence to internal policies and procedures; and (d) effective training for all appropriate personnel at the Miami Branch in all aspects of regulatory and internal policies and procedures related to the BSA and the identification and reporting of suspicious transactions, and updating of training on a regular basis to reasonably ensure that all appropriate personnel are trained in the most current legal requirements, appropriate industry best practices, and internal policies and procedures. Suspicious Activity Reporting and Customer Due Diligence 2. Within 90 days of this Order, the Bank and the Miami Branch shall jointly submit to the Reserve Bank an acccptable written customcr due diligence program designed to reasonably ensure the identification and timely, accurate, and complete reporting or all known or suspccted violations o f law azainst or involving the Mianii Branch anti siispicious transactions at the Miami Branch to law enforcement and supervisory authorities as required hy the suspicious activity reporting provisions of Regulation K of [he Board of Governors ( 1 2 C.F.R. 2 I 1 .24(l]). At a minimum, the program shall includc: (a) A methodology for assigning risk levels to the blianii Branch’s customer (b) a risk focused assessment of the Miami Branch’s customer base to: base; (i) identify the categories of customers whose transactions and banking activities are routine and usual; and (ii) determine the appropriate level of enhanced due diligence necessary for those categories of customers that pose a heightened risk of conducting potentially illicit activities at or through the Miami Branch; (c) for each customer whose transactions require enhanced due diligence, procedures to: (i) determine the appropriate documentation necessary to verify the identity and business activities of the customer; and (ii) understand the normal and expected transactions of the customer; and (d) procedures designed to ensure proper identification and reporting of all known or suspected violations of law and suspicious transactions, including but not limited to: (i) effective monitoring of customer accounts and transactions; and (ii) appropriate participation by Miami Branch senior management in the process of identifying, reviewing, and reporting potentially suspicious activity. Accounts Related to Senior Foreign Political Figures 3. (a) Within 120 days of this Order, the Miami Branch shall complete a review of all account activity from January 1, 1099 to the date ofthis Order for the accounts of any fumier or current Miami Branch customer who has been identified by the Miami Brsnch as a senior fore$ political figure, a member of a senior foreign political ligure’s immediate family, or a close associate of a senior foreign political figure (collectively, “Covered Persons”) for suspicious activity. Upon completion of the account review, the Miami Branch shall ensure that all matters or transactions required to be reported pursuant to the rules of the Board of Governors and the BSA have been reported in accordance with applicable rules and regulations. (b) For the purposes of this Order, the terms “senior foreign political figure”, “member of a senior foreign political figure’s immediate family”, and “close associate of a senior foreign political figure” shall be defined as set forth in the interagency Guidance on Enhanced Scnitiny for Transactions that May Involve the Proceeds of Foreign Official Corruption, dated January 2001, and referenced in the Board of Governors’s SR Letter 01-03 (the “Interagency Guidance”). 4. Within 90 days of this Order, the Bank and the Miami Branch shall jointly submit to the Reserve Bank acceptable written policies and procedures governing accounts and transactions involving Covered Persons. At a minimum, the policies and procedures shall address, consider, and include: (a) Procedmes for: (i) ensuring the identification of accounts in which Covered Persons have an interest, including accounts for which Covered Persons arc beneficial owncrs; 5 (ii) assigning risk levels to Covered Persons’ accounts; arid (iii) determining the appropriate level of enhanced due diligence necessary for the accounts of Covered Persons that pose a heightened risk of conducting potentially illicit activities at or through the Miami Branch; and (b) the guidance to banking organizations regarding Covered Persons contained in the Interagency Guidance. Coordination Between U.S. Branches 5. Within 90 days of this Order, the Bank and the Miami Branch shall submit to the Reserve Bank acceptable procedures for information sharing and coordination, as appropriate, between the Miami Branch and the Bank’s New York Branch, a federally-chartered branch supervised by the Office of the Comptroller of the Currency, to ensure full conipliance by the Bank’s US.operations with all applicable provisions of the BSA and the rules and regulations issued thereunder and consistent adherence to applicable internal policies and procedures. OFAC Compliance 6. Within 90 days of this Order, the Bank and the Miami Branch shall jointly submit to the Reserve Bank an acceptable written plan designed to ensure the Miami Branch’s compliance with the regulations of the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) (31 C.F.R. 500 g m.), as well as any guidelines issued or administered by OFAC. The plan shall include, at a minimum, procedures to ensure that customer transactions and assets are treated in accordance with OFAC requirements and in accordance with a regularly updated list of entitics and individuals whose transactions or assets are required to be bloclicd, frozen, or monitored. Cooperation with Regulatory Authorities 7. Within 90 days of this Order, the Bank and the Miami Branch shall joinlly submit to the Reserve Bank accephble written policies and proccdures that govern the conduct of Miami Branch personnel, and where applicable, Bank pcrsonnel, in all regulatory matters, including, but not limited to interaction with and information requests by the Reserve Bank. The policies and procedures shall, at a minimum: (a) emphasize [he importance of full cooperation with banking regulators; (b) ensure that all Miami Branch personnel provide prompt, complete, and accurate information to banking regulators; and (c) ensure that all Bank personnel provide prompt, complete, and accurate information in all communications with the Reserve Bank or the Board. Approval and Progress Reports 8. The programs, policies, procedures, and plan required by paragraphs 1,2,4,5,6, and 7 of this Order shall be submitted to the Reserve Bank for review and approval. Acceptable programs, policies, and procedures, and an acceptable plan shall be submitted to the Reserve Bank within the time periods set forth in this Order. The Bank and the Miami Branch shall adopt the approved programs, policies, procedures, and plan within 10 days of approval by the Reserve Bank and then shall take all actions necessary to fully comply with them. During the term of this Order, the approved programs, policies, procedures, and plan shall not be amended or rescinded without the prior written approval of the Reserve Bank. 9. Within 10 days after the end of each calendar quarter following the date ofthis Order, the Bank and the Miami Branch shall jointly submit to the Reserve Bank written progress reports detailing the form and manner of all actions taken to secure compliance with thc provisions of this Order, and (he results thereof. Management’s responses to any audit rcports covcring AMI, niattcrs prepared by internal and extcrnal auditors shall be included with thc progress report. The Reserve Bank niay, in writing; discontinuc the requirement for progress reports or modify the reporting schedule. Notices 10. All commiioications regarding this Order sliali be sent to: (a) iMr. Robert M. Schenck Vice President Federal Reserve Bank of Atlanta 9100 NW 3gthStreet Miami, Florida 33178 (b) Mr. Pablo Granifo Banco de Chile Ahumada 25 1 Santiago, Chile (c) Mr. Patricio Nazal Managing Director, International Area Banco de Chile Miami Branch Suite 2700 200 South Biscayne Boulevard Miami, Florida 33 131 Miscellaneous 1 1. The provisions of this Order shall be binding on the Bank, the Miami Branch, and each of their institution-af~liatedparties in their capacities as such, and their successors and assigns 12. Each provision of this Order shall remain effective and enforceable until stayed, modified, terminated or suspended in writing by the Board of Governors 13. Notwithstanding any provision of this Order, the Reserve Bank niay, in its sole discretion, grant written extcnsions oftimc to the Bank and the Miami Branch to comply with any provision ofthis Order. 14. The provisions ofthis Order shall not bar, estop or otherwise prcvent the Board of Governors, the Rcservc Bank or any fcdcrnl or state ngcncy 7rom taking any further or other x l i o n afkctiny thc flank. thc Miami Branch, 01-any of their current or fixnirr institution- af1ili;ited par-lies or their successors or assigns. By order ofthe Board ot'Governors o l t h e Federal Resewe System, effective this clay o f February, 2005. Banro de Chile General hanager Banco de Chile Miaini Branch BY:_^__ Patricio Nazal Managing Director, International Area Board of Governors of the Federal Reserve System 5 +. -~ action affecting the 3ank, the Miami Branch, or any of thelr current or former institutionaffiliated parties or their successors or assigns. By order of the Board of Governors ofthe Federal Reserve System, effective this day of February, 2005. Banco de Chile Board of Governors of the Federal Reserve System By: Pablo Granifo General Manager Banco de Chile Miami Branch 6 a cioNazal --Tdmaging Director, International Area 4 kr-