According to section 313 of the USA PATRIOT Act, a covered financial institution (generally any U.S. bank or broker dealer in securities) is prohibited from establishing, maintaining, administering, or managing a correspondent account in the U.S. for, or on behalf of, a foreign shell bank. A foreign shell bank is defined as a foreign bank that does not have a physical presence in any country. The only exception to this prohibition is if the foreign shell bank is a regulated affiliate of a depository institution, credit union, or foreign bank that maintains a physical presence in the U.S. or a foreign country, respectively. In that case, the U.S. financial institution must obtain a written certification from the foreign bank that it does not provide banking services to any other foreign shell banks.
References:
Here's Why A Process Agent Is Required Under a Certification by a Foreign Bank, Cogency Global, September 2020.
Definition of "Foreign Shell Bank" and "Foreign Bank", FinCEN, April 2003.
USA PATRIOT Act, FinCEN, accessed February 2024.

The USA PATRIOT Act is a comprehensive legislation that was enacted in response to the terrorist attacks of September 11, 2001, and aimed to strengthen the US government's ability to prevent, detect, and prosecute money laundering and terrorist financing. Among its many provisions, the USA PATRIOT Act contains several sections that have extraterritorial reach, meaning that they apply to foreign entities or activities that have a nexus with the US. Three of these sections are:
* Section 319(b), which allows for the US Attorney General or the Secretary of the Treasury to issue a subpoena or other legal order to any foreign bank that maintains a correspondent account in the US, requiring the production of records relating to such account or any account at the foreign bank, including records maintained outside the US12. This section also allows foreign banksto voluntarily designate a registered agent in the US to accept service of such subpoenas or orders12.
* Section 313, which prohibits US financial institutions from establishing, maintaining, administering, or managing correspondent accounts for foreign shell banks, which are banks thathave no physical presence in any country and are not affiliated with a regulated financial group34. This section also requires US financial institutions to take reasonable steps to ensure that their correspondent accounts with foreign banks are not being used to provide banking services indirectly to foreign shell banks34.
* Section 311, which authorizes the Secretary of the Treasury to designate foreign jurisdictions, financial institutions, classes of transactions, or types of accounts as being of "primary money laundering concern" and to impose special measures to address such concerns . These special measures may include requiring US financial institutions to obtain and retain information on the beneficial owners of foreign accounts, prohibiting or imposing conditions on the opening or maintaining of correspondent or payable-through accounts for foreign financial institutions, or requiring US financial institutions to identify the customers of their foreign correspondent account holders . The Secretary of the Treasury may also order a US financial institution to terminate a correspondent account within 10 days if the foreign bank fails to comply with a subpoena or other request for information under Section 319(b) .
:
1: USA PATRIOT Act, Section 319(b)
2: ACAMS, CAMS Certification Package - 6th Edition, Chapter 4, page 121
3: USA PATRIOT Act, Section 313
4: ACAMS, CAMS Certification Package - 6th Edition, Chapter 4, page 120
5: USA PATRIOT Act, Section 311
6: ACAMS, CAMS Certification Package - 6th Edition, Chapter 4, page 119 Reference:
https://www.jonesday.com/-/media/files/publications/2007/10/extraterritorial-application-of-the-usa-patriot-ac
/files/extraterritorial-application-of-the-usa-patriot-ac/fileattachment/graves_ganguli.pdf
https://www.lawfareblog.com/long-arm-us-law-patriot-act-anti-money-laundering-act-2020-and-foreign-banks

The best course of action for the FI in this scenario is to consider retaining qualified, experienced legal counsel. This is because the investigation request from the local law enforcement agency may involve complex legal issues, such as confidentiality, privacy, data protection, and cooperation obligations. The FI may need to balance the interests of the customer, the law enforcement agency, and the FI itself, and ensure that it complies with the applicable laws and regulations in responding to the request. The legal counsel can advise the FI on the scope, validity, and implications of the request, and help the FI to prepare and submit the required information in a timely and appropriate manner. The legal counsel can also protect the FI from any potential liability or litigation arising from the investigation.
:
1: Requests by Law Enforcement for Financial Institutions to Maintain Accounts and/or Conduct Transactions1
2: Answers to Frequently Asked Questions Regarding Suspicious Activity Reporting and Other Anti-Money Laundering Considerations2
3: ACAMS Study Guide for the CAMS Certification Examination3

According to the 6th edition Certified Anti-Money Laundering Specialist Study Guide, when the compliance department receives an internal referral that appears to indicate terrorist financing, the first step in the investigation process should be to gather background and transaction information. This includes obtaining customer identification and verifying customer data, obtaining additional information about the customer and the transaction, and reviewing the transaction activity. This information will help to determine if the referral is accurate and if further action is needed.

This method is indicative of potential money laundering and terrorist financing activity because it involves several red flags, such as:
* The use of cash, which is anonymous and difficult to trace
* The urgency of the transfer, which may suggest a need to move funds quickly before they are detected
* The destination of the transfer, which may be a high risk country with weak anti-money laundering (AML) and counter-terrorism financing (CTF) controls or sanctions
* The lack of information about the client and the beneficiary, which may indicate a lack of due diligence or customer identification These factors may indicate that the client is trying to conceal the source, ownership, or purpose of the funds, or that the funds are related to illicit activities such as money laundering or terrorist financing.
:
ACAMS CAMS Certification Video Training Course1, Module 2: Money Laundering Risks and Methods, Lesson 2.2: Money Laundering Methods ACAMS CAMS Study Guide, 6th Edition2, Chapter 2: Money Laundering Risks and Methods, Section 2.2:
Money Laundering Methods, pp. 35-36
ACAMS CAMS Examination Preparation Seminar, 6th Edition3, Chapter 2: Money Laundering Risks and Methods, Section 2.2: Money Laundering Methods, Slide 14