A shell bank is a financial term that describes a financial institution

Financial institution

In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries...

 that does not have a physical presence in any country

Country

A country is a region legally identified as a distinct entity in political geography. A country may be an independent sovereign state or one that is occupied by another state, as a non-sovereign or formerly sovereign political division, or a geographic region associated with a previously...

. In order to prevent money laundering

Money laundering

Money laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount...

 Subtitle A

USA PATRIOT Act, Title III, Subtitle A

The USA PATRIOT Act was passed by the United States Congress in 2001 as a response to the September 11, 2001 attacks. It has ten titles, with the third title written to prevent, detect, and prosecute international money laundering and the financing of terrorism.Title III is itself divided into...

 of the USA PATRIOT Act

USA PATRIOT Act

The USA PATRIOT Act is an Act of the U.S. Congress that was signed into law by President George W. Bush on October 26, 2001...

 specifically prohibits such institutions, with the exception of shell banks that are affiliate (under the control) of a bank that has a physical presence in the U.S.

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 or if the foreign shell bank is subject to supervision by a banking authority in the non-U.S. country regulating the affiliated depository institution, credit union

Credit union

A credit union is a cooperative financial institution that is owned and controlled by its members and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members...

, or foreign bank.

The USA PATRIOT Act includes specific provisions designed to limit the use of correspondent accounts for money laundering activity. These provisions are contained in sections 312, 313 and 319(b) and involve limitations on shell bank relationships as well as enhanced due diligence and record keeping requirements.

On 2002-11-28, final regulations (31 CFR 103.177 and 103.185) implementing section 313 and 319(b) of the US Patriot Act became effective. The regulations implement provisions of the BSA (Bank Secrecy Act

Bank Secrecy Act

The Bank Secrecy Act of 1970 requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering...

) that relate to foreign corresponded accounts.