Financial Crime World

Correspondent Banking Services: Guidance on Due Diligence Requirements

Introduction

This document provides guidance on the due diligence requirements for correspondent banks to assess and manage risks related to money laundering (ML) and terrorism financing (TF). It emphasizes that risk will vary on a case-by-case basis, depending on factors such as the respondent institution’s jurisdiction, products/services offered, and customer base.

Key Points

  • Risk Assessment: The guidance notes that risk assessment is essential in determining the level of due diligence required for correspondent banking relationships.

  • Higher-Risk Relationships: It is not possible to develop an exhaustive list of higher-risk relationships due to varying risk factors and mitigation measures.

  • Due Diligence Requirements:

    • Verify Identity of Respondent Institution: Identify and verify the identity of the respondent institution using reliable, independent source documents or information (Recommendation 10(a)).
    • Beneficial Owners: Verify the identity of beneficial owners.
    • Ownership and Control Structure: Understand the ownership and control structure of the respondent institution to ensure it is not a shell bank.

Understanding the Purpose and Nature of the Correspondent Banking Relationship

  • Gather sufficient information about:
    • Intended activities
    • Expected activity level
    • Transaction volume and value
    • Planned transactions

Additional Due Diligence Requirements

  • Assess Reputation: Assess the reputation of the respondent institution and its quality of supervision.
  • AML/CFT Controls: Review AML/CFT controls, including independent audits.
  • Higher-Risk Relationships: Conduct a more detailed review for higher-risk relationships, which may include reviewing the independent audit, interviewing compliance officers, or conducting an onsite visit.

Conclusion

The overall tone of this guidance is that correspondent banks must take a comprehensive and risk-based approach to due diligence when establishing and maintaining correspondent banking relationships to mitigate ML/TF risks.