Financial Crime World

Here is the article in markdown format:

Guidelines for Correspondent Banking Services to Manage Risks of Money Laundering and Financing of Terrorism

Correspondent banking services play a crucial role in facilitating international trade and finance, but they also pose significant risks related to money laundering (ML) and financing of terrorism (TF). To mitigate these risks, correspondent institutions must implement effective risk management strategies. In this article, we outline key points and recommendations for managing ML/TF risks associated with correspondent banking services.

Key Points

Risk Assessment

The correspondent institution should identify and assess the level or type of residual risk associated with the respondent institution.

  • Understand the potential risks involved in the relationship.
  • Identify any areas that require additional scrutiny or monitoring.

Due Diligence

Verify the identity of the respondent institution, beneficial owners, and understand its ownership and control structure to ensure it is not a shell bank.

  • Gather information about the respondent institution’s business operations and customer base.
  • Review any publicly available information about the respondent institution.

Purpose and Nature of Relationship

Gather information about the purpose and intended nature of the correspondent banking relationship, including the types of customers the respondent institution intends to service.

  • Understand the scope of the relationship and the services provided.
  • Identify any potential risks or areas for concern.

AML/CFT Controls

Assess the respondent institution’s Anti-Money Laundering (AML) and Counter-Terrorism Financing (CFT) controls, including reviewing its AML/CFT systems and controls framework.

  • Review the respondent institution’s policies and procedures.
  • Assess the effectiveness of its AML/CFT monitoring and reporting processes.

Independent Audit

Confirm that the respondent institution’s AML/CFT controls are subject to independent audit, which could be external or internal.

  • Verify that the auditor has sufficient expertise in AML/CFT matters.
  • Review the audit report to ensure it is comprehensive and thorough.

On-Site Visit

Conduct a more detailed review for higher-risk relationships, possibly including an on-site visit.

  • Gather information about the respondent institution’s operations and controls.
  • Assess the effectiveness of its AML/CFT measures.

Recommendations

  1. The correspondent institution should gather sufficient information to understand the purpose and intended nature of the correspondent banking relationship with the respondent institution.
  2. The institution should assess the respondent institution’s AML/CFT controls by reviewing its systems and controls framework and confirming that they are subject to independent audit.
  3. For higher-risk relationships, a more detailed review should be conducted, possibly including an on-site visit.

References

  • FATF Recommendation 10 (a)
  • FATF Recommendation 13
  • Glossary to the FATF Recommendations