Date post: | 29-Mar-2015 |
Category: |
Documents |
Upload: | isabell-hendron |
View: | 217 times |
Download: | 0 times |
HIGH-RISK: FOREIGN CORRESPONDENT
BANKING
1/2004 Anti-Money Laundering 2
OBJECTIVES
• Define Foreign Correspondent Banking• Understand Potential and Unique Issues• Recognize Money Laundering Vulnerabilities• Define High-Risk Products and Services• Describe Importance of Due Diligence• Discuss Examiner Considerations
– Risk Management v. Compliance Issues– Examinations (Pre- and On-site) – BSA/AML Exam Procedures for Foreign Correspondent
Banking– Questions???
1/2004 Anti-Money Laundering 3
DEFINITION
• Accounts Maintained On Bank’s Behalf
• Between Domestic Banks
• Between Domestic Banks and Foreign Banks
• Correspondent vs. Respondent Bank
1/2004 Anti-Money Laundering 4
POTENTIAL AND UNIQUE ISSUES
• Legitimate Business Purposes– International trade and investment– Settlement purposes– Funds transfer activity– Clearing of foreign items– Jurisdictions where bank has no presence
1/2004 Anti-Money Laundering 5
POTENTIAL AND UNIQUE ISSUES
• Non-Legitimate Purposes– Conduit For dirty money – Gateway to the US financial system– Foreign bank
corruptpoorly regulatedpoorly managedweak or nonexistent AML controls
1/2004 Anti-Money Laundering 6
MONEY LAUNDERING VULNERABILITIES
• Lax Due Diligence
• Nested Correspondents
• Correspondent Banker or Relationship Manager
• Bank Secrecy Laws
• Weak AML Laws
• Cross Border Difficulties
1/2004 Anti-Money Laundering 7
HIGH RISK PRODUCTS AND SERVICES
• Funds Transfer
• Pouch Activity
• Cash Letter
• Payable Through Accounts
1/2004 Anti-Money Laundering 8
HIGH RISK PRODUCTS AND SERVICES: FUNDS TRANSFER
• Key Activity
• Failure to Monitor
• Manual Reviews
1/2004 Anti-Money Laundering 9
HIGH RISK PRODUCTS AND SERVICES: POUCH ACTIVITY
• Common Carrier
• Currency
• Monetary Instruments
• Documents
• Financial Institution
• Individual
1/2004 Anti-Money Laundering 10
HIGH RISK PRODUCTS AND SERVICES: POUCH ACTIVITY
• Red Flags:– Same or consecutive days from different
locations– Sequentially numbered – Amounts under 3,000 or 10,000– Little or no purchaser information.– Repetitive beneficiaries or originators or both– Round even dollars
1/2004 Anti-Money Laundering 11
HIGH RISK PRODUCTS AND SERVICES: CASH LETTER
• High Volume
• Failure to Monitor
• Manual Reviews
1/2004 Anti-Money Laundering 12
HIGH RISK PRODUCTS AND SERVICES: PAYABLE THROUGH
ACCOUNTS
• US Bank Check-Writing to Foreign Bank Customers
• Foreign Bank - Master Account
• Foreign Bank Customers - Sub-Accounts
• Provide for Enhanced Due Diligence
1/2004 Anti-Money Laundering 13
HIGH RISK PRODUCTS AND SERVICES: PAYABLE THROUGH
ACCOUNTS• Traditional Foreign Correspondent Bank
Account– No access by foreign customers
– Differs from PTA sub-account holders
• Foreign Bank Uses Traditional Foreign Correspondent Bank Account as PTA– No information on ultimate users
– Potential for ML and OFAC violations
1/2004 Anti-Money Laundering 14
DUE DILIGENCE
• Noteworthy Due Diligence Failures– Nested respondent banks– Non-credit relationships
1/2004 Anti-Money Laundering 15
ENHANCED DUE DILIGENCE
• Factors to Consider– Purpose– Location– Bank license– AML programs– Regulation and supervision
1/2004 Anti-Money Laundering 16
ENHANCED DUE DILIGENCE
• Risk Management– Perceived risk– Availability to third parties– Compliance program– SAR detection and reporting– Monitoring
1/2004 Anti-Money Laundering 17
BANK LICENSES
• Shell Banks
• Offshore Banks
• Banks in Non-Cooperative Jurisdictions
1/2004 Anti-Money Laundering 18
NCCTs
• Cook Islands
• Philippines
• Nauru
• Egypt
• Guatemala
• Indonesia
• Myanmar
• Nigeria
• Ukraine
1/2004 Anti-Money Laundering 19
EXAMINER CONSIDERATIONS: Risk Management v. Compliance
Risk Management: To assess and protect against undue risk exposure.
Includes• Oversight• Policies/Procedures• Internal Controls• MIS
Compliance: To conduct business according to applicable laws and regulations.
• Technical aspects• Potential fines
1/2004 Anti-Money Laundering 20
EXAMINATIONS
Pre-Examination
• FDL/Officers’ Questionnaire Response– List of Due To/Due From Accounts– Audits– Risk Assessments – Strategic Plans
• Exam Scope
1/2004 Anti-Money Laundering 21
EXAMINATION PROCEDURES
On-Site Examination• Risk Focused• Decision Factors
– Level of business with FCB (offshore or NCCT)
– Weak controls/AML efforts concerning correspondent banking
– Internal audit coverage/findings– SAR/CTRs
1/2004 Anti-Money Laundering 22
EXAMINATION PROCEDURES
• General: Review overall approach to correspondent banking business line (risk management approach)
• USA PATRIOT Act: 313/319 (SR Letter 03-17)– Prohibit shell banks
– Recordkeeping
• USA PATRIOT Act: 312 (Pending)– Special Due Diligence for Correspondent Accounts
and Private Banking Accounts
1/2004 Anti-Money Laundering 23
EXAMINATION PROCEDURES
GENERAL: Review overall approach to correspondent banking business line (risk management approach)
• Management Oversight– Risk assessment – Strategic Plan/Approved markets, products, and services
• Policies/Procedures– Marketing/Due Diligence/Account Acceptance– Operations– Monitoring/Compliance
• Internal Controls– Documentation– Monitoring
• MIS
1/2004 Anti-Money Laundering 24
EXAMINATIONS
• Transaction Testing– Sample of accounts– Review agreements– Review account opening and due diligence– Account activity from statements
1/2004 Anti-Money Laundering 25
EXAMINATION PROCEDURES
USA PATRIOT Act: 313/319– Prohibits Shell Banks– Recordkeeping
• SR 03-17 Exam Procedures
1/2004 Anti-Money Laundering 26
EXAMINATION PROCEDURES
USA PATRIOT Act: 312– Special Due Diligence for Correspondent
Accounts and Private Banking Accounts
• Exam procedures pending
• Interim: Use draft procedures: “High Risk Areas That May Require Special Scrutiny: Foreign Correspondent Banking”
1/2004 Anti-Money Laundering 27
QUESTIONS
• What is the focus for 2004?
• Will work programs be developed for Correspondent Banking and USA PATRIOT Act compliance?
• How should we review Due From/Due To Affiliate accounts?
• Should banks obtain certifications for correspondent banking relationships on the asset side?
• What should examiners look for when reviewing Due From accounts (aside from reconciling differences and stale items)?
1/2004 Anti-Money Laundering 28
QUESTIONS
• When reviewing correspondent bank relationships must the file contain a copy of the “banking license from the licensing authority”?