Correspondence Accounts and Wire Transfers

1. Correspondence Accounts and Wire Transfers James Wright OTA Advisor Romania

2. Money Transfers Loans Letters of Credit Other Correspondent Services

3. Concerns • Money laundering through shell banks • Nested accounts • US Congress • FATF

4. Proper due diligence • Obtain information on bank’s ownership and management • Obtain information on the nature, and volume of transactions expected • Review bank's financial statements

5. Due Diligence • .Evaluate credit worthiness • Determine the bank’s primary line of business • Verify the bank’s licenses

6. Due diligence • . Determine that the bank has a fixed, operating office in the licensing jurisdiction • Evaluate the overall adequacy of banking supervision in the jurisdiction of the respondent bank including anti-money laundering laws and bank regulation procedures

7. Due diligence • Make inquires to the correspondents local branch bank • Make inquires with bank rating agencies • Obtain bank references • Complete customer profile

8. Due diligence • Determine if the bank has relationships with shell banks • Determine how the bank monitors international correspondent accounts • Determine how often site visits are made

9. Due Diligence • Form an opinion about the bank’s money laundering controls on correspondent accounts • Perform monitoring for changes in transaction type and volume

10. Wire Transfers and Monitoring • Manual • IT systems

11. SWIFT Wire Transfers • SWIFT is an unified international financial transaction processing and transmission system • It is simply a message transfer, not a funds transfer system • SWIFT does not become involved in the process of settling or clearing funds (as do Fed wire and CHIPS) • The settlement of funds process is handled by the banks themselves through the proper debiting and crediting of their correspondent accounts

12. SWIFT Wire Transfers • The next slides will show: • The flow of messages and information between correspondent banks and their clients • The flow of funds between correspondent banks and their clients

13. ORIGINATOR BENEFICIARY BANK OF AMERICA Wire Transfer Notification Wire Transfer Order Automated Clearing & Settlement CHIPS Wire Transfer Order ALPHA BANK CITIBANK SWIFT Message (MT 103) SERIAL SWIFT wire

14. S Sample Wire Transfer message traveling in SWIFT Format to RECEIVING Bank: (:20 Transaction Reference Number (0520/PAY (:32 Value Date, Currency, and Amount (12 Dec 2003 (Euros 310,000 (:50 Ordering Customer (ABC Importing

15. ( ABC Importing • 222 Dacca Street. • Bucharest Romania.  • (:57 Account with Institution • JPiraeusBankGB2L • Bucharest, Romania  • (:59John Tandy • UNION BANK • 45 BAHNHOFSTRASSE • Cayman Islands • :70 Details of Payment/RFB/INV.NO. 10534, 10552, 10561, 10580 •  (PAYMENT OF THE FOLLOWING INVOICES)

16. Suspicious characteristics • Dollar amount • Destination • Corporation or individual • Type of corporation

17. Suspicious Wire transfers • Large dollar amounts where the correspondent account has not been used for similar transfers • Unusual large number of wire transfers • Transactions conducted in a burst of activity • Unexplained repetitive or unusual patterns of wire transfers • A request by a respondent bank to establish a relationship with or route a transaction through a bank not normally conducting business with foreign banks

18. Suspicious Wire Transfers • High value deposits or withdrawals not commensurate with the type of correspondent account or business of the correspondent bank • Wire transfers to individuals identified by law enforcement suspected in engaging in money laundering or terrorist financing. • Request by correspondent bank to be exempt money laundering reporting requirements

19. Suspicious Wire Transfers • Routing transfers through several jurisdictions or banks before entering respondent bank • Frequent or numerous wire transfers from or for the benefit of shell banks or high risk respondent banks • Wire transfers to or from a non cooperating country • Beneficiaries maintaining accounts at foreign banks which were subject of suspicious activity reporting • Reappearing beneficiary banks in offshore locations where one or more banks had relationships closed due to suspect activity

20. Examining Wire Transfers for • Suspicious Transactions • Compliance Officer/Examiner Procedure • Using a sample of high risk accounts, review wire transfer log for an appropriate period of time (3 months) • Follow up with a review of wire transfers, messages, customer files and accounts statements for a three-month period • Analyze wire transfers to determine whether the amounts, frequency and countries of origin/destination are consistent with the nature of the business or occupation of the customer • Be alert for any suspicious or unusual activities. Examine wire transfer log and other information and compare to the previous list of suspicious activities

21. Examining Wire Transfers for • Suspicious Transactions • Compliance Officer/Examiner Procedure • Using a sample of high risk accounts, review wire transfer log for an appropriate period of time (3 months) • Follow up with a review of wire transfers, messages, customer files and accounts statements for a three-month period • Analyze wire transfers to determine whether the amounts, frequency and countries of origin/destination are consistent with the nature of the business or occupation of the customer • Be alert for any suspicious or unusual activities. Examine wire transfer log and other information and compare to the previous list of suspicious activities

22. Bank Wire Transfer Log • Debit Credit Customer Beneficiary Name Country Amount Message Identification • 1. x 12345678 Harry Stone USA $1,000,200 In US $ 87654815 •   Marcus • 2. x 34216792 George Coffee Germany $ 500,000 In Euro 45789000 •   Urethane • 3. x 22214567 Karen West Bulgaria $ 340,900 BGL 23336659 •   Voice • 4. x 65788266 ABC Importing Cayman Islands$ $400,000 In US $ 34908672 •   Cretv • 5. x 7289 2435 Foster Metal USA $ $522,000 In US$ 45379633 • Mueller • x 893445213 Mikhail Popescu France E 340,000 In Euro 46900021 • Cretu • x 498023783 Marin Chrisescu Romania E 239,967 In Euro 34521458

23. Link Analysis • A technique used to explore associations among a large number of objects of different types. People, profiles, bank accounts, businesses, wire transfers, and cash deposits.

24. Clustering Analysis of wire transfers based on the frequency and dollar amount of each transfer Reveals groups of transfers whose originators are highly similar., brokerage houses, industrial firms, or money transmitters.

25. Clustering • Allow banks and examiners to identify firms whose manufacturing firms whose financial transactions are atypical and examine them more closely to determine whether the corporation is merely a shell within which to conceal money laundering.

26. Conclusion • Banks must perform proper due diligence on new and existing correspondent accounts • Wire transfer are high risk area for money laundering and must be monitored