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HIGH-RISK: FOREIGN CORRESPONDENT BANKING. 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

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Presentation Transcript
objectives
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???

Anti-Money Laundering

definition
DEFINITION
  • Accounts Maintained On Bank’s Behalf
  • Between Domestic Banks
  • Between Domestic Banks and Foreign Banks
  • Correspondent vs. Respondent Bank

Anti-Money Laundering

potential and unique issues
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

Anti-Money Laundering

potential and unique issues5
POTENTIAL AND UNIQUE ISSUES
  • Non-Legitimate Purposes
    • Conduit For dirty money
    • Gateway to the US financial system
  • Foreign bank
    • corrupt
    • poorly regulated
    • poorly managed
    • weak or nonexistent AML controls

Anti-Money Laundering

money laundering vulnerabilities
MONEY LAUNDERING VULNERABILITIES
  • Lax Due Diligence
  • Nested Correspondents
  • Correspondent Banker or Relationship Manager
  • Bank Secrecy Laws
  • Weak AML Laws
  • Cross Border Difficulties

Anti-Money Laundering

high risk products and services
HIGH RISK PRODUCTS AND SERVICES
  • Funds Transfer
  • Pouch Activity
  • Cash Letter
  • Payable Through Accounts

Anti-Money Laundering

high risk products and services funds transfer
HIGH RISK PRODUCTS AND SERVICES: FUNDS TRANSFER
  • Key Activity
  • Failure to Monitor
  • Manual Reviews

Anti-Money Laundering

high risk products and services pouch activity
HIGH RISK PRODUCTS AND SERVICES: POUCH ACTIVITY
  • Common Carrier
  • Currency
  • Monetary Instruments
  • Documents
  • Financial Institution
  • Individual

Anti-Money Laundering

high risk products and services pouch activity10
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

Anti-Money Laundering

high risk products and services cash letter
HIGH RISK PRODUCTS AND SERVICES: CASH LETTER
  • High Volume
  • Failure to Monitor
  • Manual Reviews

Anti-Money Laundering

high risk products and services payable through accounts
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

Anti-Money Laundering

high risk products and services payable through accounts13
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

Anti-Money Laundering

due diligence
DUE DILIGENCE
  • Noteworthy Due Diligence Failures
    • Nested respondent banks
    • Non-credit relationships

Anti-Money Laundering

enhanced due diligence
ENHANCED DUE DILIGENCE
  • Factors to Consider
    • Purpose
    • Location
    • Bank license
    • AML programs
    • Regulation and supervision

Anti-Money Laundering

enhanced due diligence16
ENHANCED DUE DILIGENCE
  • Risk Management
    • Perceived risk
    • Availability to third parties
    • Compliance program
    • SAR detection and reporting
    • Monitoring

Anti-Money Laundering

bank licenses
BANK LICENSES
  • Shell Banks
  • Offshore Banks
  • Banks in Non-Cooperative Jurisdictions

Anti-Money Laundering

nccts
NCCTs
  • Indonesia
  • Myanmar
  • Nigeria
  • Ukraine
  • Cook Islands
  • Philippines
  • Nauru
  • Egypt
  • Guatemala

Anti-Money Laundering

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

EXAMINER CONSIDERATIONS: Risk Management v. Compliance

Anti-Money Laundering

examinations
EXAMINATIONS

Pre-Examination

  • FDL/Officers’ Questionnaire Response
    • List of Due To/Due From Accounts
    • Audits
    • Risk Assessments
    • Strategic Plans
  • Exam Scope

Anti-Money Laundering

examination procedures
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

Anti-Money Laundering

examination procedures22
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

Anti-Money Laundering

examination procedures23
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

Anti-Money Laundering

examinations24
EXAMINATIONS
  • Transaction Testing
    • Sample of accounts
    • Review agreements
    • Review account opening and due diligence
    • Account activity from statements

Anti-Money Laundering

examination procedures25
EXAMINATION PROCEDURES

USA PATRIOT Act: 313/319

    • Prohibits Shell Banks
    • Recordkeeping
  • SR 03-17 Exam Procedures

Anti-Money Laundering

examination procedures26
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”

Anti-Money Laundering

questions
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)?

Anti-Money Laundering

questions28
QUESTIONS
  • When reviewing correspondent bank relationships must the file contain a copy of the “banking license from the licensing authority”?

Anti-Money Laundering