Risk Management Manual of Examination Policies - FDIC

BANK SECRECY ACT, ANTI-MONEY LAUNDERING,
AND OFFICE OF FOREIGN ASSETS CONTROL
financial institution should do one or more of the
following:
• Perform due diligence on the nested users of the
foreign correspondent account, to determine and verify
critical information including, but not limited to, the
following:
o Ownership information,
o Service of legal process contact,
o Country of origin,
o AML policies and procedures,
o Shell bank and licensing status,
o Purpose and expected volume and type of
transactions;
• Restrict business through the foreign correspondent’s
accounts to limited transactions and/or purposes; and
• Terminate the initial foreign correspondent account
relationship.
Necessary Due Diligence on Foreign
Correspondent Accounts
Because of the heightened risk related to foreign
correspondent banking, the U.S. financial institution needs
to assess the money laundering risks associated with each
of its correspondent accounts. The U.S. financial
institution should understand the nature of each account
holder’s business and the purpose of the account. In
addition, the U.S. financial institution should have an
expected volume and type of transaction anticipated for
each foreign bank customer.
When a new relationship is established, the U.S. financial
institution should assess the management and financial
condition of the foreign bank, as well as its AML programs
and the home country’s money laundering regulations and
supervisory oversight. These due diligence measures are in
addition to the minimum regulation requirements.
Each U.S. financial institution maintaining foreign
correspondent accounts must establish appropriate,
specific, and, where necessary, enhanced due diligence
policies, procedures, and controls as required by 31 CFR
103.181. The U.S. financial institution’s AML policies
and programs should enable it to reasonably detect and
report instances of money laundering occurring through the
use of foreign correspondent accounts.
The regulations specify that additional due diligence must
be completed if the foreign bank is:
• Operating under an offshore license;
• Operating under a license granted by a jurisdiction
designated by the Treasury or an intergovernmental
Section 8.1
agency (such as the Financial Action Task Force
[FATF]) as being a primary money laundering
concern; or
• Located in a bank secrecy or money laundering haven.
Internal financial institution policies should focus
compliance efforts on those accounts that represent a
higher risk of money laundering. U.S. financial institutions
may use their own risk assessment or incorporate the best
practices developed by industry and regulatory
recommendations.
Offshore Banks
An offshore bank is one which does not transact business
with the citizens of the country that licenses the bank. For
example, a bank is licensed as an offshore bank in Spain.
This institution may do business with anyone in the world
except for the citizens of Spain. Offshore banks are
typically a revenue generator for the host country and may
not be as closely regulated as banks that provide financial
services to the host country’s citizens. The host country
may also have lax AML standards, controls, and
enforcement. As such, offshore licenses can be appealing
to those wishing to launder illegally obtained funds.
The FATF designates Non-Cooperative Countries and
Territories (NCCTs). These countries have been so
designated because they have not applied the
recommended international anti-money laundering
standards and procedures to their financial systems. The
money laundering standards established by FATF are
known as the Forty Recommendations. Further discussion
of the Forty Recommendations and NCCTs can be found at
the FATF website.
Payable Through Accounts
A payable through account (PTA) is a demand deposit
account through which banking agencies located in the
U.S. extend check writing privileges to the customers of
other domestic or foreign institutions. PTAs have long
been used in the U.S. by credit unions (for example, for
checking account services) and investment companies (for
example, for checking account services associated with
money market management accounts) to offer customers
the full range of banking services that only a commercial
bank has the ability to provide.
International PTA Use
Under an international PTA arrangement, a U.S. financial
institution, Edge corporation, or the U.S. branch or agency
of a foreign bank (U.S. banking entity) opens a master
Bank Secrecy Act (12-04) 8.1-22 DSC Risk Management Manual of Examination Policies
Federal Deposit Insurance Corporation