Correspondent Banking Overview & General Red Flags

Question 1

What does USD “wire clearing” mean? (offered by U.S. banks)

Answer 1

Means that the customers of the foreign correspondent banking customer can send and receive wires in U.S. dollars through the U.S. bank’s correspondent account.

• Without access to USD clearing services, foreign companies cannot make or receive payments in U.S. dollars.

Question 2

Correspondent Banking?

Answer 2

Is the provision of a current or other liability account, cash management, international fund transfers, check clearing, foreign exchange, or other financial services to another financial institution.

Defined as the act of one financial institution (the Correspondent) providing banking services to another financial institution (the respondent).

Question 3

What are the 3x Common correspondent banking structures?

Answer 3

Traditional - a bank wants to provide in customers with services in a foreign jurisdiction.

Nested - A number of banks use another bank’s correspondent relationship to conduct transactions and access other financial services.

Payable-through or pass-through - A bank wants to provide its customers with services in a foreign jurisdiction.

Question 4

Higher risks associated with Correspondent Banking activity include multiple jurisdictions, more parties involved, high volume and velocity of funds, lack of full picture and other general risks.

Name 2x other risks

Answer 4

High anonymity and lack of transparency

Reliance on another bank’s AML controls

Question 5

3x High Risk attributes of Correspondent Banking

Answer 5

No direct relationship

Regulatory Guideline Differences

Reputational Risk

Question 6

Red flags in Correspondent banking

Answer 6

High Risk jurisdictions/corridors

Multiple Jurisdictions

Intermediaries/Shell Companies

Structuring

Nesting

Layering

U-Turn

Stripping