Two Aspects of the Wolfsberg Anti-Money Laundering Principles for Correspondent Banking

AB

The Wolfsberg Group is an association of thirteen global banks that aims to develop industry standards and best practices related to anti-money laundering (AML) and counter-terrorist financing (CTF). The Wolfsberg Principles for Correspondent Banking were developed to provide guidance to financial institutions on how to manage correspondent banking relationships effectively while mitigating the risk of money laundering and terrorist financing.

Answer A: At least one person, aside from the person sponsoring the relationship, should approve the correspondent relationship.

This principle emphasizes the importance of having an independent review and approval process for establishing correspondent banking relationships. This means that there should be a clear separation of duties between the business lines and the compliance function to ensure that new correspondent relationships are reviewed objectively and approved by a designated party other than the individual or team responsible for establishing the relationship. This helps to reduce the risk of conflicts of interest and ensures that the relationship is established with due diligence and proper risk management measures in place.

Answer B: Correspondent banking is an inherently high-risk business, and all correspondent bank relationships should be reviewed on an annual basis.

This principle highlights the high risk associated with correspondent banking and emphasizes the need for regular reviews to ensure that the relationship continues to be appropriate and the risks are effectively managed. Correspondent banking involves a financial institution providing services to another financial institution, usually in a different country, and such relationships can be used to facilitate money laundering or terrorist financing. Therefore, financial institutions must conduct a comprehensive risk assessment of the correspondent bank, including its ownership structure, business activities, and reputation. This risk assessment should be reviewed regularly, and any changes in risk should be addressed by adjusting risk management measures, including enhanced due diligence, transaction monitoring, and reporting suspicious activities.

Answer C: Factors such as politically exposed person involvement and downstream (nested) correspondents increase the risk inherent in a correspondent relationship.

This principle highlights the risks associated with certain types of correspondent banking relationships. For example, when a correspondent bank is dealing with politically exposed persons (PEPs) or their close associates, there is an increased risk that the relationship may be used for money laundering or terrorist financing. Similarly, when the correspondent bank has downstream correspondents, it may be difficult to monitor and manage the risk associated with those relationships. Financial institutions must, therefore, take extra measures to manage the risks associated with such relationships, including enhanced due diligence and ongoing monitoring.

Answer D: An Institution may assign a low-risk rating to a correspondent bank located in a jurisdiction deemed to have an adequate AML environment (e.g., Financial Action Task Force member country) without needing to consider other factors.

This statement is not a principle of the Wolfsberg Group. However, it is important to note that assessing the adequacy of AML/CFT systems in a country is only one factor that should be considered when assessing the risk of a correspondent banking relationship. Financial institutions should also consider other factors, such as the reputation of the correspondent bank, the nature of its business activities, and the quality of its controls, among others. It is also essential to ensure that the correspondent bank's AML/CFT controls are effective in practice, rather than just having a good legal framework on paper.