Requirements for Financial Institutions with Cross Border Correspondent Banking Activity

C

(15)

According to the Financial Action Task Force (FATF) 40 Recommendations, financial institutions with cross-border correspondent banking activity should be required to perform a number of actions to prevent and detect money laundering and terrorist financing. These actions include:

A. Gather a list of their politically exposed customers: Financial institutions should identify and assess the money laundering and terrorist financing risks associated with politically exposed persons (PEPs), their family members, and close associates. PEPs are individuals who are or have been entrusted with prominent public functions in a foreign country, such as heads of state, senior politicians, senior government officials, judicial or military officials, senior executives of state-owned corporations, or important political party officials. These individuals present a higher risk for money laundering and terrorist financing due to their access to public funds and decision-making powers. Therefore, financial institutions should conduct enhanced due diligence on these customers and monitor their transactions more closely.

B. Identify natural persons who own or control more than 5%: Financial institutions should identify and verify the identity of their customers, including the natural persons who own or control more than 5% of the customer, known as beneficial owners. Beneficial ownership information is crucial for detecting and preventing money laundering and terrorist financing, as it helps to identify the true owners of assets and entities that may be used for illicit purposes.

C. Obtain senior management approval before establishing the relationship: Financial institutions should establish risk-based policies, procedures, and controls for correspondent banking relationships, which should be approved by senior management. Correspondent banking relationships refer to the provision of banking services by one financial institution to another financial institution, where the latter uses these services to provide its own customers with access to the first institution's products or services, or to facilitate transactions on behalf of its own customers. Correspondent banking relationships present a higher risk for money laundering and terrorist financing, as they involve the transmission of funds between different countries and financial systems. Therefore, financial institutions should conduct enhanced due diligence on their correspondent banking relationships and monitor their transactions more closely.

D. Obtain a third-party independent review of the respondent's anti-money laundering program: Financial institutions should conduct ongoing monitoring of their correspondent banking relationships, including the anti-money laundering (AML) and counter-terrorist financing (CTF) controls implemented by their correspondent banks. In addition, financial institutions should obtain a third-party independent review of their correspondent banks' AML/CTF programs to ensure that they are effective and comply with applicable laws and regulations. This review should cover the correspondent banks' policies, procedures, and controls for customer due diligence, transaction monitoring, and reporting of suspicious transactions.

In summary, financial institutions with cross-border correspondent banking activity should perform a range of actions to comply with the FATF 40 Recommendations, including gathering a list of their politically exposed customers, identifying natural persons who own or control more than 5%, obtaining senior management approval before establishing the relationship, and obtaining a third-party independent review of the respondent's anti-money laundering program. These actions are designed to mitigate the risks associated with money laundering and terrorist financing and ensure that financial institutions operate in a safe and sound manner.