CAMS Exam Question: U.S. FIs Maintaining Correspondent Accounts for Foreign Shell Banks

According to the USA PATRIOT Act, under which condition would U.S. FIs maintain correspondent accounts for foreign shell banks?

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Answers

A. Correspondent accounts at foreign shell banks can be maintained by U.S. FIs, but the bank must be certified by FATF.

B. Correspondent accounts at foreign shell banks can be maintained by U.S. FIs, but only in certain countries.

C. Correspondent accounts for foreign shell banks at U.S. FIs must go through a rigorous, risk-based approval process.

D. Correspondent accounts for foreign shell banks at U.S. FIs cannot maintain these types of accounts.

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Explanations

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A. B. C. D.

Under the USA PATRIOT Act, a correspondent account is defined as an account established to receive deposits from, make payments on behalf of a foreign financial institution, or handle other financial transactions related to such an institution. A shell bank is a type of financial institution that does not have a physical presence in any country, and is often used to facilitate illicit activities, such as money laundering or terrorist financing.

To combat money laundering and terrorist financing, the USA PATRIOT Act prohibits U.S. financial institutions from maintaining correspondent accounts for foreign shell banks, unless certain conditions are met. These conditions are set out in Section 312 of the Act.

According to Section 312 of the USA PATRIOT Act, U.S. financial institutions may maintain correspondent accounts for foreign shell banks, provided that:

The foreign bank is not chartered in a country that has been designated as non-cooperative with anti-money laundering efforts by the FATF (Financial Action Task Force), and
The U.S. financial institution has implemented a due diligence program that includes enhanced due diligence measures to detect and report any suspicious activity conducted through the correspondent account.

Therefore, answer A is incorrect as FATF certification is not mandatory for foreign shell banks to maintain correspondent accounts at U.S. FIs, but they must not be chartered in a country that has been designated as non-cooperative with anti-money laundering efforts by the FATF.

Answer B is also incorrect, as the condition for maintaining correspondent accounts for foreign shell banks does not depend on the country where the bank is located, but rather on the bank's compliance with the conditions mentioned above.

Answer C is correct. Correspondent accounts for foreign shell banks at U.S. FIs must go through a rigorous, risk-based approval process, which includes enhanced due diligence measures to detect and report any suspicious activity conducted through the correspondent account.

Finally, answer D is incorrect, as U.S. financial institutions can maintain correspondent accounts for foreign shell banks if they comply with the conditions mentioned above.

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