Addressing Requirements for Onboarding Non-U.S. FIs

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Sure, I can provide you with a detailed explanation of the two requirements under the USA PATRIOT Act on correspondent banking that U.S. FIs must address when onboarding new non-U.S. FIs.

Requirement 1: Determine under a risk-based approach if correspondent accounts require enhanced due diligence (EDD) measures.

The USA PATRIOT Act requires U.S. financial institutions (FIs) that onboard new non-U.S. FIs to conduct a risk-based analysis of the correspondent banking relationship to determine if the correspondent accounts require enhanced due diligence (EDD) measures. This means that U.S. FIs should assess the risks associated with the correspondent banking relationship and apply EDD measures, such as obtaining additional information or documentation from the non-U.S. FI, if the risks are deemed to be higher.

Correspondent banking relationships involve the provision of banking services by one bank (the correspondent bank) to another bank (the respondent bank). This type of relationship is often used for cross-border transactions and can provide a valuable service for non-U.S. FIs to access U.S. financial markets. However, correspondent banking relationships also pose a high risk for money laundering and terrorist financing due to the complexity of the transactions, the involvement of multiple parties, and the potential for anonymity.

To comply with the USA PATRIOT Act, U.S. FIs must have a risk-based approach to correspondent banking and assess the risks associated with the correspondent banking relationship. If the risks are deemed to be higher, U.S. FIs must apply enhanced due diligence (EDD) measures, such as obtaining additional information or documentation from the non-U.S. FI. This helps to mitigate the risk of money laundering and terrorist financing in correspondent banking relationships.

Requirement 2: Perform scrutiny for possible money laundering by obtaining information of the foreign bank's AML program.

The USA PATRIOT Act also requires U.S. FIs that onboard new non-U.S. FIs to perform scrutiny for possible money laundering by obtaining information of the foreign bank's anti-money laundering (AML) program. This means that U.S. FIs should assess the non-U.S. FI's AML program to ensure that it is sufficient to detect and prevent money laundering and terrorist financing.

The assessment of the non-U.S. FI's AML program should include a review of the following:

• The non-U.S. FI's risk assessment process and controls
• The non-U.S. FI's policies and procedures for customer due diligence (CDD), EDD, and ongoing monitoring
• The non-U.S. FI's record-keeping and reporting requirements
• The non-U.S. FI's training and awareness program for AML and terrorist financing
• The non-U.S. FI's management oversight and accountability for AML and terrorist financing

By obtaining information of the non-U.S. FI's AML program, U.S. FIs can ensure that the correspondent banking relationship is not being used to facilitate money laundering and terrorist financing. If the non-U.S. FI's AML program is deemed to be insufficient, U.S. FIs may choose to terminate the correspondent banking relationship.

In summary, the two requirements under the USA PATRIOT Act on correspondent banking that U.S. FIs must address when onboarding new non-U.S. FIs are: (1) determining under a risk-based approach if correspondent accounts require enhanced due diligence (EDD) measures and (2) performing scrutiny for possible money laundering by obtaining information of the foreign bank's AML program.