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Guidance on Correspondent Banking | Correspondence Account | Correspondent Definition - AML Tutorial - YouTube
Channel: KYC Lookup
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Performing due diligence is a tricky assessment聽
to carry out at the best of times however in some聽聽
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types of relationships it does go up a few levels聽
especially when it's hard to determine who is the聽聽
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end customer in today's video we will be taking聽
a look at what is Correspondent Banking and why聽聽
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such services are considered high risk hello and聽
welcome to another KYC lookup video where we bring聽聽
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you AML related content to help you enhance your聽
knowledge in the fight against money laundering聽聽
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before diving into today's聽video be sure to subscribe聽聽
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so you don't miss out on any future videos oh聽
and don't forget to leave us a comment with聽聽
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any suggested topics you would like us to cover聽
in the future so what is Correspondent Banking聽聽
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Correspondent Banking is the provision of banking聽
services by one bank the Correspondent Bank to聽聽
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another bank the respondent bank by establishing聽
multiple correspondence relationships globally聽聽
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banks can undertake international financial聽
transactions for themselves and for their聽聽
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customers in jurisdictions where they have聽
no physical presence large international聽聽
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banks typically act as correspondents for聽
thousands of other banks around the world聽聽
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respondent banks obtain a wide range of services聽
through the correspondent relationship including聽聽
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cash management international wire transfer of聽
funds check clearing payable through accounts聽聽
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and foreign exchange services the services聽
offered by a correspondent bank to a smaller less聽聽
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well-known bank may be restricted to non-credit聽
cash management services however some banks may聽聽
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offer a number of credit related products such as聽
letters of credit and business accounts for credit聽聽
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card transactions why is correspondent聽
banking vulnerable to money laundering聽聽
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correspondent banking is considered high risk聽
due to two main reasons the amount of money that聽聽
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flows through corresponding accounts can pose聽
a significant threat to financial institutions聽聽
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as they possess large volumes of transactions聽
for their customers customer this makes it more聽聽
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difficult to identify the suspect transactions as聽
a financial institution generally does not have聽聽
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the information on the actual parties conducting聽
the transaction to know whether they are usual聽聽
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correspondent banking relationships create聽
a situation in which a financial institution聽聽
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carries out financial transactions on behalf of聽
customers of another institution this indirect聽聽
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relationship means that the correspondent聽
bank provides services for individuals聽聽
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or entities for which it has neither verified the聽
identities not obtained any first-hand knowledge聽聽
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additional risks associated with correspondent聽
banking are determining the effectiveness of聽聽
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the respondent bank's AML controls can also聽
be a challenge while requesting compliant聽聽
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questionnaires will provide some comfort聽
such as the Wolfsberg Correspondent Banking聽聽
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Due Diligence Questionnaire the correspondent聽
bank is still very reliant on the respondent聽聽
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doing some due diligence on the customer聽
to allow the use of correspondence accounts聽聽
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some banks offering correspondent facilities聽
may not ask their respondents about the extent聽聽
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to which they offer such facilities to other聽
institutions this last item adds another layer聽聽
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and means the correspondent bank is even聽
further removed from knowing the identities聽聽
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or business activity of these sub-respondents聽
or even the types of financial services provided聽聽
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are the potential consequences for not governing聽
correspondent banking relationships effectively聽聽
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banks and financial institutions leave themselves聽
totally open to a range of adverse factors such as聽聽
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loss of business and loss of customer confidence聽
local regulatory authority fines reputational聽聽
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damage restrictions on financial activity聽
and impact is share price if publicly listed聽聽
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is there an example of bad correspondent banking聽
governance yes a very good recent example is the聽聽
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Danske Bank money laundering scandal the Estonia聽
branch of the Danish bank were responsible for聽聽
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facilitating suspicious transactions totalling聽
over 200 billion dollars between 2007 and 2015.聽聽
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with the funds coming from the proceeds of聽
criminal activity from countries such as Russia聽聽
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Estonia and Latvia although it is still unclear聽
what fines or sanctions thanks bank will face from聽聽
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regulators in the past year thanks has increased聽
the number of employees engaged in preventing聽聽
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financial crime improved KYC controls so they are聽
more effective and efficient and deliver training聽聽
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to all employees to enable them to better identify聽
and manage potential financial crime risks
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Let's recap Correspondent Banking is the provision聽
of banking services by one bank the Correspondent聽聽
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Bank to another bank the respondent bank聽
large international banks typically act聽聽
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as correspondents for thousands of other banks聽
around the world well there you have it a basic聽聽
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introduction to what is correspondent banking聽
and why such services are considered high risk聽聽
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please tell us in the comments section what is聽
your interpretation of correspondent banking聽聽
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and if you think it's fair to be considered such聽
services as high risk thank you for watching the聽聽
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video and if you made it this far don't forget to聽
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