19NOVEMBER 2023INSIGHTSCXODuring my recent attendance of a multi-national Anti-Money Laundering conference, I couldn't help but wonder why so little attention was devoted to compliance challenges that accompany cross-border wire transfers in the correspondent banking realm. There were plenty of sessions on banking for farming and agriculture businesses, retail banking, credit unions, and as well as fintech, crypto, and similar topics.Conspicuously absent were two topics: Trade Finance and Foreign Correspondent Banking. One might argue that since these are primarily handled by large financial institutions, the interest may be limited. After all, a local community bank would probably process only a few cross-border wire transfers per month. It would also rarely finance an export deal worth millions of dollars. Yet, while not getting the desired coverage at the conference, the topics of correspondent banking and trade finance risks remain evermore relevant.For now, let's have a quick dive into one of them ­ cross-border wire transfers in a US financial institution on behalf of their foreign banking correspondent customers. Let's leave trade finance for another article.So, what is a foreign correspondent bank account? Simply put, it is an account of a foreign correspondent bank held by a US bank that acts as an intermediary between domestic and foreign banks, allowing said foreign bank to send and receive its customers' payments in US currency, thus allowing its customers access to USD-denominated global trade.Ultimately, correspondent banks act as representatives of foreign banks in their transactional relationships with either another foreign bank (having a similar arrangement with another US bank) or a domestic financial institution. With this comes the responsibility of ensuring that respondent financial institutions involved in such payment have appropriate AML standards, as they would be the party to have further visibility into identities of their customers, who, in the end, are ultimate originators or beneficiaries of the funds transacted.Consequently, a correspondent bank has limited visibility of ultimate originator and ultimate beneficiary. The wire instructions contain information limited to parties' names, sometimes addresses, and purpose of payment. With limited information, the role of mitigating OFAC and AML-related risks rests with the correspondent bank's transaction monitoring department. By Eugene Y. Troyansky, Head of Transaction Monitoring at Mashreqbank ­ PSCBASICS OF AML TRANSACTION MONITORING IN FOREIGN CORRESPONDENT BANKING
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