The global fight against money laundering and counter-terrorist financing, promoted by the Financial Action Task Force (FATF) and the Basel Committee on Banking Supervision (BCBS), has received a recent boost from the U. S. Office of the Comptroller of the Currency (OCC).
Earlier this month, the OCC published guidance for financial institutions concerning how to terminate existing correspondent banking relationships that lack robust Anti-Money Laundering (AML)/Bank Secrecy Act (BSA) compliance controls. Essentially, the OCC expects U. S. global banks to insist that their correspondent banking relationships be contingent upon these banks having rigorous robust AML/BSA standards, processes and frameworks in place. Additionally, the OCC expects continual monitoring of these correspondent banking relationships to ensure a sustainable control environment. Specifically, U. S. banks should examine the respondent bank’s business, markets, products, supervisory regime and inherent and residual risks.
Historically, correspondent banks provide emerging markets in the Caribbean, Middle East and parts of Europe with access to the international financial system. These banks also facilitate cross-border payments via money transmitter businesses and international investment opportunities.
Currently, some U. S. banks are discontinuing these relationships without the due diligence the OCC guidance recommends. Consequently, the void such actions create may culminate in a lack of transparency, an increase in money laundering and counter-terrorist activities and use of the unregulated shadow banking system. In sum, fewer correspondent banking risks will yield increased AML/BSA risks. Industry groups in the US and overseas are expressing serious concerns through white papers and advocacy with the OCC, for example the American Bankers Association (ABA) and the Eastern Caribbean Central Bank (ECCB).
By: Dr. Sheryl Smikle