Compliance

Wolfsberg Group bares its teeth at correspondent banking

A staff reporter 6 November 2002

Wolfsberg Group bares its teeth at correspondent banking

The 12 member banks of the Wolfsberg Group have clearly stated that they will bar all business with shell banks as part of their effort to c...

The 12 member banks of the Wolfsberg Group have clearly stated that they will bar all business with shell banks as part of their effort to clean up correspondent banking relationships. The group, which has been quiet since it launched its counter-terrorist financing initiative in January this year, has released a 14-principle list to adopt a risk-based approach to correspondent banking. Members will build these principles into their institution-wide anti-money laundering programmes. Under the initiative, firms must assign specific personnel to be responsible for compliance with the principles and to approve all correspondent banking relationships. These personnel must be independent from the officers who establish new relationships. The 12 banks will also monitor and report any suspicious activities they detect among their correspondent banking clients and are pushing for the development of an international registry for financial institutions. Financial firms would supply information to the registry when they sign up, which other firms could use when conducting due diligence. A risk-based approach to due diligence The committee has outlined eight risk-based standards of due diligence that the banks will follow when evaluating a correspondent banking relationship. Firms in particular will examine the correspondent banking client's domicile and where its parent firm is based. The approach points to the Financial Action Task Force's blacklist of non-cooperative countries and territories and other information from regulatory agencies to ascertain the degree of risk involved in transacting with a correspondent bank. Firms must also consider the location of the correspondent bank's owners and whether their corporate legal form and the transparency of ownership structure may present greater risks. Similarly, the location and experience of management may raise additional concerns. The involvement of politically exposed persons in the management or ownership of certain correspondent banking clients may also increase the risk of the transaction to the bank. Firms must also assess the types of products and services the correspondent banking client offers to its own clients and the geographic market that it deals in. Another factor that firms must assess is the regulatory status and history of the correspondent bank with the main regulatory body responsible for overseeing or supervising the correspondent banking client. This will help to determine whether the client has been the subject of any criminal or adverse regulatory action. Wolfsberg members will also examine the nature of the correspondent bank's AML controls and the extent to which they are applied globally. If that’s not enough… The group has also called for firms to conduct enhanced due diligence on correspondent banking clients that still present a high risk to firms. The EDD will involve further consideration of the following four points: Ownership and management. Firms will have to examine all controlling interests in a firm, the owner's sources of wealth and background, including their reputation in the marketplace and any material ownership changes within the last two years. In addition, they will have to obtain more detailed information about each member of the executive management and any changes in the executive management structure within the last two years. PEP involvement. The firm will have to ensure it has an understanding of the PEP's role in the correspondent banking client. AML controls. The institution will have to make sure that the correspondent banking client's AML and KYC controls meet internationally recognised standards. The institution may also speak with the correspondent banking client's senior managers to make sure that they understand the importance of AML controls. Downstream correspondent clearing. A downstream correspondent clearer is a correspondent banking client which receives correspondent banking services from an institution as well as providing correspondent banking services to other financial institutions in the same currency as the account it maintains with the institution. Institutions will have to take reasonable steps to understand the correspondent banking client's downstream correspondent customers and how well the correspondent banking client understands downstream firms' AML controls. The Wolfsberg Group comprises: ABN AMRO, Banco Santander Central Hispano, Bank of Tokyo-Mitsubishi, Barclays Bank, Citigroup, Credit Suisse Group, Deutsche Bank AG, Goldman Sachs, HSBC, JP Morgan Chase, Société Générale and UBS.

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