ACAMS - Association of Certified Anti-Money Laundering Specialists AML in Correspondent Banking Questions and Answers 1 — Questions and Answers
Question 1: A correspondent bank in a low-risk jurisdiction offers a "Payable Through Account" (PTA) to a respondent bank in a high-risk jurisdiction. What is the PRIMARY money laundering risk associated with this type of account?
- The fees generated from the PTA are excessively high, indicating potential collusion.
- The respondent bank's customers have direct access to the correspondent account, often without being subject to the correspondent bank's AML controls. (Correct answer)
- The PTA can only be denominated in the local currency of the respondent bank.
- The correspondent bank is required to file a SAR for every transaction passing through the PTA.
Correct answer: The respondent bank's customers have direct access to the correspondent account, often without being subject to the correspondent bank's AML controls.
Payable Through Accounts (PTAs) are considered high-risk because they grant the respondent bank's customers direct access to the correspondent account to conduct their own transactions. This effectively bypasses the correspondent bank's own due diligence procedures on these end-users, creating a significant lack of transparency and a high potential for misuse by illicit actors.
Question 2: According to international standards like the USA PATRIOT Act and FATF Recommendations, under which circumstance may a financial institution maintain a correspondent account for a shell bank?
- If the shell bank is licensed in a FATF-member country.
- If the shell bank is an affiliated and supervised entity within a regulated financial group.
- If the correspondent relationship is subject to annual enhanced due diligence and board approval.
- Under no circumstances; financial institutions are absolutely prohibited from dealing with unaffiliated shell banks. (Correct answer)
Correct answer: Under no circumstances; financial institutions are absolutely prohibited from dealing with unaffiliated shell banks.
A shell bank is a bank with no physical presence in the country where it is incorporated and licensed. International standards, including Section 313 of the USA PATRIOT Act, strictly prohibit financial institutions from opening or maintaining correspondent accounts for foreign shell banks that are not regulated affiliates. This is due to their inherent lack of transparency and high risk for money laundering.
Question 3: A large bank is establishing a new correspondent relationship with a foreign financial institution. Which of the following is a critical first step in conducting due diligence on the respondent bank?
- Assessing the respondent bank's AML/CFT policies and controls to determine their adequacy and effectiveness. (Correct answer)
- Obtaining a list of the respondent bank's high-net-worth individual clients.
- Verifying the physical address of every branch operated by the respondent bank.
- Requiring the respondent bank to conduct all transactions in the correspondent bank's home currency.
Correct answer: Assessing the respondent bank's AML/CFT policies and controls to determine their adequacy and effectiveness.
Before entering a correspondent relationship, it is crucial to assess the quality of the respondent bank's own AML/CFT program. This involves understanding their policies, procedures, and controls to gauge their ability to prevent their services from being used for illicit purposes. This is a cornerstone of the Wolfsberg Group's Correspondent Banking Due Diligence Questionnaire (CBDDQ) and is fundamental to the risk-based approach.
Question 4: Bank A is a correspondent bank for Bank B. During a review, Bank A discovers that a significant volume of transactions for Bank B are on behalf of Bank C, a smaller financial institution in another country that is a customer of Bank B. This arrangement is best described as:
- A standard Payable Through Account (PTA).
- A prohibited shell bank activity.
- A nested or downstream correspondent banking relationship. (Correct answer)
- An acceptable risk if Bank C is in a low-risk jurisdiction.
Correct answer: A nested or downstream correspondent banking relationship.
This scenario describes a nested or downstream correspondent relationship, where the respondent bank (Bank B) provides correspondent services to another financial institution (Bank C) using its own correspondent account at Bank A. This is a high-risk situation because Bank A has no direct relationship with, or due diligence information on, Bank C, creating significant AML vulnerabilities and obscuring the origin of transactions.
Question 5: When a financial institution is conducting a risk assessment of a potential respondent bank for a new correspondent relationship, which of the following factors is LEAST likely to be a primary driver of the inherent AML risk rating?
- The respondent bank's customer base and the geographic markets it serves.
- The quality and effectiveness of banking supervision in the respondent bank's home country.
- The purpose of the account and the anticipated types and volume of transactions.
- The respondent bank's most recently published annual marketing budget. (Correct answer)
Correct answer: The respondent bank's most recently published annual marketing budget.
While a bank's financial health is relevant, its annual marketing budget is not a primary factor in assessing its inherent AML/CFT risk. The core elements of a correspondent banking risk assessment focus on the respondent's business profile (customers, geography, products), the regulatory environment of its home country, and the nature of the services it will use through the correspondent account.
Question 6: Enhanced Due Diligence (EDD) for a correspondent banking relationship would be most appropriate when the respondent bank:
- is located in a jurisdiction known for high levels of corruption and weak AML/CFT supervision. (Correct answer)
- has been in operation for less than five years.
- is a large, publicly traded institution in a major financial center.
- requests to open an account denominated in a foreign currency.
Correct answer: is located in a jurisdiction known for high levels of corruption and weak AML/CFT supervision.
The jurisdictional risk of the respondent bank is a critical factor. When a respondent bank is located in a country identified as having strategic AML/CFT deficiencies, high levels of corruption, or weak supervision, it presents a much higher risk. This requires the correspondent bank to apply Enhanced Due Diligence measures to mitigate the increased risk of illicit financial activity.
ACAMS - Association of Certified Anti-Money Laundering Specialists AML in Correspondent Banking Questions and Answers 1
A correspondent bank in a low-risk jurisdiction offers a "Payable Through Account" (PTA) to a respondent bank in a high-risk jurisdiction.
What is the PRIMARY money laundering risk associated with this type of account?