Anti-Money Laundering Policies
Correspondent banking is the provision of banking services by one bank (the ‘correspondent bank’) to another bank (the ‘respondent bank’). Banks should gather sufficient information to understand fully the nature of the business of the correspondent/respondent bank. This includes information on:
- information on the other bank’s management,
- major business activities,
- level of AML/CFT compliance,
- purpose of opening the account,
- identity of any third party entities that will use the correspondent banking services, and
- regulatory/supervisory framework in the correspondent’s/respondent’s country may be of special relevance.
- ascertain from publicly available information whether the other bank has been subject to any money laundering or terrorist financing investigation or regulatory action.
The responsibilities of each bank with whom correspondent banking relationship is established should be clearly documented. In the case of payable-through-accounts, the correspondent bank should:
- be satisfied that the respondent bank has verified the identity of the customers having direct access to the accounts and is undertaking ongoing ‘due diligence’ on them.
- also ensure that the respondent bank is able to provide the relevant customer identification data immediately on request.
- refuse to enter into a correspondent relationship with a ‘shell bank‘ (a bank which is incorporated in a country where it has no physical presence and is unaffiliated to any regulated financial group). Shell banks are not permitted to operate in India.
- guard against establishing relationships with respondent foreign financial institutions that permit their accounts to be used by shell banks.
- be extremely cautious while continuing relationships with respondent banks located in countries with poor KYC standards and countries identified as ‘non-cooperative’ in the fight against money laundering and terrorist financing.
- ensure that their respondent banks have anti money laundering policies and procedures in place and apply enhanced ‘due diligence’ procedures for transactions carried out through the correspondent accounts.