Global Treasury Services

Latin America Operating Risk

Know Your Customer and Know Your Customer and Anti-Money LaunderingAnti-Money Laundering

Issues inIssues in

Correspondent BankingCorrespondent Banking

Correspondent Banking ServicesCorrespondent Banking Services

• Demand Deposit Accounts

• Wire Transfers

• Check Issuance

• Cash Letter

• Bank Notes

• Investments

• Foreign Exchange

• Trade Services

• Electronic Initiation and Reporting

Correspondent Banking: Correspondent Banking: A Gateway for Money LaunderingA Gateway for Money Laundering

Correspondent Banking: Correspondent Banking: A Gateway for Money LaunderingA Gateway for Money Laundering

• “Correspondent banking provides a significant gateway for rogue foreign banks and their criminal clients to carry on money laundering and other criminal activity in the United States and to benefit from the protections afforded by the safety and soundness of the U.S. banking industry.”

• “Shell banks, offshore banks, and banks in jurisdictions with weak anti-money laundering controls carry high money laundering risks, and they use their correspondent banking accounts to conduct their banking operations.”

• “U.S. banks have particularly inadequate anti-money laundering safeguards when a correspondent relationship does not involve credit-related services.”

Carl Levin, US Senate, 2001, Permanent Subcommittee on Investigations

Fines for Failure to FileSuspicious Activity Reports

Fines for Failure to FileSuspicious Activity Reports

• Western Union

– $11 MM

• Riggs Bank

– $50MM

• AmSouth Bank

– $50MM

1970 – Bank Secrecy Act1970 – Bank Secrecy Act

The Currency and Foreign Transactions Reporting Act• Section 5313

– Recording and reporting domestic currency transactions• Section 5314

– Recording and reporting foreign currency transactions• Section 5316

– Recording and reporting exports and imports of currency• Section 5318

– Anti-money laundering compliance programs

– Suspicious Activity Reports - SARs• Sections 5321 and 5322

– Civil and Criminal Penalties

Who Is Required to FileSuspicious Activity Reports

Who Is Required to FileSuspicious Activity Reports

• Banks and Other Non-Bank Depository Institutions– Since April 1996

• Money Service Businesses– Since January 2002

• Casinos & Currency Dealers and Exchangers – Since March 2003

• Broker-Dealers– Since January 2003

• Futures Commission Merchants– Since May 2004

• Insurance Companies & Mutual Fund Operators – Beginning 2005

2001 – Patriot Act2001 – Patriot Act

• Section 312

– Special due diligence for correspondent accounts• Section 313

– Prohibition against shell banks• Section 314

– Cooperative efforts with US government and other banks• Section 319

– Forfeiture of criminal funds in interbank accounts• Section 326

– Requirement to verify customer information• Section 352

– Anti-money laundering programs• Section 371

– Bulk cash smuggling a crime

Know Your CustomerKnow Your Customer

• Good KYC is one of the best defenses.

• Length and depth of customer relationship.

• The importance of writing it out - of documenting the particulars of the customer and the account relationship.

• Perform proper due diligence or enhanced due diligence to mitigate risk posed by customer.

• AML Risk Rating Tool:– Country where located / Regulatory framework.

– Type of institutions / bank versus non bank.

– Products used.

Monitoring Wire ActivityMonitoring Wire ActivityMonitoring Wire ActivityMonitoring Wire Activity

We monitor the activity in all correspondent bank accounts for:

• Large dollar amounts involving a specific individual.

• Clusters of activity involving addresses, etc.

• Payments in even dollar amounts.

• Excessive payments under $10,000.

• Activity involving businesses vulnerable to money laundering.

• Activity inconsistent with the beneficiary’s or originator’s business.

Monitoring Cash Letter ActivityMonitoring Cash Letter Activity

We monitor cash letter activity in correspondent accounts.

• Capturing MICR information - dollar amounts and account, routing and check numbers.

• Searching for strings of the same or similar parties.

• Searching for clusters, i.e. checks negotiated together.

• Searching for large strings of Traveler’s Checks.

• We have a link to our check imaging system, to be able to view the checks, front and back, involved.

• Research conducted and SARs filed in the same manner as wire activity.

RFIs, STMs and SARsRFIs, STMs and SARs

• RFI - Wire Watch identifies activity that requires explanation and sends us a “Request for Information”.

– We communicate with our Correspondent Bank customer.

– Obtain a response from our Correspondent Bank customer.

– And relay that information, with comments, to Wire Watch.

• STM - Wire Watch determines whether to file a “Suspicious Transaction Memo” with Bank of America’s Corporate Security department, or whether to close the inquiry, or whether to continue to monitor.

• SAR - Corporate Security decides whether to file a “Suspicious Activity Report” with US Treasury FinCen.

Large Wires Involving an IndividualLarge Wires Involving an Individual

• Wire Watch notices that we have received numerous wires into a Correspondent Bank account, in favor of one individual. Many of the wires are round lots, and all under $10,000.

• We may check with our Correspondent Bank to confirm that it believes this activity to be reasonable and expected for their customer, the individual receiving the wires.

Internet GamblingInternet Gambling

• Wire Watch notices that numerous wires have been made out of, or received into, a Correspondent Bank account, involving a likely internet gaming company as originator or as beneficiary.

• The payments are all under $10,000, many for less than $200.

• Internet gambling is illegal in the US. While there does not appear to be any law against a correspondent bank using its USD account to process these payments, we will ask the Correspondent Bank to process those payments through another bank.

$1,000 Travelers Checks$1,000 Travelers Checks

• Check Watch notices that the cash letter of one of our Correspondent Banks contains a very high number of $1,000 Travelers Checks. In many cases, these are sequentially numbered and involve the same individual as maker and beneficiary.

• We will check with our Correspondent Bank customer for an explanation as to why this is reasonable and expected.

The Reverse RFIThe Reverse RFI

• In the past, the same sort of inquiries have been made of us by our Correspondent Bank customers, usually about payments that we have initiated.

• These incoming RFIs have in some cases helped us identify weaknesses in our own KYC and AML controls.

• The Bank Secrecy Act prevents us from revealing specific details about our customers, but we can certainly provide you with sufficient information with which to draw a conclusion.

SummarySummary

• All international funds flows are under scrutiny by US regulators and enforement agencies, in particular correspondent banking accounts.

• As part of our monitoring processes, we have a joint responsibility to check with each other regarding suspicious activity.

Global Treasury Services

Latin America Operating Risk

Know Your Customer and Know Your Customer and Anti-Money LaunderingAnti-Money Laundering

Issues inIssues in

Correspondent BankingCorrespondent Banking