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Guideline on Anti-Money Laundering and the Combating of Terrorist FinancingExamples of these services include inter-bank deposit activities, international electronicfunds transfers, cash management, cheque clearing and payment services, collections,payment for foreign exchange services, processing client payments (in either domesticor foreign currency) and payable-through accounts.Financial institutions must apply appropriate levels of due diligence to such accounts bygathering sufficient information from and performing enhanced due diligence processeson correspondent banks prior to setting up correspondent accounts.Regulations 21(2) and (3) of the FOR detail some specific due diligence requirements forcorrespondent banks prior to their establishing relationships with a respondent bank.The due diligence process prior to the establishment of a correspondent bankingrelationship should involve:a) obtaining authenticated/ certified copies of Certificates of Incorporation and Articlesof Association (and any other company documents to show registration of theinstitution within its identified jurisdiction of residence) ;b) obtaining authenticated/certified copies of banking licences or similar authorizationdocuments, as well as any additional licences needed to deal in foreign exchange;c) determining the supervisory authority which has oversight responsibility for therespondent bank;d) determining the ownership of the financial institution;e) obtaining details of respondent bank’s board and management composition;f) determining the location and major activities of the financial institution;g) reviewing FATF notices or (or FATF style regional body’s) mutual evaluation reportor other assessment of the home country’s measures to implement the FATF 40Recommendations and 9 Special Recommendations;h) establishing and periodically update an AML country risk rating system and assigna rating to each country in which a correspondent banking relationship has beenestablished, for the purpose of implementing an appropriate level of monitoring;i) ensuring that the documentation of the agreement includes an obligation to providerelevant customer identification information when requested to do so;j) obtaining details regarding the group structure within which the respondent bankmay fall, as well as any subsidiaries it may have;k) obtaining proof of its years of operation, along with access to its audited financialstatements (5 years if possible);l) information on its external auditors;Page 31 of 75
Guideline on Anti-Money Laundering and the Combating of Terrorist Financingm) ascertaining whether the bank has established and implemented sound customerdue diligence, anti-money laundering and anti-terrorism financing policies andstrategies and appointed a Compliance Officer (at senior management level),inclusive of obtaining a copy of its AML/CTF policy and <strong>guideline</strong>s;n) ascertaining whether the correspondent bank has in the previous 7 years (from thedate of the commencement of the business relationship or negotiations therefore),been the subject of or is currently subject to any regulatory action or any AML/CTFprosecutions or investigations;o) establishing the purpose of the correspondent account;p) documenting the respective responsibilities of each institution in the operation ofthe correspondent account; andq) identifying any third parties that may use the correspondent banking services.A financial institution is prohibited from entering or continuing a correspondent bankingrelationship with a bank incorporated in a jurisdiction in which it has no physicalpresence 24 . Consequently, financial institutions will need to satisfy themselves that theforeign respondent banks do not permit their accounts to be used by shell banks. In thisregard financial institutions should take account of whether:-a) the respondent bank permits “payable through accounts”. This would be one likelyway in which shell banks could take advantage of respondent banks;b) the respondent bank’s inability or reluctance to provide ultimatebeneficiary/customer information in relation to pooled arrangements or collectiveinvestment schemes or aggregate accounts whereby only the KYC on the agent ofthe beneficiaries of the pooled arrangement, collective investment scheme oraggregate account will be or can be provided by the respondent bank; andc) the country in which the foreign respondent bank resides; (see note on countrieswith inadequate AML/CTF frameworks) has secrecy laws that prohibit the releaseof any KYC information or which laws present an obstacle to the KYC due diligenceprocess may pose a particular problem in this regard.12.4.1.(ii.)Payable-Through AccountsPayable-through accounts refer to correspondent accounts that are used directly by thirdparties to transact business on their own behalf. In this regard, banks must be guided bythe criteria established for introduced business.Banks should be particularly alert to the risk that correspondent accounts might be useddirectly by third parties to transact business on their own behalf. FATF also requires24 Refer to the FOR Regulation 22.Page 32 of 75
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