ACAMS AML in Correspondent Banking 2

Question 1

What is a 'respondent bank' in a correspondent banking relationship?

Accepted Answer

The foreign or smaller bank that receives correspondent banking services from the correspondent bank

Answer

The larger bank providing services and access to payment systems

Answer

The central bank overseeing the correspondent relationship

Answer

The regulatory body approving the correspondent agreement

Question 2

What is 'nested correspondent banking' and why does it increase AML risk?

Accepted Answer

When a respondent bank provides its own correspondent services to other banks using the first correspondent bank's infrastructure, creating additional layers of unknown customers

Answer

When a correspondent bank invests in the respondent bank's equity; creates conflicts of interest

Answer

When multiple correspondent banks agree to share AML compliance costs

Answer

When a central bank authorizes a commercial bank to conduct correspondent operations

Question 3

Under FATF Recommendation 13, what specific AML measures must correspondent banks apply?

Accepted Answer

Gather sufficient information about respondent banks, assess their AML controls, obtain senior management approval, and document respective AML/CFT responsibilities

Answer

File a SAR for every wire transfer involving respondent banks

Answer

Require respondent banks to post collateral equal to 10% of annual transaction volume

Answer

Limit correspondent relationships to banks in FATF member countries only

Question 4

What is a 'payable through account' (PTA) and what AML risk does it present?

Accepted Answer

An account a foreign bank maintains at a U.S. bank that allows the foreign bank's customers to conduct transactions directly, potentially giving unknown third parties access to U.S. financial systems

Answer

A nostro account used for foreign currency settlement; creates currency mismatch risk

Answer

An escrow account held for a specific business purpose; creates misappropriation risk

Answer

A savings account with automatic bill payment; creates overdraft risk

Question 5

Which regulatory action best illustrates the consequences of inadequate correspondent banking AML controls?

Accepted Answer

The $1.9 billion FinCEN/DOJ settlement with HSBC in 2012 for AML failures including correspondent banking violations

Answer

The imposition of Volcker Rule restrictions on proprietary trading

Answer

The Glass-Steagall separation of commercial and investment banking

Answer

The Basel III capital adequacy requirements for systemically important banks

Question 6

What does it mean for a correspondent bank to conduct 'due diligence on the due diligence' of a respondent bank?

Accepted Answer

Assessing the quality and robustness of the respondent bank's own AML/KYC program, rather than simply accepting certifications at face value

Answer

Auditing the respondent bank's financial statements for accuracy

Answer

Requiring the respondent bank to submit to joint regulatory examination

Answer

Verifying that the respondent bank has filed the required number of SARs annually