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

In a correspondent banking relationship, the respondent bank is the foreign or smaller institution that gains access to financial services — such as U.S. dollar clearing or trade finance — through the correspondent bank.

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

Nested correspondent banking occurs when a respondent bank offers correspondent services to other financial institutions (sub-respondents), causing the original correspondent bank to unwittingly provide services to banks it has never vetted, dramatically increasing exposure to unknown ML/TF risks.

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

FATF Recommendation 13 requires correspondent banks to: assess the respondent's AML/CFT controls; document respective responsibilities; obtain senior management approval for new relationships; and be satisfied the respondent is not a shell bank.

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

Payable-through accounts allow customers of a foreign respondent bank to directly access the U.S. correspondent bank's services, potentially giving unknown foreign individuals direct access to the U.S. financial system without adequate AML screening.

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 2012 HSBC settlement — then the largest AML penalty in U.S. history — resulted from HSBC's failure to maintain adequate AML programs, including processing transactions for drug cartels through its U.S. operations and providing correspondent banking services to banks with ties to sanctioned countries.

(ACAMS) Association of Certified Anti-Money Laundering Specialists Practice Test

(ACAMS) Association of Certified Anti-Money Laundering Specialists Practice Test

ACAMS AML in Correspondent Banking 2