BSA/AML Examiner School Case Study

Internal Use Only

Foreign Correspondent Banking — Recordkeeping and Enhanced Due Diligence Program It is against AJ & R Bank's policy to establish, maintain, administer or manage a correspondent account in the United States for, or on behalf of, a foreign shell bank. The Bank has implemented procedures to ensure that any correspondent account established, maintained, administered, or managed by our Bank for a foreign bank is not being used by that foreign bank to indirectly provide banking services to a foreign shell bank. Correspondent Account is an account established by a: A. Bank for a foreign bank to receive deposits from, or to make payments or other disbursements on behalf of the foreign bank, or to handle other financial transactions related to the foreign bank. For purposes of this definition, the term account as applied to banks means: A. Any formal banking or business relationship established by a bank to provide regular services, dealings and other financial transactions; and B. Includes a demand deposit, savings deposit or other transaction or asset account and a credit account or other extension of credit. Offshore Bank is any foreign bank that is barred, pursuant to its bank license, from conducting banking activities with the citizens of, or with the local currency of, the country that issued the license; but does not include a regulated affiliate. Foreign Shell Bank is defined as a foreign bank without a physical presence in any country. Special Due Diligence Program For Foreign Correspondent Accounts The Bank has established a Foreign and High Risk Correspondent Due Diligence Program that includes appropriate, specific, risk based and where necessary enhanced policies, procedures and controls that are reasonably designed to enable the Bank to detect and report on an ongoing basis any known or suspected money laundering activity conducted through or involving any correspondent account established, maintained, administered or managed by the Bank for a foreign financial institution. Customer Due Diligence for All Foreign Correspondent Accounts Account officer should make reasonable efforts to document and obtain (in the system or in a memorandum) the following additional information. Any memorandums should be sent to the BSA Officer. • The account officer must obtain a certification from the foreign bank within 30 days of establishing the account. • Document the nature of the foreign bank business and the markets it serves. • Document the type, purpose and anticipated activity of such correspondent account. • Document the nature and duration of the Bank's relationship with the foreign bank (and any of its affiliates). • Document, if possible, the anti-money laundering and supervisory regime of the jurisdiction that issued the charter or license to the foreign bank and any information regarding such jurisdiction if reasonably available, or the jurisdiction in which any company that is an owner of the foreign financial institution is incorporated or chartered. • Document, if possible, the Information known or reasonably available to the covered bank about the foreign bank's anti-money laundering record. • Determine whether any such correspondent account is subject to enhanced due diligence efforts.

For Training Purposes Only

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