Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual

Correspondent Accounts (Foreign) — Overview

Correspondent Accounts (Foreign) — Overview Objective. Assess the adequacy of the U.S. bank’s systems to manage the risks associated with foreign correspondent banking and management’s ability to implement effective due diligence, monitoring, and reporting systems. This section expands the earlier core review of statutory and regulatory requirements of foreign correspondent account relationships in order to provide a broader assessment of the AML risks associated with this activity. Foreign financial institutions 180 maintain accounts at U.S. banks to gain access to the U.S. financial system and to take advantage of services and products that may not be available in the foreign financial institution’s jurisdiction. These services may be performed more economically or efficiently by the U.S. bank or may be necessary for other reasons, such as

the facilitation of international trade. Services may include: • Cash management services, including deposit accounts. • International funds transfers. • Check clearing. • Payable through accounts. • Pouch activities. • Foreign exchange services. • Overnight investment accounts (sweep accounts). • Loans and letters of credit. • Lines of credit. Contractual Agreements

Each relationship that a U.S. bank has with a foreign correspondent financial institution should be governed by an agreement or a contract describing each party’s responsibilities and other relationship details (e.g., products and services provided, acceptance of deposits, clearing of items, forms of payment, and acceptable forms of endorsement). The agreement or contract should also consider the foreign financial institution’s AML regulatory requirements, customer base, due diligence procedures, and permitted third-party usage of the correspondent account. 180 The term “foreign financial institution” as defined in 31 CFR 1010.605(f) generally includes: • A foreign bank. • A foreign branch or office of a U.S. bank, broker/dealer in securities, futures commission merchant, introducing broker, or mutual fund. • Any other person organized under foreign law that, if located in the United States, would be a broker/dealer in securities, futures commission merchant, introducing broker, or mutual fund. • Any person organized under foreign law that is engaged in the business of, and is readily identifiable as, a currency dealer or exchanger or a money transmitter.

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