Fifteen years ago, the Senate Permanent Subcommittee on Investigations flagged correspondent banking as a “Gateway for Money Laundering.”1 The voluminous report highlighted a number of deficiencies with banks maintaining their correspondent banking relationships. Such deficiencies presented a significant money laundering risk to the U.S. financial system. Now, enforcement actions highlighting these deficiencies continue. Recent reports continue to flag the money laundering risks associated with correspondent banking.2 In this era of heightened scrutiny with compliance with Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) controls, continued review and updating of compliance protocols is imperative to mitigate enforcement risks to financial institutions.
Understanding Correspondent Banking
Correspondent banking refers to the provision of banking services by one bank to another bank, and can involve a U.S. domestic financial institution providing banking services to a foreign financial institution and its customers in a foreign country. The domestic U.S. bank is the correspondent bank. The foreign bank is referred to as the respondent bank.
