The adoption of anti-money laundering policies, procedures and compliance programmes continues to be a primary focus of international banks and their regulators. In the past several months particular effort in the United States has been devoted to the development of new anti-money laundering programmes for correspondent banking, private banking and dealings with offshore banks.
Concerns about correspondent banking relationships continue to be a focus of compliance initiatives for international banks. Simply stated, the concern is that US-based banks, through the correspondent accounts they provide to certain high-risk foreign banks, have become conduits for 'dirty money' flowing into the US financial system. High-risk foreign banks can be:
- shell banks with no physical presence in any country for conducting business with their clients;
- offshore banks with licences limited to transacting business with persons outside the licensing jurisdiction; or
- banks licensed and regulated by jurisdictions with weak anti-money laundering controls that invite banking abuses and criminal misconduct.
Some of these foreign banks are engaged in criminal behaviour, some have clients who are engaged in criminal behaviour and some have such poor anti-money laundering controls that they do not know whether their clients are engaging in criminal behaviour. The concern of US regulators is that US banks have too often failed to conduct careful due diligence review of their foreign bank clients, including obtaining information on the foreign bank's management, finances, regulation, regulatory environment and anti-money laundering efforts.
In October 2000 representatives of the world's largest banks gathered in Wolfsberg, Switzerland and developed what have come to be known as the Wolfsberg Anti-Money Laundering Principles. The principles represent the group's effort to establish anti-money laundering guidelines that are viewed as appropriate when dealing with clients or the global marketplace. The principles deal with diverse aspects of 'know your customer' policies that pertain to relationships between high net-worth individuals and the private banking department of financial institutions. They also deal with the identification and follow-up of unusual or suspicious activities. A year later, the principles have become an important reference point for international banks around the world as they seek to develop appropriate anti-money laundering policies and procedures for private banking.
The Financial Action Task Force (FATF), a 29-member organization created by the world's industrialized countries in 1989 to coordinate certain international anti-money laundering efforts, has been a leader in developing international cooperation to deal with jurisdictions deemed sympathetic to money launderers. At a June 2001 meeting in Paris, the FATF removed the Bahamas, the Cayman Islands, Lichtenstein and Panama from the list of non-cooperative countries. The FATF also announced that it would initiate measures against the Russian Federation, the Philippines and Nauru if they failed to improve anti-money laundering practices.
It is imperative that each international bank with US operations establish an anti-money laundering programme that meets US and international standards (as defined by the FATF and the Wolfsberg Principles) for effective prevention of money laundering activities using the bank as a medium for the transfer of illegal cash or wired funds. At present, minimum standards for such a programme would include:
- the establishment of a system of internal controls to ensure compliance with the Bank Secrecy Act;
- independent compliance testing and training;
- establishment of written policies and procedures to cover detection and prevention of money laundering; and
- adoption of adequate know your customer and suspicious activity reporting procedures.
Bank examiners in the United States will expect to see documentation indicating that a comprehensive anti-money laundering compliance programme has been established and implemented by the board of directors, senior management, the compliance department (or officer), and internal audit and legal functions. Private banking, correspondent banking and dealings with offshore banking jurisdictions should receive appropriate attention as part of a bank's anti-money laundering efforts.
For further information on this topic please contact Connie Friesen at Sidley Austin Brown & Wood LLP by telephone (+1 212 906 2000) or by fax (+1 212 906 2021) or by e-mail ([email protected]).
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