Because the correspondent processes transactions for customers it has not onboarded itself, it carries elevated risk. FATF Recommendation 13 requires enhanced due diligence on respondent banks and bans relationships with shell banks. Nested relationships, where the respondent lets other banks use its account, add further risk.
Example
A US bank holds an account for a foreign bank, which uses it to clear dollar payments for its own customers.
Where it appears in the exams
This topic is relevant for CAMS, CFCS, CGSS.
Related terms
- Enhanced due diligence (EDD): Enhanced due diligence is the additional scrutiny applied to higher-risk customers, relationships or transactions, beyond standard customer due diligence.
- Sanctions screening: Sanctions screening is checking customers, owners, counterparties and payments against sanctions lists to make sure the firm does not deal with listed persons or prohibited activity.
- Risk-based approach: The risk-based approach means a firm identifies and assesses its own money laundering and terrorist financing risks and applies controls in proportion to them, instead of treating every customer and transaction the same.
Source: FATF Recommendation 13; Wolfsberg Correspondent Banking Due Diligence Questionnaire. Independent explanation for study purposes, not legal advice.