1.  Article
describing the nature of the investigation underway amounts of funds are generated by unknown sources.
in the foreign country, and setting forth the These programs are designed to detect money
reasonable basis of the foreign judgment to issue the laundering operations and should enable local and
restraining order. international authorities to implement compliance
No person may object to a restraining order on regulations on their supervised institutions, and to
any ground that is the subject of a litigation that is understand various types of regulations for each
pending in a foreign court. State where these institutions are located.
Failure and penalties Sanctions – The Act grants the US Treasury
The Act states on penalties in case of failure in Secretary the right to impose civil financial sanctions,
implementing geographic targeting orders. These amounting to the double sum of the financial
orders target financial institutions in specific operation provided that it does not exceed one
geographic areas and comprise more serious million USD, on any financial institution breaching
requirements as to records keeping. Geographic any article of this Act or any special measures
targeting orders allow the US government to target required by this Act.
areas inside the USA from which non-proportionate
Listed Rulemaking in Alphabetical Order
Notice of
Finding** Proposed Final Rule Rescinded
Rulemaking
Asia Wealth Bank 11/25/03 4/12/04
Banco Delta Asia 9/15/05 9/15/05 3/14/07
Burma 11/25/03 4/12/04
Commercial Bank of Syria (Includes Syrian 5/18/04 3/09/06
Lebanese Commercial Bank)
First Merchant Bank OSH Ltd. 8/24/04* --- 4/10/08
First Merchant Finance Ltd. 8/24/04* --- 4/10/08
First Merchant International Inc. 8/24/04* --- 4/10/08
First Merchant Trust Ltd. 8/24/04* --- 4/10/08
FMB Finance Ltd. 8/24/04* --- 4/10/08
Infobank (Includes Belmetalnergo); renamed 8/24/04* ---
Trustbank ***
Lebanese Canadian Bank SAL 2/10/11 2/10/11
Multibanka 4/21/05 --- 7/12/06
Myanmar Mayflower Bank 11/25/03 4/12/04
Nauru 12/26/02 4/17/03 --- 4/18/08
Ukraine 12/26/02 --- 4/17/03
VEF Banka 4/21/05 7/12/06 8/1/11
* 9/30/04 notice extended the comment period
** For any institutions/jurisdictions without a link in this column, FinCEN issued the finding in the same
notice as the proposed rulemaking in the adjacent column.
*** Please see FIN-2006-G002
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2.  Article
others are not willing to cooperate with AML efforts.
Funds deposited in US financial institutions
Purposes of the law One of the most substantial matters in this Act is
- The existence of financial centres outside the that the Act considers funds deposited by foreign
USA which are subject to a weak financial banks at American banks and financial institutions
supervision and presenting offshore services working in the USA as funds deposited in the
and activities related to bank secrecy. account of the USA themselves. Accordingly, the
- Limited capacity of legal authorities in offshore Act grants the powers to seize or freeze funds as
centres to determine the source of funds. required by the competent court order. The Act
- The possibility of using American banks by makes the US government a party in any litigation,
foreign banks to route money laundering grievance, or complaint by such foreign institutions
operations. ordered by the court.
Special measures USA Patriot Act certifications
The Act provides the US Treasury Secretary Pursuant to the USA Patriot Act and the laws
with the power to request from American financial issued by the US Treasury, all American banks,
institutions to retain documents and reports related intermediaries, and brokers dealing with insurance
to operations occurring inside or outside the US, in (financial institutions covered by the Federal Deposit
case of money laundering suspicion. Documents and Insurance Act) shall obtain information confirmed
reports should include the following information: by any “foreign bank” maintaining an account
- Identity and address of parties involved in therein.
specific financial operations, including the
identity of the order transfer issuer. Summons or subpoena of records and the
- Presentation on the legitimacy of financial non-recognition of other States laws
operations. Pursuant to the Act, the Secretary of the Treasury
- Identity of the beneficiary. or the Attorney General may issue a summons
- General description of each operation. or subpoena to any foreign bank that maintains
The Act also grants powers to the US Treasury a correspondent account in the United States and
Secretary to request additional information about request records related to such correspondent
the beneficiary from any account held inside the account including records maintained outside of the
USA by any foreign person or a representative United States relating to the deposit of funds into the
thereof, whether the beneficiary is an individual foreign bank.
or a financial institution. Such institutions and The Act states: “A summons or subpoena (…)
representatives shall be identified. may be served on the foreign bank in the United
States if the foreign bank has a representative in
District courts the United States, or in a foreign country pursuant
The Act grants national courts with the power to any mutual legal assistance treaty, multilateral
to prosecute any foreign individual or financial agreement, or other request for international law
institution maintaining a bank account at an enforcement assistance.”
American financial institution, if the accusation
involves a crime sanctioned by the federal law or the Restraining and non-recognition of
law of the country where the foreign individual or foreign judgments
institution resides or works. Similarly, the Act gives The Act grants the district courts with the power
itself the same rights if the operation is executed to issue orders restraining foreign judgments while
fully or partly in the USA. relying on information set forth in an affidavit
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3.  Article
• To strengthen U.S. measures to prevent, detect physical presence in any country. Additionally, they
and prosecute international money laundering are required to take reasonable steps to ensure their
and financing of terrorism; correspondent accounts are not used to indirectly
• To subject to special scrutiny foreign provide correspondent services to such banks.
jurisdictions, foreign financial institutions, and For instance, the Act states on financial
classes of international transactions or types of transactions with third parties and the obligation
accounts that are susceptible to criminal abuse; to conduct enhanced scrutiny of private accounts
• To require all appropriate elements of the and correspondent accounts, in addition to accounts
financial services industry to report potential maintained by senior foreign political figures, or any
money laundering; of their immediate family member or close associate.
• To strengthen measures to prevent use of Correspondent accounts: An account through
the U.S. financial system for personal gain which a bank executes its business via another
by corrupt foreign officials and facilitate bank, including the receipt and payment of
repatriation of stolen assets to the citizens of money.
countries to whom such assets belong.
Below is a brief, non-comprehensive overview Private banking accounts require minimum
of the sections of the USA PATRIOT Act that may aggregate deposits of funds or other assets of
affect financial institutions. not less than $1,000,000. A bank employee acts
Section 311: Special Measures for Jurisdictions, as a point of contact between the bank and
Financial Institutions, or International Transactions of the account owner. Anti-money laundering
Primary Money Laundering Concern detection programs should be well armed to
This Section allows for identifying customers detect such accounts, and particularly to assess
using correspondent accounts, including obtaining related transactions with scrutiny.
information comparable to information obtained on
domestic customers and prohibiting or imposing Similarly, Concentration Accounts have been
conditions on the opening or maintaining in the U.S. affected by the USA Patriot Act. However, the
of correspondent or payable-through accounts for a Act does not provide for a detailed definition
foreign banking institution. of concentration accounts. They are described
Section 312: Special Due Diligence for Correspondent as accounts used to transmit funds without
Accounts and Private Banking Accounts requiring the identification of the customer.
This Section amends the Bank Secrecy Act by Regulations prohibit financial institutions
imposing due diligence & enhanced due diligence from allowing clients to direct transactions
requirements on U.S. financial institutions that that move their funds into, out of, or through
maintain correspondent accounts for foreign the concentration accounts. They also prohibit
financial institutions or private banking accounts for financial institutions from informing customers
non-U.S. person about concentration accounts, and they require
Section 313: Prohibition on U.S. Correspondent each financial institution to establish written
Accounts with Foreign Shell Banks procedures governing the documentation of all
To prevent foreign shell banks, which are generally transactions involving a concentration account.
not subject to regulation and considered to present
an unreasonable risk of involvement in money The US Treasury has put the light on financial
laundering or terrorist financing, from having access institutions, jurisdictions and States that are aware
to the U.S. financial system. Banks and broker- of their ML detection failures. This is a major point of
dealers are prohibited from having correspondent concern since a number of jurisdictions have major
accounts for any foreign bank that does not have a weaknesses in their ML detection systems while
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4.  Article
due diligence. physical presence. However, if banks fail to apply an
appropriate level of due diligence to such accounts,
15) Application to Client Base they expose themselves to various risks identified
Institutions will apply these principles to new earlier in this paper. For instance, they may find
correspondent banking clients. In addition, as these themselves holding money or transmitting money
principles integrate concepts that may not have connected to corruption, fraud or other illegal
previously been applied globally, each institution activities.
will undertake a risk-based review of its existing Pursuant to recommendation 50, banks should
base of correspondent banking clients to identify collect sufficient information on their respondent
whether additional due diligence is required to banks in order to be fully aware of the nature of the
achieve a certain level of understanding of these respondent’s business. The following elements shall
principles. be considered:
- information about the respondent bank’s
16) Updating Client files management
The institution’s policies and procedures shall - major business activities
include the review of data related to correspondent - where they are located and its money-laundering
banking clients regularly or upon the occurrence of prevention and detection efforts.
a material change in the risk profile correspondent
customer accordingly, on a risk-assessed basis. The bank shall also examine the purpose of the
account; the identity of any third party entities
17) Monitoring and reporting of suspicious using the correspondent banking services; and the
activities condition of bank regulation and supervision in the
The institution shall implement bank-wide policies respondent’s country.
and procedures to detect and investigate any unusual Therefore, Banks should only establish
or suspicious activities and report as required by the correspondent relationships with foreign banks that
applied laws. Policies and procedures shall include are effectively supervised by the relevant authorities.
guidelines on what is considered to be unusual or As for respondent banks, they should have effective
suspicious along with related examples. Policies and customer acceptance and KYC policies.
procedures shall also comprise effective monitoring The Basel committee stated that banks should be
of the correspondent banking activity. particularly vigilant to the risk that correspondent
accounts might be used directly by a third party
BASEL RECOMMENDATIONS to conduct business activities on their behalf (e.g.
payable-through accounts). Such arrangements give
Basel recommendations in relation to correspondent rise to most of the same considerations applicable
banks: to introduced business and should be treated in
Banking activities conducted by correspondent accordance with the criteria set out in paragraph 36.
banks consist of the provision of banking services
by one bank (the “correspondent bank”) to another WOLFSBERG PRINCIPLES
bank (the “respondent bank”). Since correspondent
accounts are used throughout the world, these USA Patriot Act Section
accounts enable banks to conduct their activities The purpose of the USA PATRIOT Act is to deter
and provide services they do not offer directly. and punish terrorist acts in the United States and
Particular focus should be put on correspondent around the world, to enhance law enforcement
accounts which involve the provision of services investigatory tools, and other purposes, some of
in jurisdictions where respondent banks have no which include:
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5.  Article
or indirectly by a licensed financial institution anti-money laundering and client identification
subject to a jurisdiction considered as non- controls including whether these controls meet
FATF cooperative and is subject to supervision internationally recognised standards. The scope of
by the banking authority in that jurisdiction. verification led by the institution depends on the
(5) Client visit risk presented. The firm may also speak with the
Unless other measures are deemed sufficient, correspondent banking client’s representatives to
any institution representative should visit the obtain satisfactory information on the correspondent
correspondent banking client at their premises banking client top management, as well as their
prior to or within a reasonable period of time acknowledgment of the importance of money
after the establishment of the relationship laundering controls.
with a correspondent banking client, amongst
other things to confirm that the Correspondent 13) Downstream Correspondent Clearing
Banking Client is not a Shell Bank. A Downstream Correspondent Clearer is
a correspondent banking client who receives
9) Enhanced Due Diligence (EDD) correspondent banking services from an institution
In addition to due diligence, each institution shall while offering itself correspondent banking services
also subject Correspondent Banking Clients that to other financial institutions in the same currency as
present greater risks to enhanced due diligence. the account it maintains with the institution. When
Enhanced due diligence implies further these services are offered to a correspondent banking
consideration of the following additional elements client, that is itself a Downstream Correspondent
designed to ensure that the institution has a greater Clearer, the institution will take reasonable steps
level of understanding: to understand the types of financial institutions to
whom the correspondent banking client offers the
10) Ownership and Management Downstream Correspondent services and consider
For all significant controlling interests, the the degree to which the Correspondent Banking
owners’ wealth sources and background, including Client verifies the anti-money laundering controls
their market reputation and any recent material of the financial institutions it provides such services
ownership changes (e.g. changes in the last five thereto.
years). Similarly, a more detailed understanding
of the experience of each executive management 14) Branches, Subsidiaries and Affiliates
member in addition to recent physical changes in The identification of the level and scope of due
the executive management structure (e.g. in the last diligence that is required on a correspondent banking
two years). client shall be made after the consideration of the
relationship between the correspondent banking
11) Involvement of Politically Exposed Persons client and its ultimate parent (if any). Generally, in
(PEPs) circumstances involving branches, subsidiaries or
If a PEP appears to have an interest or a affiliates, the correspondent banking client’s parent
management role in the correspondent banking shall be taken into consideration when assessing the
client, the institution shall ensure that it has a required level of due diligence. In instances where
sufficient understanding of the rof that person in the the correspondent banking client is an affiliate and
correspondent banking client. not a branch that is not substantively and effectively
controlled by the parent, then both the parent and
12) Correspondent Banking Client’s Anti-Money the correspondent banking client shall be reviewed.
Laundering Controls However certain facts specifically related to the
The quality of the Correspondent Banking Client’s branch, subsidiary, or affiliate may require specific
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6.  Article
4) Due Diligence Standards (DDS) 7) Correspondent Banking Client’s Business
All correspondent banking clients shall be The types of financial products and services
subjected to appropriate due diligence ensuring that offered by the correspondent banking client to its
the institution is comfortable conducting business clients and depending on the risk associated with
with a particular client upon the identification of the correspondent banking client, the geographic
the client’s risk profile. It may be appropriate for markets reached promoting products and services.
any institution to take into consideration the fact The business purposes of the relationship with the
that the correspondent banking client is subjected correspondent banking client include products and
to a regulatory environment that is internationally services offered to the correspondent banking client,
recognised as adequate in combating money and the regulatory status and history
laundering. For instance, any institution may The primary regulatory authority responsible for
rely on publicly available information, obtained the control and supervision of the correspondent
either from the correspondent banking client banking client. If circumstances warrant, any
or a reliable third party (regulatory authorities, institution will also take into consideration
exchange houses, etc…) in order to satisfy the due publicly available materials to verify whether the
diligence requirements. In conducting due diligence correspondent banking client has been the subject of
procedures to any correspondent banking client, the any criminal act, or adverse regulatory action in the
below factors shall be considered as appropriate. recent past.
5) Client Domicile and Organisation Forth: Anti-Money Laundering Controls
The jurisdiction where the ultimate parent of the The nature of AML controls of the correspondent
correspondent banking client is located, and where banking client and the extent to which they are
the particular operating unit wishing to maintain globally applied.
the relationship conducts its business, as well as the
corporate legal form of the Correspondent Banking 8) No Business Arrangements with Shell Banks
Client. Confirm that the correspondent banking client
will not use the institution’s products and services
6) Client ownership and executive management to engage in business with banks which do not really
Whether the Correspondent Banking Client exist.
is publicly held or privately owned; whether if A Shell Bank is a bank that:
publicly held, its shares are traded on an exchange (1) does not conduct its business at a fixed address
in a jurisdiction with an adequately recognised in a particular jurisdiction that has authorised
regulatory scheme; and the identity of any significant the Shell Bank to engage in banking activities.
controlling interests. (2) does not employ full-time employee (s)
The structure and experience of Executive working at this fixed address
Management. These are the most senior executives in (3) does not keep records at that address.
charge of its day-to-day business. Depending on the (4) is not subject to inspection by the banking
circumstances of the Correspondent Banking Client authority that has licensed it to conduct
this may include the Members of the Correspondent banking activities. A bank which satisfies these
Banking Client’s Board of Directors, Supervisory requirements but which is also a regulated
Board, Executive Committee, its Executive affiliate is not considered as a shell bank for
Committee or its equivalent, like the existence of the purposes of these principles. A regulated
any PEP in the Executive Management or ownership affiliate is a bank which would otherwise be a
structure. shell bank or an offshore bank, owned directly
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7.  Article
standards, insufficient regulatory supervision,
1) Correspondent Banks or presenting greater risk for crime, corruption
The below principles extend to all correspondent or money laundering. On the other hand, other
banking relationships established or maintained by jurisdictions such as Financial Action Task
any institution for another correspondent banking Force (FATF) member States have more efficient
client. Correspondent banking is the provision of a and active regulatory environments, therefore
current account or other liability account as well as representing lower risks. Institutions will review
related services to another institution used to meet reports issued by regulatory agencies and
its cash clearing, liquidity management, and short- international bodies like FATF in order to assess
term borrowing or investment needs. Institutions the level of risk presented by the jurisdiction
may decide to expand these principles to include all or the territory in which the Correspondent
their relationships with other financial institutions. Banking Client is based or in which its ultimate
parent is located.
2) Responsibility and oversight - The Correspondent Banking Client’s Ownership
The institution shall define policies and and Management Structures
procedures requiring specified individuals to be The location of owners, their corporate legal form,
responsible for ensuring compliance with these in addition to the transparency and clarity of the
principles. The policies and procedures shall require ownership structure may present greater risks.
the appointment of one person who is in charge Also, the management’s location and experience
of the Know Your Customer (KYC) policy and may raise additional concerns. The involvement
who is senior to or independent from the officer of Politically Exposed Persons (PEPs) in the
approving the establishment of the correspondent management or ownership of Correspondent
banking. Policies and procedures shall also include Banking Clients may also increase the risk. PEPs
an independent review by appropriate personnel are individuals who hold or have held positions
in order to ensure continued compliance with the of public trust such as government officials,
institution’s policies and procedures, as well as with senior executives of government institutions,
these principles, mainly in terms of risk indicators. politicians, or important political party officials,
and their families and close associates
3) Risk-based due diligence (RBDD) - The Correspondent Banking Client’s Business
These principles are based on the “Risk-Based and Customer Base
Approach”. The type of business conducted by the
Correspondent Banking Clients presenting higher correspondent banking client, in addition to
risk should be subjected to a higher level of due the type of markets the correspondent banking
diligence. These principles recap the type of risk client may present greater risk. Involvement
indicators to be considered by an institution upon the in certain business sectors internationally
establishment of a relationship, and on a continuing recognised as creating particular exposure
basis to verify what reasonable or enhanced due to money laundering or corruption presents
diligence it will carry out. The institution should additional concern. Therefore, a correspondent
mainly consider the following risk indicators: banking client that derives a significant part of
- The Correspondent Banking Client’s Domicile its business income from higher risk clients may
The jurisdiction where the Correspondent present greater risk as well. High risk clients
Banking Client is based or where its ultimate are those clients of a correspondent banking
parent is located may present a higher risk. A client that may be involved in activities or are
number of jurisdictions are globally recognised connected to particular jurisdictions reputed as
as having inadequate anti-money laundering vulnerable to money laundering.
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8.  Article
- Specific procedures for keeping records and its historic activity.
submitting reports. 5) Deposits from several persons in the same
- An efficient monitoring system to identify, monitor account.
and report suspicious transactions. 6) The customer refuses to present evidence of its
identity.
Second: Monitoring procedures 7) Account messages incoming through facsimile
The primary monitoring element is the detection or through photocopy only.
of operations that are unusual or inconsistent with 8) Names of Guarantors of interested persons
the nature of the client’s official activity or with the which are hard to be contacted or identified.
nature of its account. Banks should focus on the Countries and territories vulnerable to money
monitoring of: laundering:
- Clients conducting high-risk activities 9) Countries cooperating in drug production
- Clients’ money source such as Afghanistan, Burma, Colombia,
- Operations inconsistent with the historic growth Peru, Laos, Cambodia.
of the client’s account 10) Countries cooperating in the transportation
- Upon enquiring on the money source, the bank and shipping of drugs such as Nigeria,
should be cautious and take into consideration the Turkey, Holland, Spain, DR Congo, Mexico,
following details: Benin.
1. Money channel (cash deposit, cheque transfer, 11) Countries considered as a drug market such as
electronic transfer) the United States of America,
2. Name of the correspondent financial institution Europe
3. Activity source of money (purchase or selling 12) Non-Cooperative Countries and Territories
of real estate, etc…). The following elements with, or Countries categorised as presenting
should be taken into consideration: greater risk impact by the Financial Action
- Prospects of the client’s activity Task Force (FATF).
- Net wealth Industries and activities most targeted by money
- Net income laundering:
The institution may monitor the suspicious 13) Tourism agencies
customer identification process through: 14) Import and export businesses
- Field visit to its domicile – office – factory, etc… 15) Gold and precious metals traders
- Daily monitoring of its account movement and its 16) Offshore banks and their branches
daily operations 17) Financial Intermediaries
- Read daily newspapers and periodic magazines 18) DNFBP – Designated Non-Financial Business
and bulletins. Professionals
19) Car Industry, Car Agents, Boats, Airplanes,
Third: Money laundering indicators: 20) Real estate offices and brokers
The bank, through a number of indicators and 21) Activities involving a high usage of cash such
signs, may constitute an idea on his suspicious as restaurants, retail stores, mechanics shops.
customer:
1) Condensed activity on an account having a Banks are considered as the main element in
low balance. anti-money laundering operations since they
2) Numerous transfers from and to the account. constitute the circle in which such operations are
3) The customer’s account is careless about the conducted. Banks may combat money laundering
operations costs. through international conventions, Basel and FATF
4) Unexpected account changes inconsistent with recommendations, and the USA Patriot Act.
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9.  Article
Correspondent Banks Responsibility
Mitigating Money Laundering Risks
In the past, Banks played primarily the role
of “trusted intermediary”. At times where
information about business partners and business
By: Bachir El Nakib, CAMS -
Former Consultant AML & Compliance Risk Supervision
in general were hardly available, banks were a good - Qatar Financial Centre Regulatory Authority,
source of information and succeeded in managing Head of Compliance/MLRO – ICBC Doha (QFC) Branch
risks and facilitating business.
Therefore, it is important to note that commercial
banks are undoubtedly the third party called “trusted law implementation procedures and supervisory
advisers”. It is a role that banks undisputedly instructions, employees and banks may be subject to
have overruled for ages. Therefore, banks need to financial penalties or imprisonment.
develop but at the same time should be keen on Compliance risks emerge from the possibility
taking a prudential approach. It is said that upon of violation or non implementation of supervisory
decision making, one should remember that the rules by monetary authorities, including significant
best thing one could do is the right thing, followed financial penalties.
by the wrong thing; however, the worst thing that The Basel II Committee issued documents related
could always happen is that one takes no action to the principle of establishment of an appropriate
and does nothing. The fact that commercial banks supervisory system including internal control of
conduct the most risky operations explains their independent periodic reviews and assessments
conservative performance. They hold significant of the supervisory system efficiency. Supervisory
financial responsibilities, requiring them to pay risks result from the possible changing of laws
a significant part of their liabilities i.e. deposits and supervisory rules in a manner which may
in cash or upon request. Despite that banks do affect negatively the bank’s operations and its
not have to deal with the extreme facet of such competitiveness capacity. Legal risks result from
commitment as the withdrawal of all deposits at non compliance with and violation of laws by the
the same time, they should plan the investment bank along with another party or parties. The non
of their money accordingly to their prospects on implementation of law would entail significant
the deposit movement fluctuations. Banks seek moral and material losses to the bank. Before
profits through loans and investments despite the engaging with financial derivatives transactions, the
consequential risks. They also deal with the liquidity bank should make sure that the other party is vested
and profitability equilibrium and work on balancing with the required legal powers for such transactions.
between profitability, liquidity and security, Preventing and managing legal risks should be done
profitability being considered as an indicator of the through policies developed by the bank’s legal
bank’s capacity to take risks. The banking sector is adviser.
highly and primarily targeted by money laundering
(ML) activities, since it is the first channel through First: AML policies
which money is laundered. Therefore, a bank or an A number of methods may be adopted to combat
Islamic bank involved in money laundering will put money laundering, they include:
its financial and banking reputation at stake and will - Customer identification systems
face legal problems involving the employees and - Design, develop and establish compliance-related
the bank itself. In case of non-compliance with the functions performed by specialist personnel.
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159 Union of Arab Bank Magazine (November 2011)