Correspondence Correspondence Accounts and Wire Accounts and Wire

TransfersTransfers

James WrightJames Wright

OTA Advisor RomaniaOTA Advisor Romania

Correspondent ServicesCorrespondent Services

Money TransfersMoney Transfers LoansLoans Letters of CreditLetters of Credit

OtherOther

ConcernsConcerns

Money laundering through shell Money laundering through shell banksbanks

Nested accountsNested accounts

US CongressUS Congress FATFFATF

Proper due diligenceProper due diligence

Obtain information on bank’s Obtain information on bank’s ownership and managementownership and management

Obtain information on the nature, Obtain information on the nature, and volume of transactions expectedand volume of transactions expected

Review bank's financial statementsReview bank's financial statements

Due DiligenceDue Diligence

.Evaluate credit worthiness.Evaluate credit worthiness Determine the bank’s primary line of Determine the bank’s primary line of

businessbusiness Verify the bank’s licensesVerify the bank’s licenses

Due diligenceDue diligence

. Determine that the bank has a . Determine that the bank has a fixed, operating office in the licensing fixed, operating office in the licensing jurisdictionjurisdiction

Evaluate the overall adequacy of Evaluate the overall adequacy of banking supervision in the banking supervision in the jurisdiction of the respondent bank jurisdiction of the respondent bank including anti-money laundering laws including anti-money laundering laws and bank regulation proceduresand bank regulation procedures

Due diligenceDue diligence

Make inquires to the correspondents Make inquires to the correspondents local branch banklocal branch bank

Make inquires with bank rating Make inquires with bank rating agenciesagencies

Obtain bank referencesObtain bank references Complete customer profileComplete customer profile

Due diligenceDue diligence

Determine if the bank has Determine if the bank has relationships with shell banksrelationships with shell banks

Determine how the bank monitors Determine how the bank monitors international correspondent accountsinternational correspondent accounts

Determine how often site visits are Determine how often site visits are mademade

Due DiligenceDue Diligence

Form an opinion about the bank’s Form an opinion about the bank’s money laundering controls on money laundering controls on correspondent accountscorrespondent accounts

Perform monitoring for changes in Perform monitoring for changes in transaction type and volumetransaction type and volume

Wire Transfers and MonitoringWire Transfers and Monitoring

ManualManual IT systemsIT systems

SWIFT Wire TransfersSWIFT Wire Transfers SWIFT is an unified international financial SWIFT is an unified international financial

transaction processing and transmission transaction processing and transmission systemsystem

It is simply a message transfer, not a funds It is simply a message transfer, not a funds transfer systemtransfer system

SWIFT does not become involved in the SWIFT does not become involved in the process of settling or clearing funds (as do process of settling or clearing funds (as do Fed wire and CHIPS)Fed wire and CHIPS)

The settlement of funds process is handled The settlement of funds process is handled by the banks themselves through the by the banks themselves through the proper debiting and crediting of their proper debiting and crediting of their correspondent accountscorrespondent accounts

SWIFT Wire TransfersSWIFT Wire Transfers

The next slides will show:The next slides will show:– The flow of messages and information The flow of messages and information

between correspondent banks and their between correspondent banks and their clientsclients

– The flow of funds between correspondent The flow of funds between correspondent banks and their clientsbanks and their clients

ORIGINATOR BENEFICIARY

Wire

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ALPHA BANK CITIBANK

BANK OF AMERICA

SWIFT Message (MT 103)

Wire

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Wire Transfer Notification

SERIAL SWIFT wire

S Sample Wire Transfer message traveling in SWIFT Format to RECEIVING Bank: (:20 Transaction Reference Number

 (0520/PAY (:32 Value Date, Currency, and Amount (12 Dec 2003  (Euros310,000 (:50 Ordering Customer (ABC Importing

 ( ABC Importing

222 Dacca Street. Bucharest Romania. (:57 Account with InstitutionJPiraeusBankGB2L Bucharest, Romania (:59John Tandy UNION BANK 45 BAHNHOFSTRASSE Cayman Islands

:70 Details of Payment/RFB/INV.NO. 10534, 10552, 10561, 10580 (PAYMENT OF THE FOLLOWING INVOICES)

Suspicious characteristicsSuspicious characteristics

Dollar amountDollar amount DestinationDestination Corporation or individualCorporation or individual Type of corporationType of corporation

Suspicious Wire transfersSuspicious Wire transfersLarge dollar amounts where the Large dollar amounts where the

correspondent account has not been used correspondent account has not been used for similar transfersfor similar transfers

Unusual large number of wire transfersUnusual large number of wire transfersTransactions conducted in a burst of activityTransactions conducted in a burst of activityUnexplained repetitive or unusual patterns Unexplained repetitive or unusual patterns

of wire transfersof wire transfers

A request by a respondent bank to establish A request by a respondent bank to establish a relationship with or route a transaction a relationship with or route a transaction through a bank not normally conducting through a bank not normally conducting business with foreign banks business with foreign banks

Suspicious Wire TransfersSuspicious Wire TransfersHigh value deposits or withdrawals not High value deposits or withdrawals not

commensurate with the type of commensurate with the type of correspondent account or business of the correspondent account or business of the correspondent bankcorrespondent bank

Wire transfers to individuals identified by Wire transfers to individuals identified by law enforcement suspected in engaging in law enforcement suspected in engaging in money laundering or terrorist financing.money laundering or terrorist financing.

Request by correspondent bank to be Request by correspondent bank to be exempt money laundering reporting exempt money laundering reporting requirementsrequirements

Suspicious Wire TransfersSuspicious Wire Transfers Routing transfers through several jurisdictions Routing transfers through several jurisdictions

or banks before entering respondent bankor banks before entering respondent bank Frequent or numerous wire transfers from or Frequent or numerous wire transfers from or

for the benefit of shell banks or high risk for the benefit of shell banks or high risk respondent banksrespondent banks

Wire transfers to or from a non cooperating Wire transfers to or from a non cooperating countrycountry

Beneficiaries maintaining accounts at foreign Beneficiaries maintaining accounts at foreign banks which were subject of suspicious banks which were subject of suspicious activity reportingactivity reporting

Reappearing beneficiary banks in offshore Reappearing beneficiary banks in offshore locations where one or more banks had locations where one or more banks had relationships closed due to suspect activity relationships closed due to suspect activity

Examining Wire Transfers for Suspicious Transactions

 Compliance Officer/Examiner Procedure

 Using a sample of high risk accounts, review wire transfer log for an appropriate period of time (3 months)Follow up with a review of wire transfers, messages, customer files and accounts statements for a three-month periodAnalyze wire transfers to determine whether the amounts, frequency and countries of origin/destination are consistent with the nature of the business or occupation of the customerBe alert for any suspicious or unusual activities. Examine wire transfer log and other information and compare to the previous list of suspicious activities   

Examining Wire Transfers for Suspicious Transactions

 Compliance Officer/Examiner Procedure

 Using a sample of high risk accounts, review wire transfer log for an appropriate period of time (3 months)Follow up with a review of wire transfers, messages, customer files and accounts statements for a three-month periodAnalyze wire transfers to determine whether the amounts, frequency and countries of origin/destination are consistent with the nature of the business or occupation of the customerBe alert for any suspicious or unusual activities. Examine wire transfer log and other information and compare to the previous list of suspicious activities   

Bank Wire Transfer Log  Debit Credit Customer Beneficiary Name Country Amount Message

Identification 1. x 12345678 Harry Stone USA $1,000,200 In US $ 87654815  Marcus2. x 34216792 George Coffee Germany $ 500,000 In Euro 45789000  Urethane3. x 22214567 Karen West Bulgaria $ 340,900 BGL 23336659  Voice4. x 65788266 ABC Importing Cayman Islands$ $400,000 In US $ 34908672

  Cretv5. x 7289 2435 Foster Metal USA $ $522,000 In US$ 45379633

Mueller6 x 893445213 Mikhail Popescu France E 340,000 In Euro 469000217 Cretu8 x 498023783 Marin Chrisescu Romania E 239,967 In Euro 34521458     

Link AnalysisLink Analysis

A technique used to explore A technique used to explore associations among a large number associations among a large number of objects of different types. People, of objects of different types. People, profiles, bank accounts, businesses, profiles, bank accounts, businesses, wire transfers, and cash deposits.wire transfers, and cash deposits.

ClusteringClustering

Analysis of wire transfers based on Analysis of wire transfers based on the frequency and dollar amount of the frequency and dollar amount of each transfereach transfer

Reveals groups of transfers whose Reveals groups of transfers whose originators are highly similar., originators are highly similar., brokerage houses, industrial firms, brokerage houses, industrial firms, or money transmitters.or money transmitters.

ClusteringClustering

Allow banks and examiners to Allow banks and examiners to identify firms whose manufacturing identify firms whose manufacturing firms whose financial transactions firms whose financial transactions are atypical and examine them more are atypical and examine them more closely to determine whether the closely to determine whether the corporation is merely a shell within corporation is merely a shell within which to conceal money laundering.which to conceal money laundering.

ConclusionConclusion

Banks must perform proper due Banks must perform proper due diligence on new and existing diligence on new and existing correspondent accountscorrespondent accounts

Wire transfer are high risk area for Wire transfer are high risk area for money laundering and must be money laundering and must be monitoredmonitored