AML compliance for foreign correspondent accounts: a primer on beneficial ownership requirements and other challenges

Abstract

Purpose

To educate on AML legal requirements and issues relative to foreign correspondent accounts, and give practical advice on relatively low-burdensome measures firms can take to help them achieve compliance in this challenging area.

Design/methodology/approach

Summarizes AML requirements relevant to foreign correspondent accounts, discusses two related FINRA settlements involving the alleged failure to obtain and verify beneficial ownership information, reviews ongoing regulatory and legislative initiatives (including a FinCEN initiative to require firms to identify beneficial owners and verify their identities), and suggests certain due diligence procedures firms can use to screen foreign correspondent accounts.

Findings

One of the fundamental risks that firms face when dealing with foreign correspondent accounts is not knowing their customers' customers. While the current regulatory framework does not, in most cases, explicitly require firms to obtain beneficial ownership information, the practical reality seems to be that obtaining and verifying such information, where possible, could pay substantial dividends in terms of risk assessment and avoidance.

Practical implications

In some cases, a variety of cost-effective screening measures can be sufficient for a firm to identify concrete risks so that it may take steps to reduce its own regulatory exposure. Firms should not discount the simple for the elaborate, and should take advantage of the several, cost-effective AML tools and resources that are readily available.

Originality/value

Practical guidance for AML officers and other compliance and legal professionals by an experienced financial institutions lawyer.

Citation

N. Davilas, C. (2014), "AML compliance for foreign correspondent accounts: a primer on beneficial ownership requirements and other challenges", Journal of Investment Compliance, Vol. 15 No. 1, pp. 4-16. https://doi.org/10.1108/JOIC-01-2014-0003