Correspondent Banking Due Diligence

Because the correspondent cannot see the respondent's customers, it relies on getting to know the respondent itself. Typical steps are gathering information on ownership and management, the nature of the business, the home country's regulation and supervision, any past enforcement or investigations, and the quality of the respondent's anti-money-laundering and sanctions controls. Banks use a questionnaire, public sources and sometimes a visit or call. They ask whether the respondent offers accounts to shell banks, serves other banks through the account or lets customers use it directly, as with payable-through accounts. Senior management approval is normally needed before opening. After that, the correspondent monitors activity on the account, looking for volumes out of line with the respondent's size, unusual routes and repeated alerts, and refreshes the review on a risk-based cycle. A vague questionnaire or a refused call is itself information, and the file records it next to the decision.

A mid-sized bank in a higher-risk country asks a large bank for a euro account. The large bank collects the respondent's questionnaire, finds that the respondent has a money services business among its clients, and sees that its regulator issued a fine last year for weak controls. Senior management approves only with limits on payment types and a six-month review of flows.