Introduction
Correspondent banking is a cornerstone of global trade and economic activity. In today’s highly connected economic world, correspondent banking helps to facilitate cross-border flow of goods and services, and it supports economic growth through international trade and cross-border financial activity. In many emerging markets and low-income countries, correspondent banking services help promote financial inclusion by assisting cross-border remittances and aid flows. According to the Society for Worldwide Interbank Financial Telecommunications (SWIFT), about 7,000 banks use the SWIFT network for correspondent banking and have more than 1 million individual correspondent banking relationships (CBRs).1 Without these relationships, businesses may be cut off from international trade and financing, families may be unable to collect remittances from relatives working abroad, and foreign investors may be unwilling to invest if there is a risk that they will be unable to repatriate their profits.
So, what is a correspondent banking relationship? By way of example, a company in Barbados wants to send $100,000 to another company in Jamaica to pay for the import of goods. Given that they transact in US dollars, the banks of the companies in each country will have to use intermediaries: other banks connected to the US Federal Reserve System. These intermediaries, which tend to be global banks, are called correspondent banks. The banks of the companies in Barbados and in Jamaica are called respondent banks. In a correspondent banking arrangement, a correspondent bank provides a deposit account or other liability account and a range of services to a respondent bank and its customers. The arrangement requires an exchange of messages between banks to settle transactions by crediting or debiting accounts. These messages could be associated with payments, trade finance, foreign exchange, or securities transactions.
Correspondent banking services can be provided in three main forms: (1) correspondent accounts in which a respondent bank enters into an agreement with a correspondent bank to execute payment on its behalf and on behalf of its direct customers; (2) nested accounts involving the use of a CBR by a respondent bank’s immediate customers for their clients; and (3) payable through accounts in which a respondent bank allows its customers to access its correspondent bank directly to conduct business. Correspondent banking services can also support the channeling of small payments that have been aggregated by money transfer operators.
In recent years, CBRs have been under pressure in some countries and regions. Surveys and analysis conducted by multilateral and regional bodies point to countries in the Caribbean, Middle East and North Africa (MENA), Sub-Saharan Africa regions, and the Pacific region, and especially small and fragile states, as particularly affected by this phenomenon. These regions have experienced a decline in CBRs, raising concerns about potential implications on the financial systems, remittances, and financial inclusion if these trends continue. These surveys also reveal the multitude of interrelated factors behind this phenomenon, although they vary case by case. To address these concerns, there have been intensified efforts at the international, regional, and country levels to deepen the understanding of issues related to CBRs, develop policy responses, and identify actionable industry solutions. This chapter focuses on the effect of CBR pressures, its main drivers, and coordinated efforts to tackle CBR pressures.
Trends and Impact
The decline in correspondent banking varies among several regions, reflecting a complex set of economic, financial, and geopolitical concerns. In early 2015, some countries reported large-scale terminations of CBRs, but at the time quantitative data were not available on payment flows associated with correspondent banking. Several perception-based surveys, conducted by multilateral and regional bodies, reflect on the extent of this phenomena, including to try to ascertain the possible impact and the factors driving these terminations and restrictions on CBRs. These surveys suggest that the impact was felt more acutely in certain regions and had affected certain types of business lines, financial services, and categories of customers more than others.2
Global Perception-Based Surveys
The World Bank conducted one of the first global perception-based surveys in 2015. It surveyed 110 banking authorities, 20 global banks, and 170 local and regional banks across all regions. The survey notes that CBRs were declining in some regions, with the Caribbean as the most affected region. In particular, small jurisdictions with low business volumes and transactions in Europe, Central Asia, the Caribbean, and Africa; countries perceived as high-risk jurisdictions for money laundering and terrorist financing; and countries with significant offshore banking activities and jurisdictions subject to international and bilateral sanctions faced a decline in CBRs. Banking products and financial services were affected, notably for check clearing, clearing and settlement, cash management services, international wire transfers, and trade finance. The survey also notes that certain categories of customers were more affected than others, particularly money transfer operators and other remittance companies, small and medium domestic banks, and small and medium exporters (World Bank 2015).
Regional Perception-Based Surveys
Since then, a number of regional surveys have also been carried out that focus on regional trends, including in the Caribbean, MENA, Asia and Pacific, and Sub-Saharan Africa regions.
Three major surveys took place in the Caribbean in 2016. The Caribbean Association of Banks survey, which covered 38 banks from 18 jurisdictions, notes that more than half the banks (58 percent) had lost at least one CBR, with Suriname, Guyana, and Jamaica as the most affected jurisdictions (CAB 2016). A report by the Caribbean Community, which compiled country surveyed information, highlights that the impact varied between different businesses depending on the country context. For example, in Jamaica, money service businesses, or cambios, were the most affected; in The Bahamas, Cayman Islands, and Turks and Caicos Islands, money transfer businesses were more affected. The survey notes that international business companies were most impacted within the Eastern Caribbean Currency Union (CARICOM 2016). The Association of Supervisors of Banks of the Americas survey received responses from 25 of its associate members in Latin America and the Caribbean. In line with findings of other surveys, the report notes that the Caribbean region was more affected than Latin America and notes the possible impact of these trends on emerging markets (ASBA 2016). IMF staff also conducted a survey in September 2016 with central banking authorities and commercial banks in the Caribbean. The survey findings reiterate that international wire transfer services and high-risk sectors, such as offshore financial services and gaming, were the most affected. When replacements were found or relationships maintained, they came with additional restrictions and higher fees (Alleyne and others 2017).
In the MENA region, the Union of Arab Banks carried out a survey with the IMF in 2015. The survey finds 40 percent of the banks reporting that their CBRs had become more demanding, time-consuming, complex, and more expensive to maintain. The report examines Anti-Money Laundering/Combating the Financing of Terrorism Controls—a key driver of pressures on these relationships. It also looks at the impact of the Basel III prudential regulations, and the US Foreign Account Tax Compliance Act requirements on banking relationships, in particular with the increasing cost of compliance (IMF and UAB 2015). In 2016, the Arab Monetary Fund, IMF, and World Bank conducted a survey to assess to what extent Arab banks had seen terminations and restrictions of CBRs between 2012 and 2015. Roughly 39 percent of survey respondents from 17 Arab countries indicated a significant decline in the scale and breadth of CBRs. Banks noted that their ability to conduct foreign currency-denominated transactions, especially in US dollars and euros, were affected (Arab Monetary Fund, International Monetary Fund, and World Bank 2016).
The IMF carried out a survey of small states in the Asian and Pacific region in 2016. Survey responses suggest that countries were increasingly under pressure to maintain CBRs and experienced issues with the repatriation of remittances. This led to the account closure of money transfer operators in smaller states such as Fiji, Samoa, and Tonga and closure of money transfer operators in Australia and New Zealand (Alwazir and others 2017). In August 2015, the Australian government’s financial intelligence agency, the Australian Transaction Reports and Analysis Center, carried out a more in-depth analysis of the impact on the remittances sector. This survey focused on the largest remittance network providers and their more than 5,000 affiliates. Analysis of reporting on remittance flows to the Center showed no significant change in the overall remittances sector in terms of volume of transactions or the actual dollar value of funds flow, despite providers and affiliates facing terminations and increased pressures (AUSTRAC 2015).
In September 2017, the Eastern and Southern African Anti-Money Laundering Group conducted a survey in Sub-Saharan Africa. It was circulated to all 18 of its member countries and targeted a broad range of public and private sector stakeholders, including from the banking, insurance, securities, co-operative societies, money or value transfer services, and foreign bureau sectors (ESAAMLG 2017). Forty percent of respondent banks surveyed noted that they had faced terminations of their CBRs. Kenya, Mauritius, and South Africa were among the countries most affected. Notably, pressures on CBRs had affected money or value transfer services and in some countries, the casino sector, foreign exchange bureaus, and nonprofit organizations (NPOs).3
An International Finance Cooperation survey in 2017 of more than 300 of its banking clients in 92 countries suggests that more than a quarter of the survey participants saw reductions in CBRs. Survey results show that Sub-Saharan Africa, Latin America and the Caribbean, Europe, and Central Asia reported declining correspondent banking networks with the greatest frequency. Those most affected by CBR terminations were non-oil-exporting countries, import-dependent countries, countries with lower total imports, countries with smaller GDP, unrated countries, smaller banks by total assets and equity, and higher risk banks (IFC 2017).
Recognizing that these surveys are mostly perception based, the Financial Stability Board (FSB) stepped up its efforts to monitor trends in data with respect to correspondent banking. The FSB reached an agreement with the SWIFT to use data on SWIFT payment messages to analyze trends in correspondent banking. Given that SWIFT is the most commonly used standard for cross-border payments, it is presumed that SWIFT data cover a significant part of global correspondent banking activity and would therefore provide the most comprehensive dataset to assess trends in CBRs.
The Committee on Payments and Market Infrastructure (CPMI) published a report in 2016 using aggregated country-level SWIFT data from 2011 to 2015. The data show that the overall volume of payments (that is, the total number of payment messages sent) increased between 2011 and 2015, but the overall value of the payments sent and the number of active correspondents (that is, the number of banks that sent or received messages in each corridor) declined from 2011, suggesting possible increased concentration of correspondent banking activities (CPMI 2016).
FSB (2017) updated the country-level data. In addition to using the SWIFT data, the FSB carried out a survey of 345 banks in 48 jurisdictions, focusing on CBRs between January 2011 and June 2016. The data and survey suggest that the decline in CBRs continued in 2016, with higher rates of decline observed in the Caribbean and among small states in the Pacific (FSB 2017). In March 2018, the FSB released updated data on CBRs, taking into account midyear data for 2017. The updated data show that the decline in the total number of active correspondents continued into the first half of 2017 with regional variations. There was an increase in the number of active corridors for Oceania, Eastern Europe, and North America, while the rest of the Americas and Europe as well as Africa and Asia continued to experience declines. Since then, the FSB published additional updated datasets in March 2018 (FSB 2018a) and November 2018 (FSB 2018b).
Most recently, the CPMI released the most up to date quantitative review of correspondent banking data in May 2019, reflecting SWIFT data from 2012 to 2018. The CPMI reports that globally the number of CBRs have shrunk by 20 percent over the past seven years. As before it was recognized that the decline was more pronounced in certain regions—for example, the Americas (excluding North America) where there has been a 30 percent decline of active CBRs since 2012. Going forward, the CPMI will continue to publish an annual quantitative review of SWIFT data for the next five years. (CPMI 2019)
The IMF has been monitoring trends, risks, and drivers in the context of its work on surveillance, financial sector assessment programs, and capacity building. These issues are discussed in the context of IMF’s Article IV consultations with its member countries, especially when these issues could have a macro-critical impact on a country’s economy, or when authorities request to discuss them. Where available, IMF country teams have been trying to collect data on trends and assess impact. For example, in Belize, at some point, only two of the 10 domestic banks had CBRs with full banking services. In Angola, by 2015, all commercial banks had lost their direct CBRs with US correspondent banks. In Liberia, all commercial banks had lost at least one CBR, with the most affected losing about 78 percent of their CBR accounts. In the Bahamas, a survey by the Central Bank in 2016 notes that 26 percent of respondents faced restrictions or terminations of at least one CBR.4
Despite these trends in CBR withdrawal or reduction in some countries, macroeconomic consequences of this phenomenon at a global level have not materialized. This is particularly due to banks’ ability to find replacements or alternative arrangements for the payment flows. The IMF Policy Paper on Recent Trends in Correspondent Banking Relationships—Further Consideration (IMF 2017b) indicates that cross-border payments have generally remained stable, and economic activity has been largely unaffected. However, it stresses that in a limited number of countries, particularly small and fragile states, there has been a concentration of cross-border flows through fewer CBRs or alternative arrangements. Such concentration could attenuate financial fragilities in these countries, pose financial stability risks, and undermine growth and financial inclusion prospects by increasing costs of financial services. In addition, the search for alternative arrangements, particularly for remittances, could push the transactions to informal channels, reducing the ability of the authorities and banks to monitor and mitigate risks.
Drivers Behind CBR Pressures
The phenomenon of CBR withdrawal or reduction has many dimensions, and its drivers vary. Pressures on CBRs typically reflects banks’ individual business decisions based on an assessment of the profitability and risks of the relationships, and often concerns correspondent banks’ lack of confidence in respondent banks’ capacity to effectively manage risks.
In general, high volume, low return, and balance sheet intensive business lines such as correspondent banking have become less attractive since the global financial crisis. Global regulatory reforms have entailed a significant increase in banks’ capital requirements, raising the cost of capital. Worldwide, authorities have enhanced regulation to address concerns about tax evasion and combat money laundering and the financing of terrorism, and to expand international and bilateral economic and trade sanction regimes. These changes have resulted in increased compliance costs for banks, which in turn may have unintended consequences of making CBRs costlier and less attractive to global banks. More recently, there has been a focus on drivers like corruption. Compliance costs could further increase because of measures aimed at safeguarding against cyber risks.
Changes in the regulatory environment, including the Financial Action Task Force’s (FATF’s) international standards on anti-money laundering/combating the financing of terrorism in 2012, have focused on a risk-based approach. Banks are required to adopt a risk-based approach toward their customers, including to implement due diligence measures commensurate with customers’ money-laundering and terrorist-financing risk profile. In determining whether to maintain or terminate a CBR, global banks consider the regulatory environment in which the respondent bank is operating, the country’s or region’s risk, and the respondent bank’s size, customer base, business model, and risk management framework. When smaller respondent banks have a business model that services higher risk customers, such as the offshore sector or online gaming, the global bank will need to first satisfy itself that the bank has the sufficient capacity to manage those risks.
A global bank’s decision to withdraw CBRs is subject to its risk tolerance policies. In recent years, several global banks have been subjected to enforcement actions and hefty fines, in particular by US regulatory authorities. According to data from Boston Consulting Group, banks globally have paid $321 billion in fines since 2008 for regulatory and trade and economic violations.5 These are mainly enforcement actions for misconduct or criminal behavior by global banks, in particular for violations of economic and trade sanctions, banking secrecy laws, and anti-money laundering/combating the financing of terrorism regulations. Some of these banks have signed nonprosecution and deferred-prosecution agreements, which are voluntary agreements between the bank and the regulatory authorities to undertake certain remedial actions in exchange for not being subjected to full enforcement procedures or to delay such procedures. Accordingly, these banks have taken steps to curtail and monitor financial services in line with these agreements, some of which may go beyond the regulatory requirements. This changing regulatory and enforcement landscape has affected other banks’ risk tolerance policies as well. Although the agreements are not normative instruments, other banks have studied them to better understand regulatory expectations. In some cases, this has led to a risk-averse attitude on the part of banks in conducting financial services.
As the surveys and the IMF’s work on these issues have indicated, there are common drivers within regions. For example, in the Caribbean, one of the most affected regions, global correspondent banks are concerned with respondent banks’ capacities to manage risks, especially regarding high-risk business lines such as offshore and gaming sectors. In addition, many of these are in small jurisdictions and whose low volume transactions do not make it profitable or justifiable to maintain the increased compliance costs.
In the Pacific, remittance flows have been affected, driven by correspondent banks’ concerns about risks associated the capacity of money transfer operators to carry out proper due diligence on their customers. In the MENA region, countries under economic and trade sanctions, such as the Islamic Republic of Iran and South Sudan, have been affected because correspondent banks’ concerns over enforcement actions have led to more risk-averse policies.
Policy Responses and Industry Solutions
Given the multitude of drivers, there is no silver bullet to address CBR pressures, and solutions need to be tailored to the circumstances of an affected country or region. Efforts at the multilateral, regional, and national levels have deepened the understanding of the phenomenon to develop responses. The IMF, World Bank, and FSB, in collaboration with other international and regional organizations, have facilitated international dialogue among stakeholders on policy responses and industry solutions. For example, the IMF held regional roundtables in the Caribbean (2017, 2018, 2019), the MENA region (2016, 2017), the Pacific region (2018, 2019), and Central Asia (2018), and Africa (2018, 2019). These events gathered global and respondent banks and other stakeholders to identify solutions. The FSB adopted a four-point action plan in 2015 to tackle the decline in correspondent banking through (1) examining the dimensions and implications of the issue, (2) clarifying regulatory expectations, (3) strengthening domestic capacity building in jurisdictions with affected respondent banks, and (4) enhancing tools for due diligence by correspondent banks (FSB 2015). The FATF, the international standard setter on anti-money laundering/combating the financing of terrorism, has made efforts to ensure that the application of a robust framework on that issue does not lead to an indiscriminate withdrawal of CBRs. National authorities have clarified regulatory expectations and strengthened their regulatory and supervisory frameworks on issues including anti-money laundering/combating the financing of terrorism. The private sector has developed and implemented market-based solutions to reduce compliance costs and increase the efficiency of CBRs.
Policy responses and industry initiatives have been proposed, and some have been implemented. Some measures address underlying drivers, including the following:
Enhance communication among banks to build trust.
Strengthen respondent banks’ capacity to manage risks.
Improve legal and regulatory frameworks and implementation in affected jurisdictions.
Clarify international standards by FATF and regulatory expectations by home regulators of global banks.
Harmonize regional regulatory frameworks.
Remove impediments to information sharing.
Use Know Your Customer utilities and Legal Entity Identifier.
Improve payment messages and Fintech solutions to improve the quality of information and facilitate due diligence processes.
Bundle banking products and set volume or risk-based pricing to reduce compliance costs and increase profit margins.
Consolidate transactional traffic by channeling the transactions of several banks through an intermediary bank.
Other measures help contain and mitigate the impact of CBR withdrawal and reduction. They provide alternative arrangements to facilitate cross-border payments and transfers, including remittances these include establishing or enhancing the use of existing regional payment and clearing systems.6 These measures vary in the utility, feasibility, and implementation timeframe. Stakeholders—especially certain correspondent and respondent banks—consider some of the preceding measures as having an impact on tackling the CBR phenomenon across regions, and good progress has been made on their implementation.
Enhancing communication between global and respondent banks is key to building trust, fostering a common understanding of risks, and helping to identify solutions. Communication needs to be a two-way stream. Correspondent banks should clearly communicate their risk-tolerance policies and expectations. For example, some global banks have issued policy statements on transactions considered high-risk. Respondent banks should explain their risk-management frameworks and practices, and communicate their efforts to enhance their compliance programs. Greater communication would allow global banks to provide opportunities for remediation to the extent that deficiencies in respondent banks’ compliance system are identified, thereby avoiding immediate termination of CBRs. With this in mind, global banks have stepped up training and technical-assistance efforts for their respondent banks, including as a way to further convey expectations and enhance communication.7
Strengthening respondent banks’ capacity to effectively assess and manage risks is a prerequisite for maintaining CBRs. Decisions to terminate or restrict CBRs often relate to correspondent banks’ lack of confidence in respondent banks’ adequacy of controls to manage anti-money laundering/combating the financing of terrorism, tax evasion, or other risks that they could bear through liability and fines in their home jurisdictions. Technical assistance and training by public sector capacity development providers and global banks have helped to improve the capacity of local banks. There may be situations when, despite technical assistance and training, some respondent banks would still not have the capacity to effectively manage risks. For example, some small local banks have very limited resources and capacity to conduct proper due diligence but engage in high-risk businesses such as online gaming and offshore. Low capacity and very risky businesses, when combined, can be a toxic cocktail that causes global banks to withdraw CBRs. In such cases, these local banks need to apply a risk-based approach and terminate such business lines to maintain their CBRs.
Improving regulatory and supervisory frameworks of affected jurisdictions is crucial to correspondent banks’ decisions on maintaining or terminating a CBR, because they are viewed as proxies for local banks’ risk management systems. If the decline in CBRs is driven by the perception that a jurisdiction has a weak anti-money laundering/combating the financing of terrorism framework, national authorities should take swift and determined actions to ensure compliance with international standards, including effective implementation of regulation and supervision. Standardizing such regulations and consolidating supervision at a regional level could provide a level playing field for correspondent banks, helping build trust and reduce risks. For example, the Eastern Caribbean Central Bank has consolidated anti-money laundering/combating the financing of terrorism supervision into a regional operation under its responsibility. For this solution to work, regional supervisors need to take actions to ensure effective implementation of the harmonized or standard anti-money laundering/combating the financing of terrorism regulations.
Removing legal and practical impediments to information sharing helps to ensure provision of timely, accurate, and adequate information by respondent banks on transactions, their originators, and beneficiaries to correspondent banks. This helps correspondent banks to meet their customer due diligence requirements. If a jurisdiction’s legal framework prevents the transmission of such information by a local bank to its correspondent bank, such barriers should be removed by amending legislation. To the extent that there are no legal barriers, respondent banks need to closely examine the contracts with their customers to eliminate any practical impediments.
Clarifying, clearly communicating, and consistently enforcing regulatory expectations by home regulators of correspondent banks remains important. Home regulators have clarified regulatory expectations, including on the “know your customer’s customer” requirement. For example, US regulators clarified in 2016 that they are not following a zero-tolerance policy, as some banks have suggested. Instead, they expect banks to follow a risk-based approach and have robust compliance programs that enable a clear understanding of their customers’ risk profiles and expected account activity. Regulators note that the largest and most prominent monetary penalties in recent years have generally involved a sustained pattern of serious violations on the part of banks (US Treasury 2016). Nevertheless, some banks continue to be unclear about regulatory expectations, affecting their decision to maintain or terminate CBRs, home regulators should continue to clarify, clearly communicate, and consistently enforce their regulatory expectations. Moreover, national authorities in both home countries of correspondent banks and affected countries should implement the FATF Guidance on Correspondent Banking (2016).8
Consolidating transactional traffic banks can help address concerns over economies of scale. When economies of scale drive global banks’ decision on CBRs, transactional traffic should be consolidated through the use of other banks, including more regional banks or Tier 2 or Tier 3 banks as intermediaries. Payment flows of small local banks are consolidated to ensure a sufficient level of transaction flows, and the intermediary bank processes these consolidated international payments and transfers them through its CBRs. To make this option viable, the intermediary bank must have a robust control and risk management system and make efforts to ensure full transparency throughout the relationship chain to give correspondent banks confidence in the CBRs. This solution is gaining traction in the Caribbean, Pacific islands, and Africa. However, it sometimes entails higher costs and leads to concentration risks, as well as raises issues of market competitiveness.
The IMF is supporting its membership to develop and implement solutions in line with the strategy endorsed by its Executive Board in April 2017. The strategy focuses on three main areas: surveillance, capacity development, and facilitating dialogue. The IMF is using its Article IV consultations with member countries to monitor trends in CBRs, drivers, and possible impacts; to gather data to assess the macroeconomic impact of the phenomenon; and to provide policy advice. The IMF has increased efforts to tailor capacity development to help authorities identify CBR-related risks, including through the development of a CBR data monitoring tool to help country authorities identify CBR risks (Grolleman and Jutrsa 2017), and to address the underlying drivers of these pressures through technical assistance and training. The IMF has been using its convening power to bring together public and private sector stakeholders such as by launching a series of regional initiatives to have open dialogue on these issues and to identify policy responses and industry-led solutions. These roundtable workshops—which have brought together global correspondent banks, regional banks, respondent banks, money transfer operators, and on occasion, regulatory and supervisory authorities—have provided a forum in which to engage and identify concrete and actionable solutions to address CBR pressures for countries in a specific region.
Conclusion
CBRs help to enable the provision of domestic and cross-border payments and transfers. While trends in CBR withdrawal seem to be stabilizing in some regions, there are significant concerns over pullback by global banks, and ongoing pressures on CBRs remain. In some countries, cross-border flows have been concentrating through fewer channels, and some groups—such as remittance service providers—continue to be affected, which has implications for financial inclusion goals. The factors behind this phenomenon are multiple, interrelated, and vary among cases. However, these trends are the result of banks’ individual business decisions that account for profitability and risk considerations, in line with the banks’ risk tolerance policies.
The multifaceted nature of CBR pressures requires collective and coordinated action by public and private sector stakeholders. There is no “one size fits all” solution; therefore, measures should be tailored to the circumstances and appropriately sequenced based on their utility, feasibility, and implementation time-frame. These measures can include not only policy responses, including to strengthen the regulatory and supervisory frameworks and clarify regulatory expectations, but also industry-led solutions targeted at reducing compliance costs, increasing profit margins, enhancing due diligence measures by banks, and strengthening the capacity of banks. It is imperative that the IMF—with other stakeholders—continues to support its membership on these issues.
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International Monetary Fund (IMF) and Union of Arab Banks (UAB). 2015. The Impact of De-Risking on MENA Banks: Joint Survey. Washington, DC. http://www.nmta.us/assets/docs/DOBS/the%20impact%20of%20derisking%20on%20the%20mena%20region.pdf.
US Department of the Treasury. 2016. “U.S. Department of the Treasury and Federal Banking Agencies Joint Fact Sheet on Foreign Correspondent Banking: Approach to BSA/AML and OFAC Sanctions Supervision and Enforcement.” Press Release, Washington, DC. https://www.treasury.gov/press-center/press-releases/Documents/Foreign%20Correspondent%20Banking%20Fact%20Sheet.pdf.
World Bank. 2015. “Withdrawal from Correspondent Banking: Where, Why, and What to Do About It.” Working Paper 101098, World Bank, Washington, DC. http://documents.worldbank.org/curated/en/113021467990964789/Withdraw-from-correspondent-banking-where-why-and-what-to-do-about-it.
Yan Liu is Assistant General Counsel and Francisca Fernando is Counsel, both in the Legal Department of the IMF. The views expressed in this chapter are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Committee on Payments and Market Infrastructure, “Correspondent Banking,” July 16.
This chapter refers to a number of global and regional perception-based surveys. Since the time of writing this article, many more such surveys have been conducted by various institutions. This article refers to a few of these only.
In addition to regional-specific surveys, some sector-specific reports have focused more specifically on the lack of access to financial services by NPOs in general. A report by Eckert, Guinane, and Hall (2017) indicates that two-thirds of US-based NPOs faced problems in accessing financial services.
See IMF staff reports for Belize (IMF 2017a), Angola (IMF 2016a), Liberia (IMF 2016b), and the Bahamas (IMF 2017c).
For example, BNP Paribas was fined $8.97 billion by US authorities in 2015 for violating US economic sanctions against Cuba; the Islamic Republic of Iran; and South Sudan. HSBC was fined $1.92 billion in 2012 for violating US economic sanctions against Cuba; the, Islamic Republic of Iran; Libya; Myanmar; and South Sudan. HSBC also violated US anti-money laundering regulations. Commerzbank AG was fined $1.45 billion in 2015 for violating US economic sanctions against the Islamic Republic of Iran and South Sudan.
Such regional arrangements would create a central mechanism to allow for the processing and settlement of cross-border payments, without the need to go through a correspondent bank. It has potential efficiency gains, notably from the consolidation of payment flows and greater standardization.
An example of this is Standard Chartered Bank’s Regional Correspondent Banking Academies: https://www.sc.com/en/explore-our-world/correspondent-banking/
FATF (2016) clarifies, among other things, that banks are not required to conduct customer due diligence on the customers of their customers, also known as “know your customer’s customer,” and that due diligence measures against banks has to be commensurate with their level of money laundering and terrorism-fiinancing risks. In addition, there should be ongoing monitoring and communicating between banks.