The risk-based compliance programs that North American banks have implemented, to suppress money laundering and terrorist financing, can only succeed if they extend effective risk reduction to their correspondent banks. This means Know your Customer's Customer, or KYCC, is not longer an option, if banks are to retain their correspondents.
Correspondent often have compliance shortcomings for various reasons, including but not limited to:
(1) The constantly increasing cost of new AML/CFT technology
(2) Budgetary constraints that make it impossible to engage sufficient fully trained & experienced compliance staff, and a functional financial intelligence unit
(3) A lack of sufficient recurrent in-country compliance training.
(4) Developing nations' local economies, which operate at a level that fails to sustain sustain successful profit margins for an excessive number of local and regional banks
(5) Strong competition from local branches or affiliates of international banks
there are also many other contributing factors. Banking best practices, at the level practiced by North American banks, is thus the rare exception, rather than the rule. The problems are often more severe in countries in the developing world.
The sole acceptable solution is to require that your correspondents enable you to have full & complete access to their clients' information, that they close accounts for customers who your inquiry finds present an unacceptable level of risk, or are on sanctions, and that legitimate customers who subsequently engage in conduct that is not acceptable, are also asked to leave the bank.
This is not all bad news for the correspondent banks, because by working with their onshore banks, they insure that their prized relationship will not be terminated, for risk-related reasons. To understand the reverse of the problem, that experienced by your correspondents, read my recent article, How Caribbean Banks can keep their Correspondents by utilizing KYCC Technology .
With KYCC, both the onshore bank, and the overseas correspondent, can retain their valued relationship.
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