(AML-CFT Decision 25)

Financial Institutions are obliged to fulfil certain due diligence requirements with regard to the correspondent banking relationships and other similar relationships they maintain, regardless of whether these involve foreign or domestic financial institutions. Additional guidance in respect of the measures specified in the relevant article of the AML-CFT Decision is provided below. Similar relationships to which FIs should apply the guidance below include, for example those established for securities transactions or funds transfers.

FIs are prohibited from entering into or maintaining correspondent relationships with shell banks, or with institutions that allow their accounts to be used by shell banks. The AML-CFT Decision defines a shell bank as a “bank that has no physical presence in the country in which it is incorporated and licensed, and is unaffiliated with a regulated financial group that is subject to effective consolidated supervision.”

Regulatory and supervisory environments governing the operation of financial institutions around the world vary greatly. Thus, not all foreign financial institutions are subject to the same AML/CFT requirements as FIs in the UAE; and as a consequence, some of these foreign institutions may pose a higher ML/FT risk. To mitigate against these risks, FIs that maintain correspondent relationships with foreign financial institutions should consider implementing adequate procedures to assess and periodically review the relevant regulatory and supervisory frameworks of the countries concerned.

Furthermore, when gathering information about financial institutions with which they maintain correspondent relationships, whether foreign or domestic, FIs should take appropriate steps to assess the nature, size and extent of their businesses in the countries where they are incorporated and licensed, as well as their ownership and management structures (taking into consideration the nature and extent of any PEP involvement), in order to evaluate whether they exhibit the characteristics of shell banks, and whether they offer downstream correspondent services (also known as “nested accounts”) to other banks. If they do offer downstream correspondent services, FIs should also take reasonable steps to understand the types of services offered, the number and types of financial institutions they are offered to, the types of customers those institutions serve, and to identify the associated ML/FT risk issues.

In order to collect sufficient information about the nature of a financial institution and the AML/CFT controls it applies, and to assess the ML/FT risks associated with it, FIs should take appropriate measures such as implementing a suitable correspondent relationships questionnaire and, when necessary, conducting follow-up interviews. (FIs may find the correspondent banking questionnaire which has been developed by the Wolfsberg Group, as well as the Wolfsberg Anti-Money Laundering Principles for Correspondent Banking, instructive in this regard. See Appendix 11.2, Useful Links.)

In addition to obtaining senior management approval prior to establishing new correspondent relationships, FIs should also periodically review and update their due diligence information in relation to the financial institutions with which they maintain correspondent relationships, commensurate with the risks involved (see 6.3.6 Reviewing and Updating the Customer Due Diligence Information). In the event of a deterioration in the risk profile of a financial institution with which a correspondent relationship is maintained, including the discovery of material adverse information concerning the institution, FIs should ensure that senior management is informed and appropriate risk-based measures are taken to assess and mitigate the ML/FT risks involved.

FIs should also maintain agreements or contracts with financial institutions with which they maintain correspondent relationships. In addition to operational details concerning the products and services covered, these agreements should clearly describe each party’s responsibilities in regard to ML/FT risk mitigation, due diligence procedures, and the detailed conditions related to any permitted third-party usage of the correspondent account.