Wolfsberg Group Seeks To Monitor Correspondent Banking

by Ulrika Lomas, Tax-News.com, Brussels

08 November 2002

Meeting recently in Switzerland, members of the Wolfsberg Group (an association of banks with major private banking interests which aims to set up anti-money laundering principles) agreed a set of rules to apply to global correspondent banking, long seen as the Achilles heel of banking sector because of the enormous sums of money conveyed around the world in semi-anonymous fashion.

The Group, which includes among its members such heavyweights as ABN AMRO Bank, Barclays Bank plc, JPMorgan Chase Bank, Citigroup, Credit Suisse Group, Deutsche Bank, Goldman Sachs, and HSBC Holdings, had previously issued the Wolfsberg Principles for Private Banking, and the Wolfsberg Statement on the Suppression of the Financing of Terrorism.

The Group has now agreed to a set of global anti-money laundering principles designed to govern the establishment and maintenance of correspondent banking relationships.

Thomas M. Obermaier, Managing Director, Deutsche Bank, who chaired the subcommittee of the Group that developed the Principles, said: "This is a significant step forward. For the first time, we will all be governed by a single set of rules that will apply across the globe. It will go a long way toward preventing our institutions from being misused for criminal purposes. While we all have taken this matter seriously in the past, each of us wanted to develop a robust, global standard. We took a best-of-breed approach, studying practices employed across the world and adopting only the best practices as a global standard. We will now adhere to a truly global, best practices benchmark."

The Group says that the Principles clearly bar doing business with Shell Banks and espouse a risk-based approach to evaluating correspondent banking clients. 'Focusing on the correspondent banking client is the only practical means to prevent misuse in this area,' says the Group. 'Going beyond that benchmark would in essence require all correspondent banks to evaluate all their customer's customers, a process that could quickly require an analysis on all banking customers throughout the world. The Principles risk-based approach is designed to ascertain the appropriate level of due diligence, that is, the level and depth of due diligence a bank should conduct on a correspondent banking client. In evaluating prospective risks, the Principles promote that a bank considers the domicile of the client, its ownership and management structure, its business portfolio and its client base. The ensuing risk profile will assist the bank in considering the degree it will examine eight Know Your Customer ("KYC") factors. The Principles also deal with the identification and follow-up of unusual or suspicious activities.'

For banks operating in the US, the provisions relating to correspondent banking really amount to little more than a statement of intention to comply with the USA PATRIOT Act in both spirit and letter, says World Money-Laundering Report. In relation to the non-US members, however, it is a very useful benchmark.

The Principles also include a proposal to set up a world-wide register of banking institutions which would contain extensive details of ownership, capital structure and key relationships. This proposal is however likely to encounter stiff opposition, and it's doubtful whether it would deter a criminal bank, which can simply lie about itself. Control via transactions seems a much more likely route.

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