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Financial Intelligence Centre Act, 2001 (Act No. 38 of 2001)


Guidance Note 3

Guidance for Banks on Customer Identification and Verification and Related Matters

Correspondent Banks

28. Measures that need to be put in place in respect of correspondent banking relationships


Correspondent banking is the provision of banking services by one bank (the "correspondent bank") to another bank (the "respondent bank"). Correspondent bank accounts enable banks to conduct business and provide services that the banks do not offer directly.


According to the Core Principles, banks should only establish correspondent relationships with foreign banks that are effectively supervised by the relevant authorities. For their part, respondent banks should have effective customer acceptance and KYC policies.


In particular, the Core Principles provide that banks should refuse to enter into or continue a correspondent banking relationship with a bank incorporated in a jurisdiction in which it has no physical presence and which is unaffiliated with a regulated financial group (ie. shell banks). Banks should pay particular attention when continuing relationships with respondent banks tocated in jurisdictions that have poor KYC standards or have been identified by FATF as being "non co-operative" in the fight against anti-money laundering.


The Wolfsberg principles sets out the following risk indicators that a Bank shall consider, to ascertain what reasonable due diligence or enhanced due diligence it will undertake:


the correspondent banking client's domicile - the jurisdiction where the correspondent banking client is based and/or where its ultimate parent is headquartered may present greater risk. Certain jurisdictions are internationally recognised as having inadequate anti-money laundering standards, insufficient regulatory supervision, or presenting greater risk for crime, corruption or terrorist financing. Institutions will review pronouncements from regulatory agencies and international bodies, such as the FATF, to evaluate the degree of risk presented by the jurisdiction in which the correspondent banking client is based and/or in which its ultimate parent is headquartered.


the correspondent banking client's ownership and management structures - the location of owners, their corporate legal form and the transparency of ownership structure may present greater risks. The involvement of a PEP in the management or ownership of certain correspondent banking clients may also increase the risk.


the correspondent banking client’s business and customer base - the type of businesses the correspondent banking client engages in, as well as the type of the markets the correspondent banking client serves, may present greater risks. Consequently, a correspondent banking client that derives a substantial part of its business income from higher risk clients may present greater risk. Higher risk clients are those clients of a correspondent banking client that may be involved in activities or are connected to jurisdictions that are identified by credible sources as activities or countries being especially susceptible to money laundering. Each institution may give the appropriate weight to each risk factor, as it deems necessary.


FATF Recommendation 7 states that financial institutions such as banks should, in addition to performing normal due diligence measures, do the following in relation to cross-border correspondent banking and other similar relationships:

gather sufficient information about a respondent bank to understand fully the nature of the respondent’s business and to determine from publicly available information the reputation of the bank and the quality of supervision, including whether the institution has been subject to a money laundering or terrorist financing investigation or regulatory action;
assess the respondent bank’s anti-money laundering and terrorist financing controls;
obtain approval from senior management before establishing new correspondent relationships;
document the respective responsibilities of each bank;
with respect to "payable-through accounts", be satisfied that the respondent bank has verified the identity of and performed ongoing due diligence on the customers having direct access to accounts of the correspondent and that the respondent bank is able to provide relevant customer identification data upon request to the correspondent bank.