BIS consults on AML role for intermediary banks

BIS consults on AML role for intermediary banks

The Bank for International Settlement (BIS) has issued a consultative document seeking feedback on ways to address a current weakness in global anti-money laundering (AML) efforts - the lack of transparency in payment messages used for cross-border cover payments.

Cover payments are used where an originating bank doesn’t have a direct settlement relationship with the beneficiary’s bank in another country, and also doesn’t have a correspondent bank in that country that can deal through directly with the beneficiary bank. In this case the originating bank deals with another intermediary bank.

There are transparency problems with this circuitous route for payments settlement. While certain information about the originator and beneficiary banks’ customers is communicated directly to the beneficiary bank, it is not included the payment instructions to the cover intermediary bank. This means that the cover intermediary bank cannot check payment details against locally applicable lists of individuals or entities whose assets, under local law, must be blocked, rejected or frozen.

Several initiatives are already underway to help address the problem. Industry working groups such as The Wolfsberg Group are looking at ways to enhance transparency, while Swift is expected to have in place an enhanced message format for third-party cover payments by November 2009.

BIS's consultative document outlines its views on how it expects regulators should more closely monitor and enforce transparency for cover payments, and the bank has invited comment on its views by September 15.

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