The Bank for International Settlements has provided final guidance on due diligence and transparency regarding cover payment messages in cross-border wire transfers.
The new rules are intended to clamp down on the use of cover payments to hide the identities of wire transfer recipients in support of regulatory initiatives on anti-money laundering and terrorism financing.
In January Lloyds TSB was slapped with a $350 million penalty by the US Justice department for deliberately falsifying wire transfers destined for countries or individuals on US sanctions lists.
According to court documents, Lloyds deliberately removed material information - such as customer names, bank names and addresses - from payment messages so that the wire transfers would pass undetected through filters at US financial institutions.
The stripping of information allowed more than $350 million in transactions to be processed by US correspondent banks that might have otherwise been blocked or rejected due to sanctions regulations or for internal bank policy reasons.
New regulations for banks transmitting cover payments through the Fedwire Funds Service and Chips, the US wire transfer systems are set to be introduced some time in the fourth quarter of 2010. Swift, the bank-to-bank payment network is also introducing new messaging standard, MT 202 COV, that will go live in November 2009.
In releasing its guidance, the BIS says the new measures are consistent with private sector initiatives. The document describes the supervisory expectations for the information that must be included in payment messages related to cover payments, the mechanisms that must be used to ensure that complete and accurate information has been included in such messages, and the use that should be made of the information for anti-money laundering purposes and to combat the financing of terrorism.
The fine-tuning follows the publication of an earlier draft that was released for public consultation last year.
The full document can be downloaded here:Download the document now 98.5 kb (PDF File)