Risks Associated with Money Laundering and Terrorist Financing

U.S. Dollar Drafts—Overview

Objective. Assess the adequacy of the bank’s systems to manage the risks associated with U.S. dollar drafts, and management’s ability to implement effective monitoring and reporting systems.

A U.S. dollar draft is a bank draft or check denominated in U.S. dollars and made available at foreign financial institutions. These drafts are drawn on a U.S. correspondent account by a foreign financial institution. Drafts are frequently purchased to pay for commercial or personal transactions and to settle overseas obligations.

Risk Factors

The majority of U.S dollar drafts are legitimate; however, drafts have proven to be vulnerable to money laundering abuse. Such schemes involving U.S. dollar drafts could involve the smuggling of U.S. currency to a foreign financial institution for the purchase of a check or draft denominated in U.S. dollars. The foreign financial institution accepts the U.S. currency and issues a U.S. dollar draft drawn against its U.S. correspondent bank account. Once the currency is in bank draft form, the money launderer can more easily conceal the source of funds. The ability to convert illicit proceeds to a bank draft at a foreign financial institution makes it easier for a money launderer to transport the instrument either back into the United States or to endorse it to a third party in a jurisdiction where money laundering laws or compliance are lax. In any case, the individual has laundered illicit proceeds; ultimately, the draft or check will be returned for processing at the U.S. correspondent bank.

Risk Mitigation

A U.S. bank’s policies, procedures, and processes should include the following:

  • Outline criteria for opening a U.S. dollar draft relationship with a foreign financial institution or entity (e.g., jurisdiction; products, services, target market; purpose of account and anticipated activity; or customer history).
  • Detail acceptable and unacceptable transactions (e.g., structuring transactions or the purchase of multiple sequentially numbered drafts for the same payee).
  • Detail the monitoring and reporting of suspicious activity associated with U.S. dollar drafts.
  • Discuss criteria for closing U.S. dollar draft relationships.

 

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