Risks Associated with Money Laundering and Terrorist Financing
Payable Through Accounts—Overview
Objective. Assess the adequacy of the bank’s systems to manage the risks associated with payable through accounts (PTA), and management’s ability to implement effective monitoring and reporting systems.
Foreign financial institutions use PTAs, also known as "pass-through" or "pass-by" accounts, to provide their customers with access to the U.S. banking system. Some U.S. banks, Edge and agreement corporations, and U.S. branches and agencies of foreign financial institutions (collectively referred to as U.S. banks) offer these accounts as a service to foreign financial institutions. Law enforcement authorities have stated that the risk of money laundering and other illicit activities is higher in PTAs that are not adequately controlled.
Generally, a foreign financial institution requests a PTA for its customers that want to conduct banking transactions in the United States through the foreign financial institution’s account at a U.S. bank. The foreign financial institution provides its customers, commonly referred to as "subaccountholders," with checks that allow them to draw funds from the foreign financial institution’s account at the U.S. bank.192In this type of relationship, the foreign financial institution is commonly referred to as the "master accountholder." The subaccountholders, which may number several hundred or in the thousands for one PTA, all become signatories on the foreign financial institution’s account at the U.S. bank. While payable through customers are able to write checks and make deposits at a bank in the United States like any other accountholder, they might not be directly subject to the bank’s account opening requirements in the United States.
PTA activities should not be confused with traditional international correspondent banking relationships, in which a foreign financial institution enters into an agreement with a U.S. bank to process and complete transactions on behalf of the foreign financial institution and its customers. Under the latter correspondent arrangement, the foreign financial institution’s customers do not have direct access to the correspondent account at the U.S. bank, but they do transact business through the U.S. bank. This arrangement differs significantly from a PTA with subaccountholders who have direct access to the U.S. bank by virtue of their independent ability to conduct transactions with the U.S. bank through the PTA.
PTAs may be prone to higher risk because U.S. banks do not typically implement the same due diligence requirements for PTAs that they require of domestic customers who want to open checking and other accounts. For example, some U.S. banks merely request a copy of signature cards completed by the payable through customers (the customer of the foreign financial institution). These U.S. banks then process thousands of sub-accountholder checks and other transactions, including currency deposits, through the foreign financial institution’s PTA. In most cases, little or no independent effort is expended to obtain or confirm information about the individual and business subaccountholders that use the PTAs.
Foreign financial institutions’ use of PTAs, coupled with inadequate oversight by U.S. banks, may facilitate unsound banking practices, including money laundering and related criminal activities. The potential for facilitating money laundering or terrorist financing, OFAC violations, and other serious crimes increases when a U.S. bank is unable to identify and adequately understand the transactions of the ultimate users (all or most of whom are outside of the United States) of its account with a foreign correspondent. PTAs used for illegal purposes can cause banks serious financial losses in criminal and civil fines and penalties, seizure or forfeiture of collateral, and reputation damage.
U.S. banks offering PTA services should develop and maintain adequate policies, procedures, and processes to guard against possible illicit use of these accounts. At a minimum, policies, procedures, and processes should enable each U.S. bank to identify the ultimate users of its foreign financial institution PTA and should include the bank’s obtaining (or having the ability to obtain through a trusted third-party arrangement) substantially the same information on the ultimate PTA users as it obtains on its direct customers.
Policies, procedures, and processes should include a review of the foreign financial institution’s processes for identifying and monitoring the transactions of subaccountholders and for complying with any AML statutory and regulatory requirements existing in the host country and the foreign financial institution’s master agreement with the U.S. bank. In addition, U.S. banks should have procedures for monitoring transactions conducted in foreign financial institutions’ PTAs.
In an effort to address the risk inherent in PTAs, U.S. banks should have a signed contract (i.e., master agreement) that includes:
- Roles and responsibilities of each party.
- Limits or restrictions on transaction types and amounts (e.g., currency deposits, funds transfers, check cashing).
- Restrictions on types of subaccountholders (e.g., casas de cambio, finance companies, funds remitters, or other non-bank financial institutions).
- Prohibitions or restrictions on multi-tier subaccountholders.193It is possible for a subaccount to be subdivided into further subaccounts for separate persons.
- Access to the foreign financial institution’s internal documents and audits that pertain to its PTA activity.
U.S. banks should consider closing the PTA in the following circumstances:
- Insufficient information on the ultimate PTA users.
- Evidence of substantive or ongoing suspicious activity.
- Inability to ensure that the PTAs are not being used for money laundering or other illicit purposes.
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