Risks Associated with Money Laundering and Terrorist Financing
Objective. Assess the adequacy of the bank’s systems to manage the risks associated with concentration accounts, and management’s ability to implement effective monitoring and reporting systems.
Concentration accounts are internal accounts established to facilitate the processing and settlement of multiple or individual customer transactions within the bank, usually on the same day. These accounts may also be known as special-use, omnibus, suspense, settlement, intraday, sweep, or collection accounts. Concentration accounts are frequently used to facilitate transactions for private banking, trust and custody accounts, funds transfers, and international affiliates.
Money laundering risk can arise in concentration accounts if the customer-identifying information, such as name, transaction amount, and account number, is separated from the financial transaction. If separation occurs, the audit trail is lost, and accounts may be misused or administered improperly. Banks that use concentration accounts should implement adequate policies, procedures, and processes covering the operation and recordkeeping for these accounts. Policies should establish guidelines to identify, measure, monitor, and control the risks.
Because of the risks involved, management should be familiar with the nature of their customers’ business and with the transactions flowing through the bank’s concentration accounts. Additionally, the monitoring of concentration account transactions is necessary to identify and report unusual or suspicious transactions.
Internal controls are necessary to ensure that processed transactions include the identifying customer information. Retaining complete information is crucial for compliance with regulatory requirements as well as ensuring adequate transaction monitoring. Adequate internal controls may include:
- Maintaining a comprehensive system that identifies, bank-wide, the general ledger accounts used as concentration accounts, as well as the departments and individuals authorized to use those accounts.
- Requiring dual signatures on general ledger tickets.
- Prohibiting direct customer access to concentration accounts.
- Capturing customer transactions in the customer’s account statements.
- Prohibiting customer’s knowledge of concentration accounts or their ability to direct employees to conduct transactions through the accounts.
- Retaining appropriate transaction and customer identifying information.
- Frequent reconciling of the accounts by an individual who is independent from the transactions.
- Establishing timely discrepancy resolution process.
- Identifying recurring customer names.
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