Correspondent relationships: Comments and recommendations by the NBB

1. Concept of correspondent relationship

This page concerns correspondent relationships and relationships posing similar risks established by financial institutions.

For the definition of the concept of “correspondent relationship”, please refer to Article 4, 34°, of the Anti-Money Laundering Law (see the page “Definitions”).

2. Correspondent relationship with a customer established in Belgium or in another EEA Member State

In the past, Article 11, § 1, 1°, of the Law of 11 January 1993 authorised the implementation of simplified due diligence measures in case of correspondent relationships with customers or correspondent relationships where the beneficial owner was a credit or financial institution as referred to in Article 2 of Directive 2005/60/EC that was established in Belgium or in another EEA country, or an equivalent institution established in a third country imposing obligations and checks equivalent to those set out in Directive 2005/60/EC.

Pursuant to the risk-based approach and in accordance with Article 19, § 2, of the Anti-Money Laundering Law, any financial institution establishing a correspondent relationship or a relationship posing similar risks with a respondent institution based in Belgium or in another EEA Member State should henceforth assess the ML/FT risk level posed by the relationship concerned in order to determine the appropriate intensity of the due diligence measures to be implemented to adequately manage and reduce these risks. For further information on this subject, see the page “Individual risk assessment” and, in particular as regards the risk factors to be taken into consideration in the context of such an assessment, the documents mentioned in the section “Other reference documents” of the previous page.

It follows from the above and from the variety in the types of correspondent relationships that when, for instance, a high ML/FT risk level is found to be associated with a cross-border relationship established with a customer governed by the law of another EEA Member State, the correspondent financial institution should apply enhanced due diligence measures commensurate with the risk level thus identified. Conversely, a business relationship with a customer could lead to the identification of a low risk level based on the existence of low risk criteria such as those listed in the documents included in the aforementioned section “Other reference documents”.

The NBB recommends determining in the institution’s internal procedures the intensity of the due diligence measures to be implemented as a result of the assessment of the risks associated with the correspondent relationship or the relationship posing similar risks, taking into account all characteristics of the said relationship and of the transactions performed. When the relationship is found to be associated with a high ML/FT risk, which requires the implementation of enhanced due diligence measures, the internal procedures can provide for the adoption of measures similar to those included in Article 40, § 1, of the Anti-Money Laundering Law (see point 3 below).

Finally, the NBB stresses that each financial institution establishing a correspondent relationship with a customer established in Belgium or on the territory of another EEA Member State must verify, first and foremost and regardless of the risk level associated with the relationship concerned, that its customer is not a fictitious institution or an institution which is known to agree to establishing relationships with or carrying out transactions for fictitious institutions. This obligation flows logically from the prohibition referred to in Article 40, § 2, of the Anti-Money Laundering Law on establishing or continuing a correspondent relationship with a shell bank (see point 4 below).

3. Correspondent relationship with a customer governed by the law of a third country

Where a financial institution referred to in Article 5, § 1, 1°, to 7°, 9° to 14° and 16° to 22°, of the Anti-Money Laundering Law establishes a cross-border correspondent relationship involving the execution of payments with a respondent institution governed by the law of a third country, Article 40 of the Law requires it to apply enhanced due diligence measures in all cases. These measures must be taken prior to establishing a business relationship. For more information on the enhanced due diligence measures to be implemented, see Article 40, § 1, of the Anti-Money Laundering Law and the comments in the Explanatory Memorandum of this Article (see the page “Main reference documents”).

Implementing the enhanced due diligence measures provided for in Article 40, § 1, of the Anti-Money Laundering Law does not, however, exempt the correspondent institution from assessing the ML/FT risks associated with the relationship concerned. The enhanced due diligence measures to be implemented pursuant to the aforementioned Article 40 should be proportionate with the reassessed risk level, in accordance with Article 19, § 2, of the Law. For more information on this subject, see the page “General commentary on cases of enhanced due diligence”, the content of which is taken from the Explanatory Memorandum of the Anti-Money Laundering Law.

Likewise, pursuant to the risk-based approach and to Article 19, § 2, of the Anti-Money Laundering Law, any financial institution other than those referred to in Article 5, § 1, 1°, 4° to 7°, 9° to 14° and 16° to 22°, of the same Law, that establishes a relationship posing similar risks as a correspondent relationship with a respondent institution governed by the law of a third country should assess the ML/FT risk level posed by the relationship concerned in order to determine the appropriate intensity of the due diligence measures to be implemented. For further information on this subject, see the page “Individual risk assessment” and, in particular as regards the risk factors to be taken into consideration in the context of such an assessment, the documents mentioned in the section “Other reference documents” of the previous page. It follows from the above that, when a high ML/FT level is found to be associated with a cross-border relationship established with a customer governed by the law of a third country, the correspondent financial institution should apply enhanced due diligence measures commensurate with the risk level thus identified.

The NBB recommends determining the intensity of the due diligence measures to be implemented in the institution’s internal procedures, depending on whether there are other factors indicative of high risk associated with the transaction or correspondent relationship concerned, in accordance with the individual risk assessment required by the aforementioned Article 19 of the Law (see the page “Individual risk assessment”). For this purpose, all characteristics of the said relationship and of the transactions performed should be taken into account. Finally, the NBB stresses that each financial institution establishing a correspondent relationship with a customer established in a third country must verify first and foremost that its customer is not a fictitious institution or an institution which is known to agree to establishing relationships with or carrying out transactions for fictitious institutions. This obligation flows logically from the prohibition referred to in Article 40, § 2, of the Anti-Money Laundering Law on establishing or continuing a correspondent relationship with a shell bank (see point 4 below).

4. Correspondent relationship with a shell bank

Article 40, § 2, of the Anti-Money Laundering Law prohibits financial institutions as referred to in Article 5, § 1, 1° and 3° to 22° of the Law from establishing or continuing a correspondent relationship with a shell bank or with a credit or financial institution within the meaning of Article 3(1) and (2) of Directive 2015/849 that is known to allow its accounts to be used by a shell bank.

The concept of “shell bank” is defined in Article 4, 37°, of the Anti-Money Laundering Law (see the page “Definitions”).

Article 40, § 2, of the Law does not contain any obligation to address a specific suspicion report to CTIF-CFI when a shell bank wishes to enter into a business relationship with a financial institution that is subject to the Anti-Money Laundering Law (and is therefore obliged to refuse), as this situation falls under the general obligation to report suspicions as laid down in Article 47 of the Law.

 

5. Internal control measures

Financial institutions are expected to periodically and permanently monitor the adequacy of the organisational measures implemented to comply with the due diligence measures with regard to respondent institutions with which a correspondent relationship or a relationship posing similar risks has been established. The NBB expects the internal audit function in particular to pay specific attention to the adequacy and effectiveness of the enhanced due diligence measures adopted when the correspondent relationship concerned has a high risk level, where appropriate because the respondent institution is governed by the law of a third country.

Disclaimer: This English text is an unofficial translation and may not be used as a basis for resolving any dispute.