IN YOUR WORDS
Cross-border transactions
T
he cover payments session chaired
by Rick Small from American
Express and Nina Nichols from the
Federal Reserve Board certainly was the
most informative session I attended at the
ACAMS 7th Annual International Money
Laundering Conference and Exhibition in
Las Vegas — it identified a true risk and
gave sufficient business background to
comprehend the challenge at hand.
Facilitating compliance with transparency
The issue with cover messages and,
in particular, Society for Worldwide
Interbank Financial Telecommunication
(SWIFT) MT 202 messages is that they
currently do not contain originator or
beneficiary information, rendering compliance for the intermediary banks as
close to impossible.
Cover payments have long been under
scrutiny from the regulators for their lack
of transparency — they are, however, an
essential payment instrument to reduce
costs of transactions, to manage fee deductions and to avoid payment delays. The issue
has been a gray area that has been examined
closely over the last years. In April 2007, the
Wolfsberg Group and the Clearing House
Association made a joint statement asking
for more end- to-end transparency.
The responsibility normally lies with
the originating bank to verify the source of
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funds—however, intermediary banks also
have the responsibility of checking what is
transmitted through their accounts.
Today, banks using the 202 as an interbank cover message are encouraged to
enter beneficiary and originator data, but
this is far from mandatory and tedious to
do given the message format.
The consultative document issued
Sept. 16 of this year by the Basel
Committee on Banking Supervision
directly addresses the due diligence and
transparency challenge posed by cover
payment messages related to cross-border
wire transfers (SWIFT and other).
The new rule (effective September
2009) provides a classification of the
International ACH Transactions (IATs),
both in- and outbound, by focusing on
where the financial agency that handles
the payment transaction is located and
not where any other party to the transaction (e.g., the originator or receiver) is
located. To enable proper monitoring, new
formats have been created for the IATs to
comply with the additional data requirements included in the Bank Secrecy Act’s
(BSA) “Travel Rule.” Next to that, Office
of Foreign Asset Control (OFAC) screening indicators will be added for effective
interdiction of unlawful transactions.
The above-mentioned changes will provide financial institutions with sufficient
November / December 2008
information to conduct an efficient review
of the transactions as requ \