INFORME DADO POR EX AGENTES DE LA SIDE ( COLUMNA DE PATRICIO MAGUIRE) BUENOS AIRES 27-02-2001-SEPRIN

1 See “Private Banking and Money Laundering: A Case Study of Opportunities and Vulnerabilities,” S.Hrg.

106-428 (November 9 and 10, 1999), Minority Staff report at 872.

MINORITY STAFF OF THE

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

REPORT ON

CORRESPONDENT BANKING:

A GATEWAY FOR MONEY LAUNDERING

February 5, 2001

U.S. banks, through the correspondent accounts they provide to foreign banks, have

become conduits for dirty money flowing into the American financial system and have, as a

result, facilitated illicit enterprises, including drug trafficking and financial frauds.

Correspondent banking occurs when one bank provides services to another bank to move funds,

exchange currencies, or carry out other financial transactions. Correspondent accounts in U.S.

banks give the owners and clients of poorly regulated, poorly managed, sometimes corrupt,

foreign banks with weak or no anti-money laundering controls direct access to the U.S. financial

system and the freedom to move money within the United States and around the world.

This report summarizes a year-long investigation by the Minority Staff of the U.S. Senate

Permanent Subcommittee on Investigations, under the leadership of Ranking Democrat Senator

Carl Levin, into correspondent banking and its use as a tool for laundering money. It is the

second of two reports compiled by the Minority Staff at Senator Levin’s direction on the U.S.

banking system’s vulnerabilities to money laundering. The first report, released in November

1999, resulted in Subcommittee hearings on the money laundering vulnerabilities in the private

banking activities of U.S. banks.1

I. Executive Summary

Many banks in the United States have established correspondent relationships with high

risk foreign banks. These foreign banks are: (a) shell banks with no physical presence in any

country for conducting business with their clients; (b) offshore banks with licenses limited to

transacting business with persons outside the licensing jurisdiction; or (c) banks licensed and

regulated by jurisdictions with weak anti-money laundering controls that invite banking abuses

and criminal misconduct. Some of these foreign banks are engaged in criminal behavior, some

have clients who are engaged in criminal behavior, and some have such poor anti-money

laundering controls that they do not know whether or not their clients are engaged in criminal

behavior.

These high risk foreign banks typically have limited resources and staff and use their

correspondent bank accounts to conduct operations, provide client services, and move funds.

Many deposit all of their funds in, and complete virtually all transactions through, their.2 The term “U.S. bank” refers in this report to any bank authorized to conduct banking activities in the

United States, whether or no t the bank or its parent corpo ration is domiciled in the United S tates.

3 The term “offshore bank” is used in this report to refer to banks whose licenses bar them from transacting

business with the citizens of their own licensing jurisdiction or bar them from transacting business using the local

currency of the licensing jurisdiction. See also the International Narcotics Control Strategy Report issued by the

U.S. Department of State (March 2000)(hereinafter “INCSR 2000"), “Offshore Financial Centers” at 565-77.

4 The term “respondent bank” is used in this report to refer to the client of the bank offering correspondent

services. The bank offering the services is referred to as the “correspondent bank.” All of the respondent banks

examined in this investigation are foreign bank s.

correspondent accounts, making correspondent banking integral to their operations. Once a

correspondent account is open in a U.S. bank, not only the foreign bank but its clients can

transact business through the U.S. bank. The result is that the U.S. correspondent banking

system has provided a significant gateway into the U.S. financial system for criminals and money

launderers.

The industry norm today is for U.S. banks 2 to have dozens, hundreds, or even thousands

of correspondent relationships, including a number of relationships with high risk foreign banks.

Virtually every U.S. bank examined by the Minority Staff investigation had accounts with

offshore banks,3 and some had relationships with shell banks with no physical presence in any

jurisdiction.

High risk foreign banks have been able to open correspondent accounts at U.S. banks and

conduct their operations through their U.S. accounts, because, in many cases, U.S. banks fail to

adequately screen and monitor foreign banks as clients.

The prevailing principle among U.S. banks has been that any bank holding a valid license

issued by a foreign jurisdiction qualifies for a correspondent account, because U.S. banks should

be able to rely on the foreign banking license as proof of the foreign bank’s good standing. U.S.

banks have too often failed to conduct careful due diligence reviews of their foreign bank clients,

including obtaining information on the foreign bank’s management, finances, reputation,

regulatory environment, and anti-money laundering efforts. The frequency of U.S. correspondent

relationships with high risk banks, as well as a host of troubling case histories uncovered by the

Minority Staff investigation, belie banking industry assertions that existing policies and practices

are sufficient to prevent money laundering in the correspondent banking field.

For example, several U.S. banks were unaware that they were servicing respondent banks 4

which had no office in any location, were operating in a jurisdiction where the bank had no

license to operate, had never undergone a bank examination by a regulator, or were using U.S.

correspondent accounts to facilitate crimes such as drug trafficking, financial fraud or Internet

gambling. In other cases, U.S. banks did not know that their respondent banks lacked basic fiscal

controls and procedures and would, for example, open accounts without any account opening

documentation, accept deposits directed to persons unknown to the bank, or operate without

written anti-money laundering procedures. There are other cases in which U.S. banks lacked.5 Cash management services are non-credit related banking services such as providing interest-bearing or

demand deposit accounts in one or more currencies, international wire transfers of funds, check clearing, check

writing, or foreign exchange services.

information about the extent to which respondent banks had been named in criminal or civil

proceedings involving money laundering or other wrongdoing. In several instances, after being

informed by Minority Staff investigators about a foreign bank’s history or operations, U.S. banks

terminated the foreign bank’s correspondent relationship.

U.S. banks’ ongoing anti-money laundering oversight of their correspondent accounts is

often weak or ineffective. A few large banks have developed automated monitoring systems that

detect and report suspicious account patterns and wire transfer activity, but they appear to be the

exception rather than the rule. Most U.S. banks appear to rely on manual reviews of account

activity and to conduct limited oversight of their correspondent accounts. One problem is the

failure of some banks to conduct systematic anti-money laundering reviews of wire transfer

activity, even though the majority of correspondent bank transactions consist of incoming and

outgoing wire transfers. And, even when suspicious transactions or negative press reports about a

respondent bank come to the attention of a U.S. correspondent bank, in too many cases the

information does not result in a serious review of the relationship or concrete actions to prevent

money laundering.

Two due diligence failures by U.S. banks are particularly noteworthy. The first is the

failure of U.S. banks to ask the extent to which their foreign bank clients are allowing other

foreign banks to use their U.S. accounts. On numerous occasions, high risk foreign banks gained

access to the U.S. financial system, not by opening their own U.S. correspondent accounts, but by

operating through U.S. correspondent accounts belonging to other foreign banks. U.S. banks

rarely ask their client banks about their correspondent practices and, in almost all cases, remain

unaware of their respondent bank’s own correspondent accounts. In several instances, U.S. banks

were surprised to learn from Minority Staff investigators that they were providing wire transfer

services or handling Internet gambling deposits for foreign banks they had never heard of and with

whom they had no direct relationship. In one instance, an offshore bank was allowing at least a

half dozen offshore shell banks to use its U.S. accounts. In another, a U.S. bank had discovered

by chance that a high risk foreign bank it would not have accepted as a client was using a

correspondent account the U.S. bank had opened for another foreign bank.

The second failure is the distinction U.S. banks make in their due diligence practices

between foreign banks that have few assets and no credit relationship, and foreign banks that seek

or obtain credit from the U.S. bank. If a U.S. bank extends credit to a foreign bank, it usually will

evaluate the foreign bank’s management, finances, business activities, reputation, regulatory

environment and operating procedures. The same evaluation usually does not occur where there

are only fee-based services, such as wire transfers or check clearing. Since U.S. banks usually

provide cash management services 5 on a fee-for-service basis to high risk foreign banks and

infrequently extend credit, U.S. banks have routinely opened and maintained correspondent

accounts for these banks based on inadequate due diligence reviews. Yet these are the very banks

that should be carefully scrutinized. Under current practice in the United States, high risk foreign.banks in non-credit relationships seem to fly under the radar screen of most U.S. banks’ anti-money

laundering programs.

The failure of U.S. banks to take adequate steps to prevent money laundering through their

correspondent bank accounts is not a new or isolated problem. It is longstanding, widespread and

ongoing.

The result of these due diligence failures has made the U.S. correspondent banking system

a conduit for criminal proceeds and money laundering for both high risk foreign banks and their

criminal clients. Of the ten case histories investigated by the Minority Staff, numerous instances

of money laundering through foreign banks’ U.S. bank accounts have been documented,

including:

–laundering illicit proceeds and facilitating crime by accepting deposits or processing wire

transfers involving funds that the high risk foreign bank knew or should have known were

associated with drug trafficking, financial fraud or other wrongdoing;

–conducting high yield investment scams by convincing investors to wire transfer funds to

the correspondent account to earn high returns and then refusing to return any monies to

the defrauded investors;

–conducting advance-fee-for-loan scams by requiring loan applicants to wire transfer large

fees to the correspondent account, retaining the fees, and then failing to issue the loans;

–facilitating tax evasion by accepting client deposits, commingling them with other funds

in the foreign bank’s correspondent account, and encouraging clients to rely on bank and

corporate secrecy laws in the foreign bank’s home jurisdiction to shield the funds from

U.S. tax authorities; and

–facilitating Internet gambling, illegal under U.S. law, by using the correspondent account

to accept and transfer gambling proceeds.

While some U.S. banks have moved to conduct a systematic review of their correspondent

banking practices and terminate questionable correspondent relationships, this effort is usually

relatively recent and is not industry-wide.

Allowing high risk foreign banks and their criminal clients access to U.S. correspondent

bank accounts facilitates crime, undermines the U.S. financial system, burdens U.S. taxpayers and

consumers, and fills U.S. court dockets with criminal prosecutions and civil litigation by wronged

parties. It is time for U.S. banks to shut the door to high risk foreign banks and eliminate other

abuses of the U.S. correspondent banking system.

NOTE: COLOR CHART IN PRINTED VERSION OF REPORT.NOT AVAILABLE ON THE WEBSITE VERSION.HIGH RISK FOREIGN BANKS

EXAMINED BY PSI MINORITY STAFF INVESTIGATION

NAME OF BANK CURRENT

STATUS

LICENSE AND OPERATION U.S. CORRESPONDENTS

EXAMINED

American International Bank (AIB)

1992-1998

In Receivership C Licensed in Antigua/Barbuda

C Offshore

C Physical presencein Antigua

BAC of Florida

Bank of America

Barnett Bank

Chase Manhattan Bank

Toronto Dominion

Union Bank of Jamaica

British Bank of Latin America (BBLA)

1981-2000

Closed C Licensed by Bahamas

C Offshore

C Physical presence in Bahamas

and Columbia

C Wholly owned subsidiary of

Lloyds TSB Bank

Bank of New York

British Trade and Commerce Bank

(BTCB)

1997-present

Open C Licensed by Dominica

C Offshore

C Physical presence in Dominica

Banco Industrial de Venezuela

(Miami)

First Union National Bank

Security Bank N.A.

Caribbean American Bank (CAB)

1994-1997

In Liquidation C Licensed by Antigua/Barbuda

C Offshore

C No physical presence

U.S. correspondents ofAIB

European Bank

1972-present

Open C Licensed by Vanuatu

C Onshore

C Physical presence in Vanuatu

ANZ Bank (New York)

Citibank

Federal Bank

1992-present

Open C Licensed by Bahamas

C Offshore

C No physical presence

Citibank

Guardian Bank and Trust (Cayman)Ltd.

1984-1995

Closed C Licensed by Cayman Islands

C Offshore

C Physical presence in Cayman

Islands

Bank of New York

NAME OF BANK CURRENT

STATUS

LICENSE AND OPERATION U.S. CORRESPONDENTS

EXAMINED

Hanover Bank

1992-present

Open C Licensed by Antigua/Barbuda

C Offshore

C No physical presence

Standard Bank (Jersey) Ltd.’s U.S.

correspondent, HarrisBank

International (New York)

M.A. Bank

1991-present

Open C Licensed by Cayman Islands

C Offshore

C No physical presence

Citibank

Union Bank of Switzerland (New

York)

Overseas Development Bank and Trust

(ODBT)

1996-present

Open C Licensed by Dominica

C Offshore

C Physical presence in Dominica

(formerly in Antigua)

U.S. correspondents ofAIB

AmTrade International (Florida)

Bank One.Swiss American Bank (SAB)

1983-present

Open C Licensed by Antigua/Barbuda

C Offshore

C Physical presence in Antigua

Bank of America

Chase Manhattan Bank

Swiss American National Bank (SANB)

1981-present

Open C Licensed by Antigua/Barbuda

C Onshore

C Physical presence in Antigua

Bank of New York

Chase Manhattan Bank

Prepared by Minority Staff of the U.S. Senate Permanent Subcommittee on Investigations, January 2001..II. Minority Staff Investigation Into Correspondent Banking

To examine the vulnerability of correspondent banking to money laundering, the Minority

Staff investigation interviewed experts; reviewed relevant banking laws, regulations and

examination manuals; surveyed U.S. banks about their correspondent banking practices; reviewed

court proceedings and media reports on cases of money laundering and correspondent banking;

and developed ten detailed case histories of money laundering misconduct involving U.S.

correspondent accounts. The one-year investigation included hundreds of interviews and the

collection and review of over 25 boxes of documentation, including subpoenaed materials from 19

U.S. banks.

The Minority Staff began its investigation by interviewing a variety of anti-money

laundering and correspondent banking experts. Included were officials from the U.S. Federal

Reserve, U.S. Department of Treasury, Internal Revenue Service, Office of the Comptroller of the

Currency, Financial Crimes Enforcement Network (“FinCEN”), U.S. Secret Service, U.S. State

Department, and U.S. Department of Justice. Minority Staff investigators also met with bankers

from the American Bankers Association, Florida International Bankers Association, and banking

groups in the Bahamas and Cayman Islands, and interviewed at length a number of U.S. bankers

experienced in monitoring correspondent accounts for suspicious activity. Extensive assistance

was also sought from and provided by government and law enforcement officials in Antigua and

Barbuda, ARGENTINA, Australia, Bahamas, Cayman Islands, Dominica, Jersey, Ireland, the United

Kingdom and Vanuatu.

Due to a paucity of information about correspondent banking practices in the United States,

the Minority Staff conducted a survey of 20 banks with active correspondent banking portfolios.

The 18-question survey sought information about the U.S. banks’ correspondent banking clients,

procedures, and anti-money laundering safeguards. The survey results are described in Chapter

IV.

To develop specific information on how correspondent banking is used in the United States

to launder illicit funds, Minority Staff investigators identified U.S. criminal and civil money

laundering indictments and pleadings which included references to U.S. correspondent accounts.

Using these public court pleadings as a starting point, the Minority Staff identified the foreign

banks and U.S. banks involved in the facts of the case, and the circumstances associated with how

the foreign banks’ U.S. correspondent accounts became conduits for laundered funds. The

investigation obtained relevant court proceedings, exhibits and related documents, subpoenaed

U.S. bank documents, interviewed U.S. correspondent bankers and, when possible, interviewed

foreign bank officials and government personnel. From this material, the investigation examined

how foreign banks opened and used their U.S. correspondent accounts and how the U.S. banks

monitored or fai led to monitor the foreign banks and their account activity.

The investigation included an interview of a U.S. citizen who formerly owned a bank in the

Cayman Islands, has pleaded guilty to money laundering, and was willing to explain the mechanics

of how his bank laundered millions of dollars for U.S. citizens through U.S. correspondent

accounts. Another interview was with a U.S. citizen who has pleaded guilty to conspiracy to.6 See, for example, “German Officials Investigate Possible Money Laundering,” Wall Street Journal

(1/16/01)(Germany); “Prosecutors set to focus on Estrada bank records,” BusinessW orld (1/15/01)(Philippines);

“Canada’s Exchange Bank & Trust Offers Look at ‘Brass-Plate’ Banks,” Wall Street Journal (12/29/00)(Canada,

Nauru, St. Kitts-Nevis); “Peru’s Montesinos hires lawyer in Switzerland to keep bank accounts secret,” Agence

France Presse (12/11/00)(Peru, Switzerland); “The Billion Dollar Shack,” New York Times M agazine (12/10/00)

(Nauru, Russia); “Launderers put UK banks in a spin,” Financial Times (London)(United Kingdom, Luxembourg,

Switzerland, Nigeria); “Croats Find Treasury Plundered,” Washington P ost (6/13/00)(Croatia); “Arrests and millions

missing in troubled offshore bank,” Associated Press (9/11/00)(Grenada); “Judgement Daze,” Sunday Times

(London) (10/18/98)(Ireland); “That’s Laird To You, Mister,” New York Times (2/27/00)(multiple countries).

7 See, for example, 31 C.F.R. §§103.11 and 103.21 et seq. CTRs identify cash transactions above a

specified thre shold; SARs identify po ssibly illegal transac tions obser ved by ba nk person nel.

commit money laundering and was willing to explain how he used three offshore banks to launder

illicit funds from a financial investment scheme that defrauded hundreds of U.S. citizens. Other

interviews were with foreign bank owners who explained how their bank operated, how they used

correspondent accounts to transact business, and how their bank became a conduit for laundered

funds. Numerous interviews were conducted with U.S. bank officials.

Because the investigation began with criminal money laundering indictments in the United

States, attention was directed to foreign banks and jurisdictions known to U.S. criminals. The case

histories featured in this report are not meant to be interpreted as identifying the most problematic

banks or jurisdictions. To the contrary, a number of the jurisdictions identified in this report have

taken significant strides in strengthening their banking and anti-money laundering controls. The

evidence indicates that equivalent correspondent banking abuses may be found throughout the

international banking community,6 and that measures need to be taken in major financial centers

throughout the world to address the types of money laundering risks identified in this report.

III. Anti-Money Laundering Obligations

Two laws lay out the basic anti-money laundering obligations of all United States banks. First

is the Bank Secrecy Act which, in section 5318(h) of Title 31 in the U.S. Code, requires all U.S.

banks to have anti-money laundering programs. It states:

In order to guard against money laundering through financial institutions, the Secretary [of

the Treasury] may require financial institutions to carry out anti-money laundering

programs, including at a minimum -- (A) the development of internal policies, procedures,

and controls, (B) the designation of a compliance officer, (C) an ongoing employee training

program, and (D) an independent audit function to test programs.

The Bank Secrecy Act also authorizes the U.S. Department of the Treasury to require financial

institutions to file reports on currency transactions and suspicious activities, again as part of U.S.

efforts to combat money laundering. The Treasury Department has accordingly issued regulations

and guidance requiring U.S. banks to establish anti-money laundering programs and file certain

currency transaction reports (“CTRs”) and suspicious activity reports (“SARs”).7.8 “Bank Secrecy Act/Anti-Mon ey Laundering Hand book” (Septemb er 2000 ), at 22.

9 Id.

The second key law is the Money Laundering Control Act of 1986, which was enacted

partly in response to hearings held by the Permanent Subcommittee on Investigations in 1985. This

law was the first in the world to make money laundering an independent crime. It prohibits any

person from knowingly engaging in a financial transaction which involves the proceeds of a

"specified unlawful activity." The law provides a list of specified unlawful activities, including

drug trafficking, fraud, theft and bribery.

The aim of these two statutes is to enlist U.S. banks in the fight against money laundering.

Together they require banks to refuse to engage in financial transactions involving criminal

proceeds, to monitor transactions and report suspicious activity, and to operate active anti-money

laundering programs. Both statutes have been upheld by the Supreme Court.

Recently, U.S. bank regulators have provided additional guidance to U.S. banks about the

anti-money laundering risks in correspondent banking and the elements of an effective anti-money

laundering program. In the September 2000 “Bank Secrecy Act/Anti-Money Laundering

Handbook,” the Office of the Comptroller of the Currency (OCC) deemed international

correspondent banking a “high-risk area” for money laundering that warrants “heightened

scrutiny.” The OCC Handbook provides the following anti-money laundering considerations that

a U.S. bank should take into account in the correspondent banking field:

A bank must exercise caution and due diligence in determining the level of risk associated

with each of its correspondent accounts. Information should be gathered to understand

fully the nature of the correspondent’s business. Factors to consider include the purpose of

the account, whether the correspondent bank is located in a bank secrecy or money

laundering haven (if so, the nature of the bank license, i.e., shell/offshore bank, fully

licensed bank, or an affiliate/subsidiary of a major financial institution), the level of the

correspondent’s money laundering prevention and detection efforts, and the condition of

bank regulation and supervision in the correspondent’s country.8

The OCC Handbook singles out three activities in correspondent accounts that warrant

heightened anti-money laundering scrutiny and analysis:

Three of the more common types of activity found in international correspondent bank

accounts that should receive heightened scrutiny are funds (wire) transfer[s], correspondent

accounts used as ‘payable through accounts’ and ‘pouch/cash letter activity.’ This

heightened risk underscores the need for effective and comprehensive systems and controls

particular to these types of accounts.9

With respect to wire transfers, the OCC Handbook provides the following additional guidance:

Although money launderers use wire systems in many ways, most money launderers.10 Id. at 23.

11 Similar correspondent banking relationships are also often established between

domestic banks, such as when a local domestic bank opens an account at a larger domestic bank

located in the country’s financial center.

12 International correspondent banking is a major banking activity in the United States in part due to the

popularity of the U.S. do llar. U.S. do llars are one o f a handful of m ajor curre ncies accep ted through out the world .

They are also viewed as a stable currency, less likely to lose value over time and, thus, a preferred vehicle for

savings, trade and investment. Since U.S. dollars are also the preferred currency of U.S. residents, foreign

companies and ind ividuals seekin g to do bu siness in the Un ited States ma y feel compelled to use U .S. dollars.

aggregate funds from different sources and move them through accounts at different banks

until their origin cannot be traced. Most often they are moved out of the country through a

bank account in a country where laws are designed to facilitate secrecy, and possibly back

into the United States. ... Unlike cash transactions that are monitored closely, ... [wire

transfer systems and] a bank’s wire room are designed to process approved transactions

quickly. Wire room personnel usually have no knowledge of the customer or the purpose

of the transaction. Therefore, other bank personnel must know the identity and business of

the customer on whose behalf they approve the funds transfer to prevent money launderers

from using the wire system with little or no scrutiny. Also, review or monitoring

procedures should be in place to identify unusual funds transfer activity.10

IV. Correspondent Banking Industry in the United States

Correspondent banking is the provision of banking services by one bank to another bank. It

is a lucrative and important segment of the banking industry. It enables banks to conduct business

and provide services for their customers in jurisdictions where the banks have no physical

presence. For example, a bank that is licensed in a foreign country and has no office in the United

States may want to provide certain services in the United States for its customers in order attract or

retain the business of important clients with U.S. business activities. Instead of bearing the costs

of licensing, staffing and operating its own offices in the United States, the bank might open a

correspondent account with an existing U.S. bank. By establishing such a relationship, the foreign

bank, called a respondent, and through it, its customers, can receive many or all of the services

offered by the U.S. bank, called the correspondent.11

Today, banks establish multiple correspondent relationships throughout the world so they

may engage in international financial transactions for themselves and their clients in places where

they do not have a physical presence. Many of the largest international banks located in the major

financial centers of the world serve as correspondents for thousands of other banks. Due to U.S.

prominence in international trade and the high demand for U.S. dollars due to their overall

stability, most foreign banks that wish to provide international services to their customers have

accounts in the United States capable of transacting business in U.S. dollars. Those that lack a

physical presence in the U.S. will do so through correspondent accounts, creating a large market

for those services.12.In the money laundering world, U.S. dollars are popular for many of the same reasons. In addition, U.S.

residents targeted by financial frauds often deal only in U.S. dollars, and any perpetrator of a fraud planning to take

their money must be able to process U.S. dollar checks and wire transfers. The investigation found that foreign

offshore banks often believe wire transfers between U.S. banks receive less money laundering scrutiny than wire

transfers involving an offshore jurisdiction and, in order to take advantage of the lesser scrutiny afforded U.S. bank

interactions, p refer to keep their funds in a U .S. corresp ondent ac count and transact busine ss through their U.S. bank.

In fact, all of the fore ign banks ex amined in the Minority S taff investigation ch aracterized U.S. dolla rs as their

preferred currency, all sought to open U.S. dollar accounts, and all used their U.S. dollar accounts much more often

than their other currency accoun ts.

13 “Top 75 Correspondent Bank Holding Companies,” The American Banker (12/8/99) at 14.

14 “Payable through accounts” allow a respondent bank’s clients to write checks that draw directly on the

respondent bank’s correspondent account. See Advisory Letter 95-3, issued by the Office of the Comptroller of the

Currency identifying them as high risk accounts for money laundering. Relatively few banks offer these accounts at

the present time.

Large correspondent banks in the U.S. manage thousands of correspondent relationships

with banks in the United States and around the world. Banks that specialize in international funds

transfers and process large numbers and dollar volumes of wire transfers daily are sometimes

referred to as money center banks. Some money center banks process as much as $1 trillion in

wire transfers each day. As of mid-1999, the top five correspondent bank holding companies in

the United States held correspondent account balances exceeding $17 billion; the total

correspondent account balances of the 75 largest U.S. correspondent banks was $34.9 billion.13

A. Correspondent Banking Products and Services

Correspondent banks often provide their respondent banks with an array of cash

management services, such as interest-bearing or demand deposit accounts in one or more

currencies, international wire transfers of funds, check clearing, payable through accounts,14 and

foreign exchange services. Correspondent banks also often provide an array of investment

services, such as providing their respondent banks with access to money market accounts,

overnight investment accounts, certificates of deposit, securities trading accounts, or other

accounts bearing higher rates of interest than are paid to non-bank clients. Along with these

services, some correspondent banks offer computer software programs that enable their respondent

banks to complete various transactions, initiate wire transfers, and gain instant updates on their

account balances through their own computer terminals.

With smaller, less well-known banks, a correspondent bank may limit its relationship with

the respondent bank to non-credit, cash management services. With respondent banks that are

judged to be secure credit risks, the correspondent bank may also afford access to a number of

credit-related products. These services include loans, daylight or overnight extensions of credit for

account transactions, lines of credit, letters of credit, merchant accounts to process credit card

transactions, international escrow accounts, and other trade and finance-related services.

An important feature of most correspondent relationships is providing access to.