We help facilitate thousands of our clients financial transactions for 10 years now.
Recently, we have seen a sharp increase in the number of SWIFT messages that have been rejected by, what are called, correspondent banks.
A correspondent account is an account (often called a nostro or vostro account) established by a banking institution to receive deposits from, make payments on behalf of, or handle other financial transactions for another financial institution, mostly through the SWIFT Network. Correspondent banks, also receive encrypted SWIFT messages, and forward them to other banks they have Relationship Management Agreements ("RMA") with.
Correspondent banks (like JPM, BoA, TD bank and Commerzbank) have been scaling back their services in an attempt to cut down on the huge compliance costs and risks resulting from their dealings with banks in other jurisdictions.
The stricter bank supervisory regimes in the US and the EU has had a profound effect on the way banks interact. All banks, but especially smaller ones, depend on correspondent banking relationships with banks in other jurisdictions. Following the 2008 financial crisis, US and EU regulators focused on preventing banks being used for financial crime and money laundering. In the US in particular, anything to do with online gambling, tax avoidance and evasion, adult entertainment and arms trafficking is shunned and banks caught facilitating the transfer of funds from these activities risk heavy fines – and their licences.
The decline in correspondent banking relationships has much to do with the challenge of regulatory compliance, as recently noted by the American Bankers Association, “[O]ne key factor leading to the decline in correspondent/respondent banking relationships is the heightened regulatory burden on banks related to anti-money laundering and counter terrorism compliance".
The bigger correspondent banks not only face stiff penalties and fines (as we have reported in our previous monthly newsletters. For example Commerz bank, CITI, BNP, RBS.). The smaller banks suffer as well.
The Deputy Governor of the Eastern Caribbean Central Bank (ECCB) said "Caribbean banks are already experiencing the effects of the correspondent banking crisis". The loss of these correspondent banking relationships impacts international trading.
There is still another risk: theft.
Last month, Reuters reported a lawsuit by an Ecuadorean bank alleging that Wells Fargo is liable for authorizing the transfer of $12 million stolen in a 2015 cyber heist can go forward, a U.S. judge ruled on last month.
The decision by U.S. District Judge Lewis Kaplan in Manhattan was in response to Wells Fargo's motion to dismiss the lawsuit by Banco del Austro, which sought to hold the U.S. bank responsible for failing to halt the transfers made via the SWIFT network.
The 2016 lawsuit took on new importance in the wake of this year's heist at the Bangladesh central bank, in which cyber thieves used the SWIFT global messaging system to swipe $81 million from an account at the Federal Reserve Bank of New York.
In addition to highlighting potential security risks inherent to such interbank transfers, Banco del Austro's lawsuit was also seen by legal experts as a key test of whether a so-called correspondent bank - in this case Wells Fargo - could be held liable for authorizing authenticated SWIFT transfer messages.
The $12 million was stolen in January 2015 when unidentified hackers secured a Banco del Austro employee's SWIFT logon credentials, Wells Fargo said in a February court filing.
Court filings and judicial rulings show that the cyber thieves routed most of the stolen funds through 23 companies registered in Hong Kong, some of them with no apparent business activity, Reuters reported.
Another example of risk to correspondent banks is the lawsuit against Toronto-Dominion Bank earlier this year ($5 billion USD) for not doing their homework on the second largest ponzi scheme (Bernie Madoff’s being number one).
Often our clients ask to send SWIFT messages through correspondent banks. But with the high cost to these correspondent banks, risk of theft and expensive lawsuits, that option becomes increasingly more difficult.
We offer these educational articles to help our customers understand the complicated nature of financial industry transactions. If you need help obtaining a SWIFT for a commodity trade transaction, perhaps we can help you. Call us at +1 239 970-9023
Recently, we have seen a sharp increase in the number of SWIFT messages that have been rejected by, what are called, correspondent banks.
A correspondent account is an account (often called a nostro or vostro account) established by a banking institution to receive deposits from, make payments on behalf of, or handle other financial transactions for another financial institution, mostly through the SWIFT Network. Correspondent banks, also receive encrypted SWIFT messages, and forward them to other banks they have Relationship Management Agreements ("RMA") with.
Correspondent banks (like JPM, BoA, TD bank and Commerzbank) have been scaling back their services in an attempt to cut down on the huge compliance costs and risks resulting from their dealings with banks in other jurisdictions.
The stricter bank supervisory regimes in the US and the EU has had a profound effect on the way banks interact. All banks, but especially smaller ones, depend on correspondent banking relationships with banks in other jurisdictions. Following the 2008 financial crisis, US and EU regulators focused on preventing banks being used for financial crime and money laundering. In the US in particular, anything to do with online gambling, tax avoidance and evasion, adult entertainment and arms trafficking is shunned and banks caught facilitating the transfer of funds from these activities risk heavy fines – and their licences.
The decline in correspondent banking relationships has much to do with the challenge of regulatory compliance, as recently noted by the American Bankers Association, “[O]ne key factor leading to the decline in correspondent/respondent banking relationships is the heightened regulatory burden on banks related to anti-money laundering and counter terrorism compliance".
The bigger correspondent banks not only face stiff penalties and fines (as we have reported in our previous monthly newsletters. For example Commerz bank, CITI, BNP, RBS.). The smaller banks suffer as well.
The Deputy Governor of the Eastern Caribbean Central Bank (ECCB) said "Caribbean banks are already experiencing the effects of the correspondent banking crisis". The loss of these correspondent banking relationships impacts international trading.
There is still another risk: theft.
Last month, Reuters reported a lawsuit by an Ecuadorean bank alleging that Wells Fargo is liable for authorizing the transfer of $12 million stolen in a 2015 cyber heist can go forward, a U.S. judge ruled on last month.
The decision by U.S. District Judge Lewis Kaplan in Manhattan was in response to Wells Fargo's motion to dismiss the lawsuit by Banco del Austro, which sought to hold the U.S. bank responsible for failing to halt the transfers made via the SWIFT network.
The 2016 lawsuit took on new importance in the wake of this year's heist at the Bangladesh central bank, in which cyber thieves used the SWIFT global messaging system to swipe $81 million from an account at the Federal Reserve Bank of New York.
In addition to highlighting potential security risks inherent to such interbank transfers, Banco del Austro's lawsuit was also seen by legal experts as a key test of whether a so-called correspondent bank - in this case Wells Fargo - could be held liable for authorizing authenticated SWIFT transfer messages.
The $12 million was stolen in January 2015 when unidentified hackers secured a Banco del Austro employee's SWIFT logon credentials, Wells Fargo said in a February court filing.
Court filings and judicial rulings show that the cyber thieves routed most of the stolen funds through 23 companies registered in Hong Kong, some of them with no apparent business activity, Reuters reported.
Another example of risk to correspondent banks is the lawsuit against Toronto-Dominion Bank earlier this year ($5 billion USD) for not doing their homework on the second largest ponzi scheme (Bernie Madoff’s being number one).
Often our clients ask to send SWIFT messages through correspondent banks. But with the high cost to these correspondent banks, risk of theft and expensive lawsuits, that option becomes increasingly more difficult.
We offer these educational articles to help our customers understand the complicated nature of financial industry transactions. If you need help obtaining a SWIFT for a commodity trade transaction, perhaps we can help you. Call us at +1 239 970-9023