Correspondent Banking
Definition
A relationship in which one bank (the correspondent) provides services such as clearing and settlement to another bank (the respondent), allowing the respondent's customers to access markets and payment systems they cannot reach directly.
- Parties
- Correspondent bank and respondent bank
- Services provided
- Clearing and settlement
- Purpose
- Gives respondent's customers access to markets they cannot reach directly
Common questions
Why is correspondent banking a recurring theme in money-laundering investigations?+
Because the correspondent bank often has limited visibility into the respondent bank's own underlying customers, layers of indirect access can be exploited to move funds through jurisdictions and institutions the originating bank never directly screens.
What extra due diligence applies to correspondent relationships compared to ordinary customer accounts?+
Enhanced due diligence typically requires assessing the respondent bank's own AML controls, ownership structure, and regulatory standing, since the correspondent is effectively relying on the respondent to vet its own customers.
Related terms
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- Suspicious Activity Report (SAR) / STR
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