Correspondent banking is a service that allows banks to access financial services in different jurisdictions through intermediary banks, known as correspondent banks. Correspondent banking can facilitate cross- border transactions, foreign exchange, and other financial activities for banks and their customers. However, correspondent banking also poses various risks, such as money laundering, terrorist financing, fraud, corruption, tax evasion, and sanctions evasion. Correspondent banks may have no direct relationship with the customers of the respondent banks, making it difficult to verify their identity and monitor their transactions.
Correspondent banks may also rely on the compliance programs of the respondent banks, which may not meet the standards of the correspondent banks' jurisdictions.
One of the risk factors that increases the risk for a correspondent bank is being a major service provider to money service businesses (MSBs). MSBs are entities that provide money transmission, currency exchange, check cashing, prepaid cards, and other similar services. MSBs are often considered high-risk customers, because they may serve as conduits for illicit funds, especially if they operate in jurisdictions with weak anti- money laundering regulations or oversight. MSBs may also have a large and diverse customer base, making it challenging to conduct customer due diligence and transaction monitoring. Therefore, correspondent banks that provide services to MSBs may face higher exposure to money laundering and other financial crimes, and may need to apply enhanced due diligence and risk mitigation measures.
Understanding Risk in Correspondent Banking
GUIDANCE ON CORRESPONDENT BANKING SERVICES
Correspondent Bank: Definition and How It Works
Correspondent banking - why it's important to understand the risks
Reference: https://www.fatf-gafi.org/media/fatf/documents/reports/Guidance-Correspondent-Banking- Services.pdf

Fraud and financial crime are often associated withsudden resignations, attempts to evade scrutiny, and financial behaviors inconsistent with legitimate income.
Option A (Correct):Being evasive about past employment suggests potential undisclosed misconduct.
Option D (Correct):Living beyond one's means is a major financial crime red flag, indicating possible fraud or illicit earnings.
Why Other Options Are Incorrect:
Option B (Incorrect):Nationality alone does not indicate fraud risk.
Option C (Incorrect):Having friends in high-risk industries is not necessarily a direct red flag.
Common Red Flags for Employee-Related Financial Crime:
Reluctance to take vacations or change roles (attempting to conceal wrongdoing).
Sudden resignation or disappearance following internal investigations.
Unusual financial activity, including large unexplained deposits.
Best Practices for Fraud Prevention in Corporations:
Regularly monitor employees in high-risk roles (e.g., finance, procurement).
Use whistleblower channels to detect internal misconduct.
Conduct thorough background checks before hiring employees.
Reference:
FATF Guidance on Internal Fraud and Money Laundering
Wolfsberg Group Best Practices for Employee Monitoring
Basel Committee Guidelines on Insider Financial Crime Risks

Precious metals, such as gold and silver, pose a high risk of money laundering because they have some features that make them attractive to criminals. According to the FATF Guidance on the Risk-Based Approach for Dealers in Precious Metals and Stones1, these features include:
Some precious metals can be formed into other objects, making easier to transport. For example, gold can be melted and shaped into jewellery, coins, bars, or other items that can be easily concealed and moved across borders. This makes it difficult for law enforcement and customs authorities to detect and seize the illicit proceeds of crime.
Precious metals have high intrinsic value in a relatively compact form and are easy to convert into currency.
For example, gold has a stable and universal value that can be exchanged for cash or other assets in any market. This makes it easy for criminals to store, transfer, and launder their illicit funds without leaving a trace in the formal financial system.
The other two options, C and D, are not as relevant to the risk of money laundering. The value of precious metals is determined by the market forces of supply and demand, and it is not easy to inflate or manipulate it.
Precious metals can be used in many high-tech commercial applications, but this does not necessarily make them more valuable or more prone to money laundering.
1: FATF Guidance on the Risk-Based Approach for Dealers in Precious Metals and Stones, 2008,
https://www.fatf-gafi.org/en/publications/Fatfrecommendations/Fatfguidanceontherisk- basedapproachfordealersinpreciousmetalsandstones.html
2: Money laundering and terrorist financing risks and vulnerabilities associated with gold, 2015, https://www.
fatf-gafi.org/en/publications/Methodsandtrends/Ml-tf-risks-and-vulnerabilities-gold.html
3: The anti-money laundering framework for precious stones and metals dealers in Singapore, 2021,
https://www.emerald.com/insight/content/doi/10.1108/JMLC-07-2021-0074/full/html
4: Gold and Money Laundering, 2019, https://www.moneylaunderingnews.com/2019/04/gold-and-money- laundering/

U).S. law requires that assets and accounts of an OFAC-specified country, entity, or individual be blocked when such property is located in the United States, is held by U.S. individuals or entities, or comes into the possession or control of U.S. individuals or entities.
For example, if a funds transfer comes from offshore and is being routed through a U.S. bank to an offshore bank, and there is an OFAC-designated party to the transaction, it must be blocked. The definition of assets and property is broad and is specifically defined within each sanction program. Assets and property includes anything of direct, indirect, present, future, or contingent value (including all types of bank transactions).
Banks must block transactions that:
* Are by or on behalf of a blocked individual or entity;
* Are to or go through a blocked entity; or
* Are in connection with a transaction in which a blocked individual or entity has an interest.

* B: If a bank fails to demonstrate sustained improvement or cannot resolve identified deficiencies, it can face civil or even criminal penalties from regulators. Regulators expect not just policy changes, but proof of effectiveness and ongoing compliance improvements.
* C: Even after addressing many concerns, if all issues are not resolved-such as outstanding transaction monitoring backlogs-regulators may issue orders to further remediate the AML program until full compliance is achieved.
* CAMS 6th Edition and regulatory guidance clarify that "regulators may impose penalties, issue consent orders, or require further remediation where weaknesses persist." Incorrect:
* A: Secondary sanctions generally apply to sanctions violations, not standard AML program weaknesses.
* D: Regulatory actions can be public and do pose reputational risk.
* E: While transparency is sometimes required, this is not a universal regulatory response.
References:
CAMS 6th Edition, Regulatory Examinations and Remediation
FFIEC BSA/AML Manual, Enforcement Actions