9November 2023Customer onboarding and refresher process for foreign banking customers is an integral part of any successful and comprehensive compliance framework. This, however, is an entirely different discussion.Transaction monitoring is executed in two parts. Live payments are typically screened by a Sanction Team, concentrating on compliance with government-supplied sanctions lists (such as OFAC), matching names and addresses within payment instructions against names and addresses on the list. Whereas, post-factum, AML transaction monitoring detects questionable patterns indicative of possible money laundering and terror financing. While sanctions screening is black and white (true match-false match), AML monitoring is risk-based. Notably, US regulators focus on how well all elements of Compliance.Programs are designed, thus ensuring that the bank appropriately mitigates relevant risks. Accordingly, correspondent banking cannot function without a well-rounded transaction monitoring framework, which includes adequately configured detection scenarios, quality control, and ongoing system testing and improvement.Any successful transaction monitoring program should operate as part of the overall compliance framework, guided by the five pillars of AML Compliance ­ designation of a responsible compliance and reporting officer (MLRO), execution of periodic employee training, robust policies, procedures, and internal controls, independent monitoring and testing of existing program, and, finally, implementation of reliable due diligence protocols.In post-factum transaction monitoring, it is an ongoing challenge to maintain effective risk mitigation operations due to limited information contained within the payment. This process is often aided by engaging respondent banks for additional information via a Request For Information (RFI) process. RFIs provide much needed additional data regarding beneficial ownership of ultimate payment parties.Consequently, it is crucial for the success of the program to employ experienced staff with an aptitude for identifying patterns, who possess well-developed analytical skills, and the ability to craft succinct narratives.Productive investigations trigger an obligation to file a comprehensive Suspicious Activity Report (SAR) with Financial Crime Enforcement Network (FinCEN). SARs filed by financial institutions are often utilized by law enforcement to aid in their investigations and to facilitate successful prosecutions of money laundering and terror financing. Periodically, these reports result in widely publicized criminal prosecutions of money launderers and terrorist financiers across the globe. There are also instances when reported information does not make it to the public eye but is, nevertheless, instrumental in law enforcement efforts.Appropriately applied, together with access to historical transactional activity and prior investigations, transaction monitoring proves an effective tool for detecting, reporting and de-risking suspicious activity. It is an integral part of any correspondent banking compliance program. Any successful transaction monitoring program should operate as part of the overall compliance framework, guided by the five pillars of AML Compliance
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