BY EDMOND ODOK, ABUJA – The Central Bank of Nigeria (CBN) has set new rules of engagement for Deposit Money Banks (DMBs) seeking correspondent banking relationship with foreign lenders.
In its Anti-Money Laundering/ Combating the Financing of Terrorism (AML/CFT) Policy and Procedure Manual released on Monday, the CBN declared that the rules will guard against establishing correspondent banking relationships with high risk foreign banks such as shell banks.
According to the apex bank, the policy will effectively put a check on those correspondent banks whose institutions have historically been associated with Money Laundering/Financing Terrorism (ML/FT).
The CBN explained that the development has become imperative because all banking products used in converting cash to monetary instruments and electronic products that permit rapid value movement such as electronic transfers, forex transactions followed by payment into an account in another jurisdiction are opened to abuse by criminal elements.
“For trade transactions, Export Letters of Credit have been ranked as high risk because of the possibility of presentation of false shipping documents when no goods are actually shipped.
“Another factor in this ranking is the possibility of over-inflated invoicing for low value or worthless merchandise. All other trade products have been risk ranked either medium or low risk”, the apex bank said.
By the new rules, transactions conducted through correspondent banking relationships shall be managed in accordance with a risk-based approach.
Similarly, CBN stated that the Know Your Correspondent (KYC) procedures shall be established to ascertain that the correspondent bank or the counter party is properly regulated for money laundering prevention.
Furthermore, the correspondent bank, where regulated, shall verify its customers’ identity in line with Financial Action Task Force (FATF) standards, while additional due diligence shall be required to ascertain and assess the correspondent’s internal policy on money laundering and KYC procedures.
The apex bank however said due diligence must be taken seriously when doing business with third parties located in geographic locations with a history of supporting terrorism, bases for drug production/distribution, suffering from civil unrest/war.
For the CBN, “These include jurisdictions that have been identified as high risk countries by standard setting institutions such as FATF; countries on designated sanction lists such as the United Nations Consolidated list and US Office of Foreign Asset Control (OFAC) List.”
The new rules also indicated that “The CBN should not enter into a relationship with a prospective customer until the person/entity has been duly identified and verified.
“The customer acceptance process also includes ensuring that the prospective customer is not on the ‘watch-list’ which includes names of sanctioned persons as well as known fraudsters.”
It further stated that the CBN shall accept customers after due verification of their identities, address and/or place of business, after ascertaining their source of income/funds and considering the level of risks they pose to the bank, based on the kind of business under consideration (such as bureau de change operators).
Again, there is need to apply appropriate level of due diligence, depending on customers’ risk profiles adding that no accounts shall be opened for anonymous of fictitious customers.