An Update On Foreign Correspondent Banking

Correspondent banking is a service provided by U.S. banking organizations to foreign banks that do not have a U.S. banking subsidiary or branch. Without such a U.S. presence, a foreign bank must look to a correspondent banking relationship to clear its U.S. dollar transactions.

Foreign correspondent banking relationships have come under significant strain over the past decade, but particularly in recent years, as U.S. financial regulators and law enforcement agencies have more closely scrutinized these relationships and pursued enforcement actions with respect to anti-money laundering ("AML") compliance. Increased enforcement risk and regulatory compliance burdens have led many banks to "de-risk" their foreign correspondent banking activities, sometimes terminating foreign correspondent accounts entirely from certain countries with unsatisfactory AML standards. In turn, account closures have led to "financial inclusion" concerns about the lack of access to critical