The U.S. Federal Reserve Bank and The Clearing House have told banks how to comply with new formatting procedures for cover payments wired internationally, the organizations said Monday. The revised format, which applies to Federal Reserve's Fedwire Funds Service and the Clearing House's CHIPS wire transfer system, is intended to bring U.S. institutions in line with standards enacted in February by Belgium-based banking consortium Society for Worldwide Interbank Financial Telecommunications, or Swift. The revision, which will be tested by early summer, will increase transparency of cover payments and reduce the chances that intermediary banks may be unknowingly facilitating illicit activity,...
In a congressional hearing last May, sanctions experts outlined how gaps in U.S. and EU blacklists could let designated Iranians and other designees exploit the American banking system. But the witnesses failed to point out one important loophole in international sanctions: interbank cover payments.
Banks should provide more detailed information on parties involved in cover payment transactions once a new interbank messaging system is implemented in the fall, according to an international banking committee.
For all of the concern over the money laundering risks associated with cover payments and cross-border transactions, there is a simple solution: more transparency, according to an anti-money laundering compliance director.
The Wolfsberg Group and Clearing House Association called for banking cooperative Society for Worldwide Interbank Financial Telecommuncation to change the payment instructions it handles to "promote the effectiveness of global anti-money laundering and anti-terrorist financing programs."