It is no secret that U.S. correspondent banking relationships are indispensable to global commerce. Indeed, access to the U.S. financial system through correspondent banking is integral to foreign banks and to their customers, who often depend on the U.S. dollar as the anchor currency for their deals. At the same time, U.S. banks are under intense pressure (more than ever before) by regulators and law enforcement to quickly detect and report suspicious activity, and ensure that they are not conduits for illicit funds originating in foreign jurisdictions, and passing through correspondent accounts held for foreign banks.
To that end, in what is certainly not a new phenomenon, U.S. banks are keeping a close watch over their correspondent banking relationships, and quickly moving to exit relationships at the hint of impropriety. Moreover, it is well documented that some U.S. banks are “de-risking” not because of a specific event but because of the overall financial crime risk a foreign-located bank might pose. U.S. banks in some instances may not be interested in managing that risk, and would rather avoid the risk altogether by exiting the relationship. This process led some U.S. banks to terminate correspondent relationships with Latin and South American banks. While there has been significant discussion around the negative impacts of de-risking by U.S. government officials, it is still prevalent.