While financial institutions that handle cross-border payments typically screen MT 103 Credit Customer Transfer messages looking for nefarious individuals attempting to move their ill-gotten gains they’re often not as vigilant when the MT 103 Credit Customer is covered by an MT 202 — General Institution Transfer.
An MT 202 is typically used only for payments between financial institutions. Such payments generally make no mention of “Joe Public” and, therefore, should not run the risk of containing entities on sanctions lists. So an MT 202 payment coming from a theoretically safe source could, conceivably, help unsavory characters move their tainted funds.
Frequently, banks would move the funds via both counterparties’ U.S. nostro bank accounts using an MT 202 cover payment and employ the MT 103 to advise: the value date and amount, the sender’s payment instructions, destination of the nostro account funds, the sender’s ordering customer and, of course, the receiver’s ultimate beneficiary customer.
This scenario often occurs when the MT 103 is sent between two financial institutions and where the funds are not indigenous to either the sender or receiver (i.e. a U.S. dollar transfer between XYZ Bank in Johannesburg and a bank in Kuala Lumpur).
To address this AML “loophole” SWIFT, in conjunction with the Wolfsberg Group and the rest of the SWIFT community, has developed MT 202 COV, a new message type that will provide total transparency to the MT 202 cover payment process and identify both the ordering and beneficiary customers.
MT 202 COV was a major topic of discussion at the recent Sibos 2008 Conference in Vienna, Austria. When MT 202 COV is fully documented in the SWIFT Standards Release 2009, due for publication in December 2008, the financial industry will have placed yet another obstacle on money launderers’ road to obscuring funds.
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