What is Payable Through Account in Anti-Money Laundering?

Definition

A Payable Through Account (PTA) in the context of Anti-Money Laundering (AML) is a type of correspondent account maintained by a financial institution, often in the United States, for a foreign financial institution. This account allows customers of the foreign financial institution to directly conduct banking activities (such as cheque writing, deposits, and wire transfers) through the correspondent account without routing transactions through the foreign bank first. In essence, the foreign bank’s customers get direct access to the correspondent bank’s account to conduct their own transactions, posing unique AML risks.

Purpose and Regulatory Basis

The main role of PTAs in AML is to facilitate cross-border banking services while ensuring that illicit activities such as money laundering or terrorist financing are not conducted via these accounts. These accounts matter because they potentially expose correspondent banks to risks from customers they do not directly vet, increasing the risk of misuse.

Regulatory frameworks governing PTAs include key global and national regulations such as:

• Financial Action Task Force (FATF) recommendations, which set international AML standards.
• USA PATRIOT Act, particularly Section 311(b)(4), which addresses the risks posed by payable-through accounts and mandates due diligence expectations for correspondent banks with PTA relationships.
• European Union Anti-Money Laundering Directives (AMLD), which regulate cross-border banking transactions and customer identification to prevent misuse of international banking systems.

When and How it Applies

PTAs are commonly used in correspondent banking relationships where a domestic bank holds an account that foreign institutions use on behalf of their customers. Real-world use cases include foreign banks using U.S. correspondent banks to offer their clients access to the U.S. financial system through PTAs.

A trigger for careful AML scrutiny occurs when the correspondent bank allows the foreign bank’s individual customers to transact directly, bypassing the foreign bank’s typical vetting processes. Examples:

• A foreign bank customer writes checks or initiates wire transfers on a PTA held by the correspondent bank.
• Funds move directly from a PTA without the correspondent bank having direct knowledge or relationship with the individual account holders.

Because correspondent banks might lack direct customer due diligence, the risk of money laundering becomes pronounced if controls are insufficient.

Types or Variants

PTAs can take different forms depending on the banking arrangements:

• Direct Access PTAs: Where customers of the foreign bank can directly access the correspondent bank account.
• Sub-account PTAs: Foreign banks open sub-accounts for their customers under the PTA framework, allowing similar privileges.
• Nested Correspondent Banking: A related concept but distinct, where a bank acts as an intermediary correspondent bank itself, but customers are not given direct access to the correspondent account, unlike PTAs.

These variants impact the level of AML risk and due diligence required.

Procedures and Implementation

Institutions must implement robust procedures to mitigate PTA risks:

• Comprehensive Customer Due Diligence (CDD) on the foreign financial institution and its customers.
• The correspondent bank must verify that the foreign institution applies AML controls equivalent to the correspondent bank’s standards.
• Ongoing monitoring of transactions processed through PTAs for suspicious activity.
• Ability to request and obtain detailed documentation, data, and information regarding the foreign institution’s customers from the foreign bank.
• Termination of PTA access if the foreign institution fails to comply with CDD or monitoring requirements.
• Documentation of all due diligence, monitoring, and reports as part of compliance records.

Impact on Customers/Clients

From a customer’s perspective:

• Customers of foreign institutions accessing the correspondent bank via a PTA typically interact as if they hold accounts at the correspondent bank.
• Restrictions and controls may affect the ease of transactions due to AML scrutiny.
• Customers may be required to provide additional data and identification to the foreign financial institution, which in turn must satisfy the correspondent bank’s AML obligations.
• Customers have the right to transparent communication about how their transactions may be reviewed or reported by banks under AML laws.

Duration, Review, and Resolution

• PTAs require ongoing review, particularly when the correspondent bank periodically reassesses the foreign institution’s AML controls and customer base.
• There is no fixed duration; periodic reviews ensure the institution’s compliance with updated regulations.
• Resolution may include suspension or closure of PTA privileges if AML risks cannot be mitigated.
• Continuous risk assessment and audit processes are crucial to maintain PTA relationships safely.

Reporting and Compliance Duties

Financial institutions maintaining PTAs have several compliance responsibilities:

• Conduct and document thorough due diligence on foreign financial institutions and their customers.
• Monitor PTA transactions continuously for suspicious or unusual activity.
• Report suspicious transactions related to PTAs to authorities, including tipping off Financial Intelligence Units (FIUs).
• Maintain records consistent with legal and regulatory timelines.
• Failure to comply can result in penalties, regulatory sanctions, or loss of correspondent banking privileges.

Related AML Terms

PTAs are closely related to several AML concepts:

• Correspondent Banking Accounts: PTAs are a specific type of correspondent account with direct third-party access.
• Customer Due Diligence (CDD): Critical for managing PTA risk.
• Suspicious Transaction Reporting (STR): A key obligation when suspicious activities are detected in PTA transactions.
• Nested Correspondent Banking: Another form of complex banking relationship with AML implications.
• Know Your Customer (KYC): Fundamental AML principle applied in PTA compliance.

Challenges and Best Practices

Challenges include:

• Insufficient transparency on the foreign bank’s customers by correspondent banks.
• Inadequate due diligence or ongoing monitoring on PTA sub-accountholders.
• Greater potential for money laundering due to direct customer access without proper scrutiny.

Best practices:

• Enforce stringent CDD and KYC processes on both foreign financial institutions and their customers.
• Regularly train staff on PTA-related risks.
• Use technology for transaction monitoring to detect anomalies.
• Proactively communicate with foreign banks to ensure AML controls are robust.
• Immediate suspension of PTA access if compliance gaps are found.

Recent Developments

• Increasing regulatory focus on PTA due to its high money laundering risk.
• Enhanced guidance from AML authorities and FATF on managing PTA risks.
• Adoption of advanced technology such as AI for real-time transaction monitoring.
• Stricter due diligence requirements introduced in newer AML directives and regulations worldwide.
• Growing importance of transparency and information sharing between correspondent and foreign banks.

A Payable Through Account (PTA) is a correspondent banking account that allows foreign bank customers to conduct banking activities directly through a correspondent bank. While PTAs facilitate international banking, they pose significant AML risks due to potential gaps in customer oversight. Global regulations mandate strict due diligence, monitoring, and reporting obligations to mitigate these risks. Proper management of PTAs is vital for financial institutions to comply with AML laws, safeguard the financial system, and prevent illicit financial flows.