Cross-border finance keeps the world connected—but it also gives criminals new pathways to move illicit money across jurisdictions.
In an increasingly interconnected world, cross-border financial flows are essential for global trade, personal remittances, and economic growth.
But alongside the many legitimate transactions, a darker reality persists—criminals are exploiting cross-border remittances and correspondent banking relationships to move illicit funds across borders, often hidden in plain sight.
Money laundering through these channels has become one of the most complex and challenging forms of financial crime to detect and prevent.
Let's take a closer look at how it works—and what financial institutions must do to stay ahead.
What Are Cross-Border Remittances and Correspondent Banking?
Cross-border remittance refers to the transfer of money from individuals or businesses in one country to recipients in another. It’s often used to support family members, pay for goods and services, or facilitate business operations.
Correspondent banking involves one financial institution (the correspondent) providing services—such as payments, wire transfers, or foreign currency exchange—on behalf of another institution (the respondent). These relationships are vital for enabling international transactions, especially in regions where banks lack direct access.
While both mechanisms are essential for global finance, their complexity and reliance on trust can create blind spots—making them attractive channels for money laundering.
How Criminals Exploit These Channels
Criminals use cross-border remittance networks and correspondent banking relationships to:
🔹 Obscure the Source of Funds
Layering transactions across multiple accounts, shell companies, and jurisdictions makes it difficult to trace the origins of illicit money.
🔹 Leverage Payable-Through Accounts (PTAs)
Sub-accounts linked to correspondent banks allow third parties to access banking services indirectly, reducing transparency and oversight.
🔹 Abuse Weak KYC and Due Diligence Processes
Inconsistent standards between institutions and jurisdictions create vulnerabilities for criminals to exploit.
🔹 Use Shell Companies and Front Businesses
Establishing companies that exist only on paper helps criminals hide beneficial ownership and move funds undetected.
🔹 Exploit Jurisdictional Gaps
Routing transactions through countries with weak AML controls enables criminals to bypass stricter regulatory environments.
Real-World Examples of Laundering Patterns
Some common laundering techniques seen in cross-border remittance and correspondent banking cases include:
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Round-Tripping: Sending money abroad and reintroducing it as "foreign investment" to legitimise illicit funds.
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Structuring (Smurfing): Breaking large transactions into smaller amounts to evade reporting thresholds.
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Rapid Layering: Quickly moving funds through multiple jurisdictions and entities to obscure audit trails.
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PTA Exploitation: Using payable-through accounts to process suspicious transactions without adequate oversight.
Why This Matters for Financial Institutions
The risks posed by money laundering through cross-border channels are serious:
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Regulatory Penalties: Institutions failing to detect and report suspicious activity face hefty fines and sanctions.
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Reputational Damage: A single compliance failure can erode years of customer trust.
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De-risking: Correspondent banks may sever ties with institutions in high-risk regions, limiting access to global financial systems.
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Operational Strain: Managing complex cross-border risks increases compliance costs and resource pressures.
With international scrutiny on the rise—especially from bodies like the Financial Action Task Force (FATF)—banks, payment platforms, and remittance providers must rethink and strengthen their approach to AML compliance.
Key Risk Indicators to Watch For
Financial institutions should be vigilant for signs such as:
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High-volume transactions linked to high-risk jurisdictions
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Frequent low-value remittances inconsistent with customer profiles
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Sudden changes in transaction patterns, especially involving new beneficiaries abroad
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Complex ownership structures with unclear beneficial owners
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Use of PTAs or correspondent accounts lacking transparent customer information
Spotting these red flags early can be critical in disrupting laundering schemes before funds are fully integrated into the financial system.
How Financial Institutions Can Strengthen Their Defences
✅ Enhance KYC and Due Diligence
Apply stricter onboarding, verification, and ongoing monitoring processes for customers and correspondent partners.
✅ Deploy Advanced Transaction Monitoring
Use AI and machine learning to detect complex patterns indicative of layering, structuring, and shell company usage.
✅ Conduct Regular Risk Assessments
Continuously reassess correspondent banking relationships and remittance corridors to identify emerging vulnerabilities.
✅ Foster Cross-Border Collaboration
Share intelligence with peers, fintech partners, and regulators to track evolving laundering trends.
✅ Invest in Training and Awareness
Equip compliance, operations, and frontline teams with the latest knowledge on correspondent banking risks and money laundering techniques.
Final Thoughts
As financial systems become more interconnected, the complexity of detecting cross-border money laundering continues to grow. Remittance channels and correspondent banking relationships, while critical for global commerce and financial inclusion, also present blind spots that are frequently exploited by bad actors.
Traditional rule-based systems often fail to capture the nuances of layered transactions and indirect fund movements that span multiple jurisdictions. This calls for a more agile, intelligence-led approach — one that can adapt quickly to new typologies and risk patterns.
Tookitaki supports this shift through its Trust Layer for Financial Services — an AI-powered compliance infrastructure that empowers institutions to detect complex money laundering patterns earlier, reduce false positives, and stay aligned with regulatory expectations. By leveraging expert-contributed scenarios and federated intelligence, Tookitaki helps bridge the visibility gaps across fragmented systems, enabling institutions to build trust — both internally and across borders.
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