International Bank Transfers – The Sting of Correspondent Bank Fees

Living overseas, you will undoubtedly have needed to make an international money transfer at some point.
If you have ever needed to make an international wire transfer between USD accounts, then you will have undoubtedly encountered the bizarre world of Anti Money Laundering legislation and Correspondent Bank Fees.

If not, boy are you in for a treat…

How Bank Transfers Should Work.

Imagine in our scenario, Steven wishes to transfer £100 from his account at Bank 1, to his account at Bank 2.

• Bank 1 has verified Steven’s Identity, Address, and other “Know Your Customer” details.
• Bank 2 has verified Steven’s Identity, Address, and other “Know Your Customer” details.

Steven instructs Bank 1 to transfer £100.

• Bank 1 Transfers £100 to Bank 2.
• The amount received in Bank 2 is £100

However, when making a transfer in USD, this becomes more complicated…

How Offshore USD Transfers work

Imagine in our scenario, Steven wishes to transfer $100 from his account at Bank 1, to his account at Bank 2.

• Bank 1 has verified Steven’s Identity, Address, and other “Know Your Customer” details.
• Bank 2 has verified Steven’s Identity, Address, and other “Know Your Customer” details.

Steven instructs Bank 1 to transfer $100.

Bank 1 cannot simply transfer $100 to Bank 2.
It has to use a Correspondent Bank to facilitate the transfer.

Why? Because, fuck you.

The Correspondent Bank has not verified Steven’s Identity, Address, or any other “Know Your Customer” details.
For facilitating the transfer, the Correspondent Bank will levy a charge.

• Bank 1 cannot tell Steven how much the charge will be.
• Bank 2 cannot tell Steven how much the charge will be.

At point of making transfer, Steven has no way of knowing how much money will be received by Bank 2.
Or, Steven can request that Bank 2 receives $100, but will then have no way of knowing how much will be deducted from Bank 1.

• Bank 1 Transfers $100 to Bank 2.
• The amount received in Bank 2 is $68.46

How Offshore USD Transfers to an Investment Bank works.

The situation above becomes all the more ridiculous when looking to receive a wire transfer to an investment bank.

Imagine in our scenario, Steven wishes to receive an invoice of $100 from from a third party (Bank 1), to his account at Bank 3.

• Bank 3 has verified Steven’s Identity, Address, and other “Know Your Customer” details.
• Bank 1 has verified The Third Party Identity, Address, and other “Know Your Customer” details.

Being a smart guy, Steven looks to minimize the number of transaction charges and requests the Third Party make the deposit directly into his Investment Bank account, and thus pay a single transaction charge along the way.

As above, at point of making transfer, Steven, and the Third Party, have no way of knowing how much money will be received by Bank 3.
Or, Steven, and the Third Party, can request that Bank 3 receives $100, but will then have no way of knowing how much will be deducted from Bank 1.

The problem here is, the Investment Bank will refuse the deposit on the grounds that it comes from an account not held under Steven’s name.

I am told, this is for Anti Money Laundering purposes.

The attempted deposit will be rejected by the Investment Bank (Bank 3) and returned to the Third Party (Bank 1) via a Correspondent Bank and incur another transaction fee along the way.

Steven then requests that the Third Party make a deposit to an account held in his name at Bank 2.

As above, at point of making transfer, Steven, and the Third Party, have no way of knowing how much money will be received by Bank 2.
Or, Steven, and the Third Party, can request that Bank 2 receives $100, but will then have no way of knowing how much will be deducted from Bank 1.

Once the funds are deposited into a USD account held under Steven’s name (Bank 2), he can then make a transfer to his Investment Bank account (Bank 3).

As above, at point of making transfer, Steven has no way of knowing how much money will be received by Bank 3.
Or, Steven can request that Bank 3 receives $100, but will then have no way of knowing how much will be deducted from Bank 2.

In the above scenario, let’s assume the initial transfer is of $100.

• Bank 1 Transfers $100 to Bank 3
• Transaction fees deduct $22
• Bank 3 Refuses the deposit and returns the $78($100-$22) to Bank 1
• Transaction fees deduct $22
• Bank 1 Transfers $56($78-$22) to Bank 2
• Transaction fees deduct $24
• Bank 2 Transfers $32($56-$24) to Bank 3
• Transaction fees deduct $20
• Bank 3 Receives $12($32-$20)

And there we have it.

An attempt to transfer $100 between a verified Third Party, and a Verified Investment Bank Account is forced to pass through 3 Banks, 4 Transactions, >$80 in transaction fees, and the destination Bank receives ~$12.

At the point of each transfer, the amount of fees levied is not disclosed to sender or receiver.

What a terribly sad state of affairs.

Tags: Hong Kong, Japan, Singpore, UAE