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
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.
- 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.
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 and returned via a Correspondent Bank, incurring another transaction fee along the way.
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.