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Nested Account
A nested account refers to a banking arrangement where a foreign financial institution operates through the account of a correspondent bank in another country. This setup allows the foreign institution access to the financial system of the host country without a direct presence. The institution can then use the correspondent bank’s services to process transactions on its behalf.
Nested accounts can be used for legitimate purposes, but they pose significant risks for money laundering or similar illicit activities. They can obscure the true origin and destination of funds.
Financial institutions use stringent due diligence and monitoring practices to detect and present misuse of nested accounts. These efforts include understanding the nature of the nested account’s activities, ongoing monitoring of transactions, and ensuring compliance with anti-money laundering (AML) regulations to mitigate the associated risks.
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