Separate the institution from the arrangement
A shell bank is a type of institution defined by law. Nesting is an arrangement in which an indirect respondent uses another respondent’s correspondent relationship.
A nested relationship is not automatically a shell-bank relationship. It can add risks because the correspondent has less direct information about the indirect institution.
Sources: Federal Register of Legislation: 94A; AUSTRAC: Downstream correspondent clearance.
Apply the Australian shell-bank test
Section 94A covers a foreign-incorporated corporation authorised to carry on banking business there, without physical presence there and without the specified qualifying affiliation.
Physical presence requires banking business at a place in that country and at least one full-time employee performing banking-related duties there.
The qualifying affiliate must have the specified banking authorisation and physical presence. Affiliation includes a subsidiary relationship, common individual control or prescribed common control.
Use the Australian definition for Australian duties. FATF’s glossary uses a different formulation involving effective consolidated supervision of a regulated financial group.
Sources: Federal Register of Legislation: 94A(1)-(3); Financial Action Task Force: Shell bank.
- Indirect respondent
Uses a respondent to obtain correspondent services.
- Respondent
Has the direct relationship with the correspondent.
- Correspondent
Provides services through its relationship with the respondent.
Indirect access through a respondent
Invented example. This chain shows access, not ownership. None of the labels establishes shell-bank status; section 94A requires separate facts.
Follow the process from top to bottom.
The prohibition includes indirect shell-bank access
Subject to section 100, section 95 prohibits entry with a shell bank, an institution with a shell-bank correspondent relationship, or one permitting shell-bank account use.
Existing relationships have specific termination requirements. The option to request termination of the respondent’s shell-bank relationship applies only under section 95(2)(b) and (e).
Do not extend that option to mere account use under paragraph (c). The Act sets distinct calendar-day and business-day periods.
Invented example: identify the indirect institution
In an invented chain, an indirect respondent uses a respondent bank’s correspondent relationship. The indirect respondent has no direct relationship with the correspondent.
The correspondent examines the risks of the respondent’s downstream services and the relevant controls. Indirect access alone does not establish shell-bank status.
The shell-bank test requires separate facts about incorporation, authorisation, physical presence and affiliation.
Sources: Federal Register of Legislation: 94A; AUSTRAC: Downstream correspondent clearance.