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: Australian Government, 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: Australian Government, Federal Register of Legislation: 94A(1)-(3); Financial Action Task Force: Shell bank.
- Bank C
Uses Bank B to obtain correspondent services.
- Bank B
Has the direct correspondent relationship with Bank A.
- Bank A
Provides services through its relationship with B.
Indirect access through a respondent
This fictional nested 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.
Source: Australian Government, Federal Register of Legislation: 95 and 100.
Example: identify the indirect institution
In a fictional chain, Bank C accesses Bank A through Bank B’s correspondent relationship. C has no direct correspondent relationship with A.
A examines the risks of B’s downstream services and the relevant controls. C’s indirect position alone does not establish that C is a shell bank.
The shell-bank test requires separate facts about incorporation, authorisation, physical presence and affiliation.
Sources: Australian Government, Federal Register of Legislation: 94A; AUSTRAC: Downstream correspondent clearance.