Cross-Border Payments

Cross-border payments refer to financial transactions in which the payer and the recipient are based in different countries.

These transactions facilitate international trade, investment, remittances, and financial flows between individuals, businesses, and governments.

In the AML and CFT (Countering the Financing of Terrorism) context, cross-border payments represent a critical area of regulatory focus, as they often involve complex correspondent banking relationships, multiple intermediaries, and varying jurisdictional laws that can obscure the origin or destination of funds.

Overview

Cross-border payments enable global commerce and economic development, but they also pose significant risks for money laundering, terrorist financing, and sanctions evasion.

The inherent complexity of these transactions, especially when involving multiple financial institutions, creates opportunities for illicit actors to disguise the movement of criminal proceeds or transfer funds for illegal purposes.

International regulators and bodies such as the Financial Action Task Force (FATF), International Monetary Fund (IMF), and World Bank have identified cross-border payments as a key vulnerability in the financial system.

Weaknesses in due diligence, inconsistent application of AML standards, and limited data transparency contribute to these risks.

From an operational standpoint, cross-border payments can be executed through several mechanisms, including correspondent banking networks, remittance service providers, and digital or blockchain-based payment systems.

Each mechanism carries unique AML/CFT implications that require institutions to implement strong compliance controls and risk assessment procedures.

AML/CFT Relevance

Cross-border payments are closely monitored within AML and CFT frameworks because of their potential misuse for illicit purposes.

Criminals often exploit these channels to move illicit funds through layering techniques, transferring money through multiple accounts and jurisdictions to obscure their origin.

Regulatory frameworks require financial institutions to perform enhanced due diligence (EDD) when facilitating such transactions, especially for high-risk corridors or politically exposed persons (PEPs).

Inadequate monitoring can lead to exposure to enforcement actions, fines, and reputational damage.

Key AML/CFT requirements applicable to cross-border payments include:

• Customer due diligence (CDD) to identify and verify both the sender and the receiver.
• Screening of all parties against sanctions, watchlists, and politically exposed persons databases.
• Monitoring for unusual transaction patterns, including inconsistent payment volumes or routes.
• Reporting of suspicious transactions to financial intelligence units (FIUs).
• Maintaining clear audit trails and record-keeping for traceability.

Mechanisms of Cross-Border Payments

• Correspondent Banking: Involves one bank providing payment services to another, enabling fund transfers across borders. While essential to global finance, correspondent banking relationships can expose institutions to indirect risk if the respondent bank has weak AML controls.
• Remittance Services: Non-bank financial institutions such as money transfer operators (MTOs) play a significant role in low-value cross-border payments, especially for migrant workers. However, these channels can be abused for structuring or smurfing if compliance oversight is weak.
• Payment Networks and SWIFT: Cross-border transactions often rely on global messaging systems like SWIFT, which facilitate secure transmission of payment information. Even with high security standards, gaps in data transparency can still occur if originator or beneficiary details are incomplete.
• Digital and Fintech Platforms: Emerging technologies such as blockchain and digital wallets have introduced faster, cheaper alternatives to traditional systems. However, they also introduce new AML/CFT challenges, particularly around pseudonymous transactions and regulatory coverage.

Risks & Challenges

• Jurisdictional Variability: Each country applies different AML/CFT standards, creating inconsistencies that criminals can exploit.
• Data Transparency: Limited availability of end-to-end transaction data can hinder tracing and risk assessment.
• Nested Relationships: In correspondent banking, nested accounts add additional layers of opacity and risk.
• Technology Gaps: Institutions that rely on outdated monitoring systems may struggle to detect complex cross-border laundering patterns.
• Sanctions Compliance: International sanctions enforcement relies heavily on identifying cross-border transactions linked to restricted entities or jurisdictions.

Best Practices for AML/CFT Compliance

• Implement risk-based monitoring systems that adjust to transaction value, origin, and destination.
• Strengthen correspondent banking due diligence, ensuring a clear understanding of counterpart institutions’ compliance frameworks.
• Leverage advanced analytics, AI, and machine learning tools for real-time monitoring and pattern detection.
• Train compliance staff to identify typologies related to trade-based money laundering and sanctions evasion.
• Maintain complete and accurate data on the payer, beneficiary, and intermediaries to support transparency and traceability.

International Cooperation & Standardization

Global efforts are underway to enhance the transparency and efficiency of cross-border payments.

The FATF recommends that jurisdictions adopt risk-based supervision and share intelligence to identify cross-border money laundering risks.

The G20, in collaboration with the Financial Stability Board (FSB) and the Committee on Payments and Market Infrastructures (CPMI), has also outlined a roadmap to improve cross-border payment systems, focusing on speed, cost, access, and transparency.

Regulators continue to emphasize interoperability between systems, adoption of ISO 20022 messaging standards, and digital identity frameworks to improve due diligence in international transactions.

Conclusion

Cross-border payments are the arteries of global finance, but also one of its most exploited channels for money laundering and terrorist financing.

Effective AML/CFT controls must balance efficiency with security, ensuring that legitimate international trade and remittances are not hindered while preventing misuse by criminal networks.

Financial institutions, regulators, and technology providers must collaborate to improve visibility, data quality, and cooperation across borders.

Related Terms

• Correspondent Banking
• Remittance
• Transaction Monitoring
• SWIFT
• Sanctions Screening
• FATF
  Money Laundering

References

1. Financial Action Task Force (FATF) – International Standards on Combating Money Laundering and the Financing of Terrorism.
2. International Monetary Fund (IMF) – Cross-Border Payments Policy and Regulation.
3. Bank for International Settlements (BIS) – Enhancing Cross-Border Payments: Building Blocks of a Global Roadmap.
4. Financial Stability Board (FSB) – Roadmap for Enhancing Cross-Border Payments.
5. World Bank – Cross-Border Payments and Remittances Overview.

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