Dollar Clearing
Definition & Overview
“Dollar clearing” refers to the process by which transactions denominated in U.S. dollars are cleared and settled through the global financial system, often via correspondent banking networks and clearing infrastructures that have access to U.S.-dollar payment corridors.
The term encompasses the movement of funds in U.S. dollars across borders, the settlement of obligations between banks (often through correspondent accounts or clearing houses), and the final transfer of value to the beneficiary institution.
Because of the dollar’s role as the dominant global reserve and invoice currency, dollar clearing is central to international trade, cross-border finance, and global liquidity management.
From an AML/CFT perspective, dollar clearing presents heightened risk because use of the U.S. dollar often implies reliance on U.S. banking infrastructure or correspondent relationships that are subject to U.S. regulatory jurisdiction.
Accordingly, any entity engaging in dollar-clearing transactions must consider the potential exposure to anti-money-laundering (AML) and countering the financing of terrorism (CFT) requirements, sanctions enforcement, and reputational risk.
Detailed Explanation & Key Components
Clearing mechanics
When a bank or non-bank financial institution initiates a dollar-denominated cross-border payment, the transaction typically passes through one or more correspondent banks holding U.S. dollar accounts (nostro/vostro) with banks in the U.S. or other major financial centres.
The clearing process includes: routing the payment, settlement through the correspondent account of the originating or intermediary bank, reconciliation of debtor/creditor positions, and final credit to the beneficiary’s account.
Because U.S. dollar clearing inherently touches U.S. banking systems or U.S.-regulated entities, it triggers U.S. regulatory oversight even when the originator or beneficiary is non-U.S.
Correspondent banking relationships
The cornerstone of dollar clearing is the correspondent banking relationship: a bank holds an account with another bank (often in the U.S.), enabling it to provide dollar-clearing services to its clients.
Respondent banks (those whose customers use the correspondent’s services) rely on the correspondent for access to dollar payments, while the correspondent relies on the respondent’s AML/CFT controls, beneficial-ownership transparency, and sanctions compliance.
Weaknesses in this chain, particularly with respondents in jurisdictions with less robust oversight, introduce vulnerabilities.
Global reach and regulatory linkages
Because the U.S. dollar is used widely for invoicing commodities, trade finance, foreign direct investment, and reserve holdings, dollar-clearing flows span jurisdictions.
This global reach means that banks outside the U.S. may still fall within the U.S. regulatory orbit if their transactions “touch” U.S. territory, for example, by passing through a U.S. correspondent bank or the U.S. payment system.
From an AML/CFT standpoint, this extraterritorial effect means global institutions must account for U.S. rules, whether or not they have a physical presence in the U.S.
Settlement finality and risk
Dollar clearing also involves settlement risk: the risk that one party fails to deliver value as promised.
In dollar clearing chains, this could arise if intermediary banks delay settlement, freeze correspondent accounts due to regulatory action, or impose risk-mitigation controls that slow payments.
Such delays can complicate transaction monitoring and raise the potential for layering or disguising illicit funds.
Regulatory & Compliance Relevance
Sanctions and AML exposure
Because dollar-clearing flows frequently traverse U.S.-regulated banks, they are subject to U.S. sanctions regimes, beneficial-ownership requirements, record-keeping rules, and suspicious-activity-reporting obligations.
A bank facilitating a dollar payment for a respondent bank with weak AML controls may face regulatory enforcement for aiding money-laundering or terrorism-finance activity, even if it did not know the underlying illicit purpose.
This reinforces the need for rigorous correspondent-bank and respondent-bank due diligence.
High-risk channel characteristics
Dollar clearing is often designated a higher-risk channel in AML/CFT risk frameworks because: the chain of payment may involve multiple intermediaries; the respondent bank may have limited visibility into the underlying customer or ultimate beneficial owner; and the regulatory oversight may be fragmented across jurisdictions.
As such, financial institutions should apply enhanced due diligence (EDD) and monitoring when providing dollar-clearing services or supporting clients who depend on them.
De-risking and access concerns
Because of compliance burdens and regulatory risk, many large banks have scaled back correspondent-bank relationships or terminated them altogether with institutions in jurisdictions assessed as higher risk.
This phenomenon, often called “de-risking,” has direct implications for banks in emerging markets that depend on dollar clearing.
From an AML/CFT standpoint, de-risking can push legitimate payments into less transparent channels, increasing the risk of illicit flows escaping detection.
Audit trail and reporting obligations
Clearing in U.S. dollars often triggers travel-rule obligations (for wire transfers), record-keeping obligations, and suspicious transaction reporting requirements.
Financial institutions handling dollar clearing must be able to trace the payment origin, intermediary banks, respondent banks, and ultimate beneficiary.
Failure to do so may result in regulatory breaches and penalties.
Real-World Examples / Applications
Example 1: Trade-finance transaction in an emerging market
A bank in an emerging-market jurisdiction executes a trade-finance payment denominated in U.S. dollars.
The bank uses a correspondent account with a U.S. bank to settle the payment. Because the U.S. bank must comply with U.S. AML/sanctions laws, it requests enhanced information about the client, the transaction purpose and the chain of counterparties.
If the emerging-market bank’s AML controls are deemed deficient, the correspondent may decline or terminate the relationship, blocking dollar clearing and effectively restricting the bank’s ability to transact in dollars.
Example 2: Sanctions enforcement through dollar-clearing suspension
A foreign bank conducts U.S. dollar clearing through its New York branch, but regulators find that it processed payments on behalf of sanctioned entities.
The U.S. authorities have suspended their dollar-clearing access.
As a result, the bank’s clients lose access to U.S. dollar services; payments are delayed or returned; and the bank suffers reputational and operational damage.
This demonstrates how dollar-clearing exposure can translate into AML/sanctions enforcement risk.
Example 3: Correspondent chain complexity and layering risk
A small bank in Country A uses nested correspondent accounts (via another bank in Country B) to access dollar clearing.
The respondent bank in Country B has limited customer transparency, and transactions flow through fast-incoming and fast-outgoing wires.
Because of limited visibility into ultimate beneficial owners and underlying purpose, the correspondent banks have less capacity to detect suspicious layering.
This vulnerability is exploited by illicit actors to channel proceeds of crime through the dollar system under the cover of legitimate trade.
Challenges & Considerations
Jurisdictional oversight complexity
Because dollar clearing involves multiple jurisdictions, originator bank, respondent bank, correspondent bank, and payment system in the U.S., institutions must navigate a patchwork of AML/CFT, sanctions, and payment-system regulations.
The complexity may lead to blind spots, especially when the respondent bank is located in a lower-risk-control jurisdiction.
Revenue vs. risk trade-off
Maintaining dollar-clearing capability via correspondent relationships is often commercially beneficial (enabling dollar-denominated trade), but it also comes with heightened compliance costs, monitoring burdens, and risk of regulatory action.
Institutions must calibrate their approach to balance business opportunity with AML/CFT risk management.
De-risking fallout
As many correspondents withdraw from high-risk relationships due to compliance concerns, legitimate banks in emerging markets may lose access to dollar-clearing corridors.
This limitation may drive those clients into less regulated channels or local-currency alternatives, which may exacerbate transparency and increase systemic risk.
Hidden risk in nested or indirect clearing
Even if a bank does not have a direct U.S. correspondent account, the use of intermediary banks that feed into dollar clearing creates exposure.
Indirect relationships may escape robust due diligence, but regulatory liability may still attach.
Institutions must map their correspondent chains and ensure visibility into downstream clearing flows.
Rapid changes in sanctions and regulations
Dollar-clearing risks evolve quickly, especially when U.S. sanctions, export controls, or regulatory jurisdictions change.
Institutions relying on dollar clearing must maintain agile compliance frameworks, ensure up-to-date screening and transaction monitoring, and anticipate disruption risks.
Best Practices & Implementation Insights
Map correspondent banking exposure for dollar-clearing flows
Identify all respondents and intermediary banks that facilitate dollar-denominated transactions, understand the clearing chain, jurisdictions involved, and payment corridors.
Apply enhanced due diligence (EDD) for high-risk clearing relationships
For banks or clients with significant dollar-clearing activity, apply EDD including beneficial-owner review, transaction-flow analysis, payment-purpose documentation, and periodic review of the correspondent bank’s AML/CFT programme.
Maintain visibility into intermediary and nested correspondent relationships
Track not only direct correspondents but also downstream participants and their links to the U.S. dollar clearing system. Assess the AML controls of all participants in the chain.
Implement monitoring tailored to dollar-clearing risk factors
Flag unusual high-volume or high-frequency dollar payments, rapid in/out flows, payments to jurisdictions with weak AML/CFT controls, and respondents with limited transparency.
Establish contingency plans for de-risking or loss of access
Recognise that loss of dollar-clearing access can disrupt operations.
Develop alternative clearing pathways (e.g., local-currency settlement, alternative corridors) and review the impact on clients, trade-finance lines, and liquidity.
Coordinate sanctions and trade-finance compliance with payment-clearing workflows:
Because dollar clearing intersects sanctions, export-control, and trade-finance regimes, organisations should integrate compliance functions to ensure consistent screening, documentation, and monitoring across the trade-clearing lifecycle.
Document governance, risk assessments, and controls:
Maintain detailed records of all dollar-clearing exposures, correspondent-bank risk assessments, due diligence results, monitoring decisions, and remediation actions. Proper documentation supports auditor, regulator, and internal governance requirements.
Related Terms
- Correspondent Banking
- Nested Correspondent Relationships
- USD Nostro/Vostro Account
- Sanctions Evasion
- Trade-Based Money Laundering (TBML)
- Payment-Corridor Risk
- De-risking
References
- Financial Services Executive Summary: AML and CFT in banking. Bank for International Settlements (BIS).
- Due diligence of correspondent banking relationships. AUSTRAC.
- Global Currency, Local Compliance: How US Dollar and Allied Currency Regulations Reshape Emerging Markets. International Banker, June 11 2025.
- Banks face hidden sanctions risk amid complex correspondent banking system. S&P Global Market Intelligence, April 2022.
- Correspondent Banking – A Way to Launder Money? Discussion on Reddit (illustrative of industry commentary).
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