September 12, 2008

Comments regarding the Consultative Document for “Due diligence andtransparency regarding cover payment messages related to cross-border wiretransfers” by the Basel Committee on Banking Supervision
Japanese Bankers Association
The Japanese Bankers Association (JBA) greatly appreciates this opportunity tocomment on the Consultative Document for “Due diligence and transparency
regarding cover payment messages related to cross-border wire transfers” issued by
the Basel Committee on Banking Supervision in July 2008.

We hereby present our basic ideas regarding the Consultative Document, followedby our comments on specific items.
1. Basic Idea
(1)

JBA thinks that including information regarding the originator andbeneficiary in cover payment messages would prevent the omission or lack ofinformation in the cross-border wire transfer chain and would therefore be ameasure to increase the transparency of cross-border wire transfers (i.e., it isbeneficial from the perspective of meeting the needs for performing
investigations,etc.).

However,theintermediarybank(thecoverintermediary bank) faces difficulty in confirming information regarding
originator or beneficiary because it is an institution responsible for interbanksettlement in the cross-border wire transfer mechanism and does not havedirect contact with the originator or beneficiary.

Therefore, it can be said

that it is neither reasonable nor effective to obligate the intermediary bank toverify such information.
(2)

Within the cover payment chain, it should be the obligation of the originatorbank to obtain information regarding the originator, to perform verificationand screening of the originator, and include such information in payment
messages; to obtain information regarding the beneficiary from theoriginatorandinclude

suchinformation

1inpayment

messages.

Furthermore, it should be the obligation of the beneficiary bank to perform
verification for information obtained from the originator regarding thebeneficiary.

In fact, JBA thinks that intermediary banks are not greatly

obliged because their role is limited as indicated in the AML/CFT measures,
which have the same purpose as the FATF Special Recommendation VII on
WireTransfers

andtheFATF

Interpretative

NotetoSpecial

Recommendation VII on Wire Transfers.
(3)

In order to ensure that the originator bank that sends MT103 andMT202COV fulfills the abovementioned obligations, JBA thinks that aneffective measure would be to call for respective nations to legislate theabovementioned obligations of originator banks and to have the FATF inspect
countries and territories that do not establish such legislation, make public a
list similar to the former list of Non Co-operative Countries and Territories(NCCT) and to warn against transfers from those jurisdictions.

This would

also be an effective method for when the beneficiary bank is taking arisk-based approach.
2. Comments regarding specific items(1)

In Paragraph 20 of the Consultative Document, it states that “Suchprocedures should facilitate the detection of cases where required fields arecompleted but the information is unclear or incomplete,” but as commented
under “1.

Basic Idea,” the intermediary bank does not have direct contact

with the originator or beneficiary.

As such, in reality, it is often the case inpractice that it is extremely difficult to actually determine whether suchinformation is inaccurate or incomplete.

Therefore, in terms of the future

direction of countermeasures, while it is important to aim for higher accuracy
as much as is possible at the individual banks, JBA thinks that discussions
ought to take place for a standard framework such as a primary, systematic
check performed on the SWIFT system, including checks for the absence of
said information.
(2)

In Paragraph 27 of the Consultative Document, it states that “the bank of thebeneficiary could be in a position to detect through its risk-base monitoringthat … there is a discrepancy between the two messages [one directly fromthe originator bank and another which is the cover message from the cover
payment chain].”

However, the field for originator or beneficiary

information is found in messages received from the originator bank (e.g.

2

SWIFT MT103), but is not found in the Confirmation of Credit (e.g. SWIFTMT 910) received from the beneficiary bank’s correspondent bank under thecover payment chain.

Thus, it is practically impossible to detect suchdiscrepancies.
(3)

In Paragraph 32 of the Consultative Document, it states that “customers
should be clearly informed that the execution of a transfer in a foreign
currency or across borders entails transmission of the appropriate personal
information to all cover intermediary banks in another jurisdiction,” but in
actual practice, it is difficult for originator banks to give clear explanations tocustomers, especially beneficiaries of foreign residencies, regarding the factthat information concerning the originator and beneficiary is to be containedin payment orders of cover payments.
Furthermore, with regard to the protection of personal information, it would
be unnecessary to obtain the consent of each participant for provision ofinformation on the originator and beneficiary when cover payments areutilized in cross-border transfers as long as there is a consensus among all
participants, including the originator and beneficiary.
need to foster such a consensus.

3

Therefore, there is a