Payable-Through Accounts: Rules, Red Flags, and Penalties

A payable-through account is a correspondent account that a foreign bank opens at a U.S. bank so its own customers can transact directly through the U.S. financial system by way of sub-accounts tied to a single master account. The foreign bank keeps the customer relationship; the U.S. bank provides the payment rails. Because that arrangement lets people who were never vetted by a U.S. institution write checks, send wires, and move dollars, federal regulators treat payable-through accounts (PTAs) as high-risk and load the domestic bank with some of the strictest due diligence obligations in correspondent banking.

How the Structure Works

A foreign bank, called the respondent, opens one master correspondent account at a U.S. bank. That master account is the umbrella. The foreign bank then creates sub-accounts on its own internal ledger for individual retail or commercial clients, and maps each one back to the master. When a sub-account holder moves money, the U.S. bank processes the instruction as activity flowing through the foreign bank’s master account, but it can identify which sub-account is behind the transaction.¹

Federal law defines a PTA as a correspondent account “opened at a depository institution by a foreign financial institution by means of which the foreign financial institution permits its customers to engage, either directly or through a subaccount, in banking activities usual in connection with the business of banking in the United States.”²

What Sub-Account Holders Can Do

Sub-account holders use the U.S. payment system much like domestic customers. They typically receive checkbooks or debit cards drawn against the master account. They can initiate wire transfers that appear to originate from the U.S. correspondent bank. Third parties can deposit funds into a sub-account without necessarily knowing the recipient bank is offshore. Activity gets bundled and settled through the U.S. bank’s processing systems, giving foreign customers the same practical access to ACH transfers, check clearing, and domestic payments as someone holding a standard U.S. checking account. That access is precisely what makes the arrangement useful to foreign businesses operating in dollar-denominated markets, and what makes it attractive to bad actors.

How a PTA Differs From a Nested Correspondent Account

The two structures get confused because both involve layered access to the U.S. system, but the difference changes what a U.S. bank must do. In a PTA, the foreign bank’s individual customers gain direct access through sub-accounts. In a nested correspondent relationship, another financial institution uses the foreign bank’s correspondent account to reach the U.S. system indirectly.³

For a PTA, the U.S. bank must obtain information about the identity of every person authorized to direct transactions through the account, plus the sources and beneficial owners of funds. For a nested relationship, the U.S. bank must find out whether the foreign correspondent maintains nested accounts and take reasonable steps to identify those downstream foreign banks and assess their money-laundering risk. PTAs put retail or commercial customers directly on the pipe; nesting puts other banks on it.³

What a U.S. Bank Must Do Before Opening a PTA

The legal backbone is 31 U.S.C. § 5318(i), added by Section 312 of the USA PATRIOT Act. Every U.S. financial institution maintaining a correspondent account for a foreign person must set up “appropriate, specific, and, where necessary, enhanced, due diligence policies, procedures, and controls” to detect and report money laundering through those accounts.⁴

The implementing regulation, 31 CFR § 1010.610, requires a risk-based program “reasonably designed to enable the covered financial institution to detect and report, on an ongoing basis, any known or suspected money laundering activity” moving through its correspondent accounts. When the correspondent account is a PTA, the rule adds a specific requirement: the U.S. bank must take reasonable steps to obtain the identity of anyone authorized to direct transactions through the account, along with the sources and beneficial owners of funds.¹ Trusting the foreign bank’s word is not enough. The U.S. bank needs the actual identifying information and must review it before sub-accounts go active.⁵

Enhanced requirements apply when the foreign bank operates under an offshore banking license or is licensed by a jurisdiction designated as noncooperative with international AML standards. At minimum, the U.S. bank must identify each owner of the foreign bank (if its shares are not publicly traded), conduct enhanced scrutiny for money laundering, and determine whether the foreign bank itself provides correspondent accounts to other foreign banks.⁴

Examiners look for documentation in four categories before an account gets approved:

Ownership and governance — beneficial owners of the foreign bank, senior management, corporate structure, articles of incorporation, and banking license.
AML program adequacy — evidence the foreign bank has a working anti-money-laundering and customer identification program that can monitor its own sub-account holders and report suspicious activity back to the U.S. correspondent.
Home-country supervision — proof the foreign bank is subject to adequate regulatory oversight, including independent audit reports and regulatory certificates from the home jurisdiction.
Sub-account holder information — names, addresses, expected activity levels, employment or business descriptions, identification of politically exposed persons, and source-of-funds data for each person with authority to direct transactions through the PTA.

Examiners verify that the U.S. bank actually reviews and approves customer information before sub-accounts activate, not just that a policy sits on the shelf.⁵

The Shell Bank Line

U.S. banks may not maintain a correspondent account for a foreign shell bank, meaning a foreign bank with no physical presence in any country. The prohibition in 31 CFR § 1010.630 also requires the U.S. bank to take reasonable steps to ensure its correspondent account is not being used to funnel services to a shell bank downstream.⁶ If a foreign respondent lets shell entities open sub-accounts and transact through the PTA, the U.S. bank is on the hook for facilitating an end-run around the rule. Examiners check whether the U.S. bank has confirmed that the foreign respondent is subject to adequate supervision by a recognized governmental authority.⁵

OFAC Screening

PTAs are flagged as carrying elevated sanctions risk. The U.S. bank has to screen transactions and account parties against OFAC’s Specially Designated Nationals list and other sanctions lists, and it has to check payments such as wires and letters of credit before executing them.⁷

Delegating screening to a third party or leaning on the foreign respondent’s initial checks does not shift the liability. The U.S. bank remains “ultimately responsible for that third party’s compliance.” When a blocked person has an interest in a transaction moving through a PTA, the U.S. bank must block it, whether or not the foreign bank flagged the issue.⁷

SAR Filing and Red Flags

U.S. banks file Suspicious Activity Reports with FinCEN when they spot suspicious patterns. The thresholds for banks:

Any amount for insider abuse involving a director, officer, employee, or other institution-affiliated party.
$5,000 or more for known or suspected criminal violations where a possible suspect can be identified.
$25,000 or more for known or suspected criminal violations even when no suspect has been identified.

For continuing suspicious activity, FinCEN guidance suggests follow-up SARs at least every 90 days, with the filing deadline 120 calendar days after the previous SAR.⁸

FinCEN and the FFIEC have flagged patterns that should prompt investigation in correspondent accounts, several of which show up often in PTA activity:

Funds pass-through, where money enters U.S. accounts and leaves in the same or nearly the same amounts, especially involving high-risk jurisdictions.
Unexplained third-party payments by an intermediary with no apparent tie to buyer or seller.
Burst activity, a sudden onset of payment activity followed by an equally sudden stop.
Frequent round-dollar transactions, which can indicate structuring.
Missing documentation when the sub-account holder or foreign bank cannot produce invoices or other records for a requested transaction.
Geographic mismatch, such as deposits from multiple U.S. locations when the holder lives elsewhere, or wires from countries outside the customer’s stated business geography.
Micro-structuring: small cash deposits under $1,000 several times a month, followed by ATM withdrawals in foreign countries.

None of these prove wrongdoing on its own. Each obliges the U.S. bank to look further and file if warranted.⁹

Record Retention

Records a financial institution is required to maintain under BSA regulations must be kept for five years.¹⁰ For a PTA, that covers transaction records, sub-account holder identification documents, due diligence files on the foreign respondent, and SAR filings. Closing the relationship does not shorten the clock. The five years run from the date the record was created or the account was closed, whichever is later.

Penalties for Non-Compliance

Civil

A willful BSA violation can bring a civil penalty of up to the greater of $100,000 or $25,000 per violation.¹¹ For violations tied to the due diligence requirements, the shell bank prohibition, or special measures, the inflation-adjusted maximum reaches $1,776,364 per violation as of January 2025.¹² Negligent violations start at up to $500 per violation and reach $50,000 for a pattern of negligent activity.

Criminal

Willful violations carry criminal exposure of up to $250,000 and five years in prison. When the violation is part of a pattern involving more than $100,000 in illegal activity over 12 months, the ceilings double to $500,000 and 10 years.¹³

Violations of the enhanced due diligence requirements in § 5318(i) or special measures in § 5318A carry a separate fine of not less than twice the transaction amount, capped at $1,000,000. The Anti-Money Laundering Act of 2020 added a disgorgement provision: anyone convicted of a BSA violation must forfeit the profit gained, and individual bank officers must repay any bonuses received in the year of the violation or the following year.¹³

Failure to Terminate

If a foreign bank does not comply with a U.S. subpoena for records and the domestic bank keeps the correspondent account open, the daily penalty for maintaining the account can reach $25,000 per day under the 2020 amendments, up from the prior $10,000 cap.

When Accounts Get Closed

A U.S. bank can close a master account or specific sub-accounts when the information provided by the foreign bank turns out to be materially inaccurate or incomplete.⁵ Termination usually follows a familiar path: the U.S. bank requests updated due diligence, the respondent does not deliver, and the U.S. bank concludes the risk is no longer manageable. Unexplained red flags can force the same outcome, as can a finding that the foreign bank has been providing indirect access to a shell bank. If examiners find that a U.S. bank kept a PTA open despite unresolved compliance failures, the bank faces the substantive penalties above along with reputational fallout that can spread to its other correspondent relationships. Closing the account also does not erase the five-year record-retention duty; all documentation tied to the terminated relationship must stay accessible for the full period.¹⁰

1
eCFR. 31 CFR 1010.610 – Due Diligence Programs for Correspondent Accounts for Foreign Financial Institutions
2
Legal Information Institute. 31 USC 5318A(e)(1)(C) – Payable-Through Account Definition
3
FFIEC BSA/AML Examination Manual. Due Diligence Programs for Correspondent Accounts for Foreign Financial Institutions
4
Office of the Law Revision Counsel. 31 USC 5318 – Compliance, Exemptions, and Summons Authority
5
FFIEC BSA/AML Examination Manual. Payable Through Accounts
6
eCFR. 31 CFR 1010.630 – Prohibition on Correspondent Accounts for Foreign Shell Banks
7
FFIEC BSA/AML Examination Manual. Office of Foreign Assets Control
8
Financial Crimes Enforcement Network. Frequently Asked Questions Regarding the FinCEN Suspicious Activity Report (SAR)
9
Financial Crimes Enforcement Network. FinCEN Advisory FIN-2010-A001 – Advisory to Financial Institutions on Filing Suspicious Activity Reports Regarding Trade-Based Money Laundering
10
eCFR. 31 CFR Part 1010 Subpart D – Records Required To Be Maintained
11
Office of the Law Revision Counsel. 31 USC 5321 – Civil Penalties
12
eCFR. 31 CFR 1010.821 – Penalty Adjustment and Table
13
Office of the Law Revision Counsel. 31 USC 5322 – Criminal Penalties