We have a customer who is in need of establishing a Foreign Exchange for Euros. From what i understand, we will sign an agreement with a correspondent bank who will convert the euros to dollars and then the funds will be deposited to their account. I am not sure i understand how this works as we have never encountered this before and what BSA/AML issues do we need to consider. We know the customer and understand the need. I've done some reading, but still need some guidance. Any input is greatly appreciated.

Guidance on what topic? What is it that leaves you feeling uncertain?

As I read your post 'a customer needs to convert EUR to USD' is sort of the punchline to a longer story. How/why does the customer receive EUR in the first place? Do they have a EUR denominated, or multi-currency account on your institution or another institution?