The scale and complexity of international trade offers significant opportunities for money laundering, fraud, and sanctions evasion. By financing trade, your company could be facilitating the transfer of goods with significant value across international borders, making it a target for money launderers, terrorist financiers, and sanctions evaders.
Trade Finance Risks
“Regulation, compliance and Know Your Customer requirements are at an all time high and the new focus is within the international trade finance industry.”
Vincent O’Brien, International Chamber of Commerce Banking Commission.
More than 50,000 merchant ships are trading internationally, with over $18,494 billion of global export trade occurring each year*. Unpredictable political developments, as well as developments in technology, communications, and trade corridors are all factors that lend themselves to potential risk.
Trade Finance can be used in the layering and integration stages of money laundering, where the enormous volumes of trade flows can easily obscure individual transactions. The use of multiple foreign exchange transactions and diverse trade financing arrangements permits the commingling of legitimate and illicit funds.
Recent case experience reveals that more and more, the preferred method for sophisticated organized crime groups to launder criminal proceeds is the misuse of trade finance. Bank employees can also be induced to commit criminal offenses on behalf of their trade finance clients, allowing money-launderers, sanctions evaders and fraudsters to go undetected.
For these reasons, regulators are beginning to focus on trade and its financing, and the trade finance community is recognising the need to effectively manage the risk. But managing risk in this highly-complex area is very different than addressing other AML and sanctions risks. Simply concentrating on validating high volumes of non standard data and relying on a limited view of customer and counter-party relationships, with only a basic understanding of complex financial crime risks will not provide a sound defense for any bank.
*World Trade Organization - International Trade Statistics 2015
Exiger uniquely brings together a team of trade finance, AML, and sanctions specialists – with banking, investigative, prosecution, intelligence, and maritime backgrounds – with a deep understanding of the subject of trade finance. Our specialists have conducted reviews in some of the world’s leading trade finance centers, as well as those in more remote trade locations. Having tested compliance procedures around the globe, they know the difference between drafting a policy and putting it into practice.
Just as important, Exiger’s experts understand the risk involved in moving high value consignments across jurisdictions, where the backgrounds and bona fides of counterparties can be hard to determine. Our worldwide experience conducting on-the-ground reviews allows us to identify hidden risks, weaknesses in control frameworks, and training gaps.
Exiger professionals understand that:
- Simply checking for standardized red flags rarely identifies the underlying risk
- Indications of fraud, money laundering, and sanctions evasion are often unique to a situation,and therefore require tailored approaches
- The complexity of trade finance is not the primary risk to be managed; more important is the unseen relationships with third parties
- Risk can reside in long-standing clients as well as first time customers
- Financial crime risks are constantly changing
- Financial crime risk can be effectively managed with the proper controls
How Exiger Can Help
- AML and Sanctions Compliance Program Review and Design – We help clients identify gaps in their financial crime compliance structure across their entire trade finance business, from product design, to client onboarding and final executions. We assess whether a client’s policies and procedures are informed by current best practice and meet the requirements of the relevant laws and regulations.
- Risk Assessment – We assist clients to undertake a risk assessment of their trade business from a financial crime compliance perspective. We bring together the expertise of trade finance experts and AML professionals to ensure that the assessment is sufficiently comprehensive.
- Know Your Customer & Know Your Client’s Customer – We advise on due diligence techniques to identify and fully understand all parties involved in a trade transaction, including their clients’ customers and suppliers, shipping companies, shipping agents, and associated banks.
- Transaction Monitoring Optimization – We evaluate scenarios and rules against the institution’s risk profile, industry practice and regulatory expectations. We develop efficient and cost-effective alert adjudication strategies that protect institutions more effectively than the straightforward disposition of standard AML red flags.
- AML Investigations and SAR Filing – We advise on effective and sustainable investigative processes, adaptable processes, and the ability to consistently identify underlying techniques in trade-based money laundering.
- Know Your Customer Remediations – We assist institutions with KYC remediation of their corporate and correspondent banking customers.
- Role Specific Training – We specialize in providing tailored, role specific training to trade finance professionals – not simply a customized version of standard AML courses.
In one recent case, BNP Paribas agreed to a $9 billion settlement with U.S. authorities for trade- finance-related sanctions breaches where the bank had deliberately modified or omitted references to sanctioned entities in the payment messages accompanying trade transactions to prevent them being blocked when they entered the United States. Another method involved moving illicit transactions through unaffiliated “satellite banks” in a way that disguised the involvement of Sanctioned Entities in U.S. dollar transactions.