Enhancement of AML/CTF controls regarding documentary trade transactions
Trade-based money laundering (TBML) refers to the use of international trade to conceal the proceeds of illegal activity. It is a complex and sophisticated form of money laundering that can involve multiple parties and transactions, making it difficult to detect and investigate.
For one of our banking clients we are involved in a project to improvide the bank’s ability to detect and prevent TBML. The project specifically focuses on documentary trade transactions (import/export Letters of Credit, import/export Documentary Collections) and international Bank Guarantees.
The project involves the following steps:
- Conduct a data driven risk assessment to identify the key risk factors and vulnerabilities associated with TBML. This involve analyzing transaction data, identifying high-risk products and services, and assessing the bank’s exposure to high-risk customers and geographies. The outcomes are aligned to the bank’s FEC Risk Appetite and Systematic Integrity Risk Analysis (SIRA).
- Develop a TBML Procedure to achieve a harmonised and uniform way of working with respect to TBML risk management. This procedures outlines the key TBML typologies and risks (such as over- or under-invoicing, shipping and payment irregularities, and unusual trade flows) and the key controls (such as price checks, transaction party checks, documentary checks, country of origin checks, tranasction monitoring) to identify suspicious transactions and patterns of activity that may be indicative of TBML.
- Enhance transaction monitoring to better detect and flag suspicious activity related to TBML. This involves incorporating the TBML typologies into the monitoring rules and algorithms, as well as leveraging new data sources such as trade finance documents and public records.
- Improve investigations and reporting capabilities for TBML. This involve providing training to staff on TBML typologies and red flags, establishing dedicated investigation teams or units, and enhancing the bank’s internal and external reporting.
Overall, the goal of the project would be to strengthen the bank’s AML/CTF controls and improve its ability to detect and prevent TBML. By doing so, the bank can reduce its exposure to financial crime risks and demonstrate its commitment to regulatory compliance and ethical business practices.
