Trade-Based Money Laundering Essentials

Description

Overview

Trade based money laundering is a highly effective way to launder the proceeds of crime or finance terrorism. By exploiting the complexities of international trade, criminals can transmit huge amounts of value across borders with little chance of detection. 

This course will enable you to compare and contrast the trade-based money laundering typologies such as variable pricing and goods. Gain an understanding of how financial crime risk can manifest and be mitigated in this huge global marketplace. 

Objectives

• Introduction to the key characteristics of Anti-Money Laundering, Countering the Financing of Terrorism and Sanctions adherence.
• Extend understanding of the principles of compliance risk, with particular reference to Trade Finance and cross border transactions.
• Gain an insight into current trends and issues in financial crime and the risks of non-compliance, using practical examples.
• Be more informed and therefore better equipped to understand their role and responsibilities and make considered risk decisions more quickly, based on a sound knowledge of financial crime risk management.
• Be better placed to protect clients from financial crime risks in their own supply chains, thereby helping them to achieve sustainable growth.
• Have key skills to protect your clients from individuals and organisations seeking to commit trade based financial crime through the recognition/identification of red flags and understanding how to respond appropriately
• Be able to view transactions holistically with reference to AML, CFT, Sanctions and Compliance Risk
• Have an overview of the role of correspondent banks and other financial institutions, payment methods including SWIFT messaging

Agenda

 Financial Crime Compliance

• Principally money laundering, terrorist financing, sanctions breaches
• Current examples
• Other areas of financial crime
• An introduction to the nature of compliance risk in cross border transactions
• Why are international trade transactions increasingly a target for abuse?
• The consequences of non-compliance (for banks, corporates and individuals)

Anti-Money Laundering (“AML”)

• What is money laundering?
• Why and how is money laundered?
• The key stages of money laundering
• Customer Due Diligence (CDD)
• A risk-based approach to anti-money laundering
• Money laundering and terrorist financing

Countering the Financing of Terrorism (CFT)

• Key differences between CFT and AML
• The importance of due diligence and focused screening

Sanctions

• What are sanctions?
• Why are they imposed and what is their intended impact?
• Who imposes them and on whom are they imposed?
• What is the difference between a trade embargo and financial sanctions?
• Dual use goods and proliferation
• Examples of sanctions imposed in recent years
• The relevance of due diligence and screening

Facilitation of money laundering

• Complexity
• Three stages of money laundering
• Financial products vs open account
• Co-mingling
• Fraud, smuggling, transfer pricing, etc.
• Capital Flight
• Foreign Exchange

Correspondent banking

• What is the role of a correspondent bank?
• Why is correspondent banking fundamental to cross border money flows?
• The counterparty compliance risk of using Correspondent Banks
• The use and operation of Nostro, Vostro and Loro accounts
• Correspondent banking infrastructure.
• Risk profile of remitting, receiving and reimbursement parties in cross border transactions
• Know your customer (KYC) and the impact of ”KYCC”
• Key compliance risk areas

Correspondent banking

• What is the role of a correspondent bank?
• Why is correspondent banking fundamental to cross border money flows?
• The counterparty compliance risk of using Correspondent Banks
• The use and operation of Nostro, Vostro and Loro accounts
• Correspondent banking infrastructure.
• Risk profile of remitting, receiving and reimbursement parties in cross border transactions
• Know your customer (KYC) and the impact of ”KYCC”
• Key compliance risk areas

Financial Institutions – as customers:

• Compliance risk assessment framework; key components
• Due diligence and risk assessment
• Unacceptable customers
• Monitoring activity – warning signals, red flags, Financial Action Taskforce (FATF) recommendations.

International Payments / SWIFT Messaging

• The mechanics of cross border funds transfers and nature of the payment instruction
• Principal parties.
• What is SWIFT, it’s function and operations?
• Understanding the use and role of SWIFT “MT” message types in payments and trade transactions
• Compliance risk.
• Methods of international bank transfer:
• Value dating
• Key compliance risk areas:
• The compliance risk exposure of US dollar transfers
• High risk customers requiring payment services
• Red flag suspicious activity indicators

Managing Risk

• Risk Assessment and due diligence
• Know your customer (KYC), red flags and identifying suspicious activity
• Regulatory environment
• Video / discussion on CDD, KYC, etc.

Trade Finance

Trade Transactions

• Principal parties and associated risks
• Objectives of principal parties
• Understanding the trade cycle
• Additional risks of trading internationally

Description, function and operation:

• The nature and purpose trade finance
• What trade finance is and why it is required
• Why trade finance carries high compliance risk
• High risk components (e.g.)
• Trade finance compliance risk characteristics.
• Automated screening
• Message stripping
• Manual based due diligence

Trade based money laundering (TBML)

• Definition
• FCA Thematic Review
• Increasing focus of criminal activity
• Compliance considerations
• Risk mitigation (KYC; KYCC; information screening; document checking; red flags; etc.)
• Common methods of trade based money laundering

Core Trade Finance Products

Trading considerations

• Trade cycle
• Incoterms
• Risk considerations (counterparty, credit, FCC)

Documentary collections

• What is a documentary collection?
• What is the purpose of a documentary collection?
• Principal parties and roles
• Document requirements and purpose
• Types; sight (DP), usance (DA)
• URC522
• Compliance risk assessment;

Documentary Letters of credit

• What is a letter of credit?
• What is the purpose of a letter of credit?
• Principal parties and roles
• Other considerations:-
  • The independence principle
  • Application process
  • Workability
• Different types of letter of credit (overview)
• Trade documentation; vulnerability to abuse and compliance risk
• UCP 600 – role of banks
• Compliance risk assessment.
• LC confirmation; financial engagement and responsibility; discounting

Bank Guarantees

• What are bank guarantees?
• Principal parties
• The characteristics of “on demand” unconditional guarantees
• Autonomy and the independence principle
• Types and use of guarantees in trade (bid, APG, performance)
• Direct, indirect and counter guarantees
• Transferable guarantees; key compliance risks aspects
• Foreign laws and usage
• General compliance risk and vulnerability to criminal abuse
• Structuring guarantees to reduce compliance risk exposure
• URDG 758

Compliance Considerations

• Trade based money laundering characteristics
• Vulnerability of cross border transactions to fraud
• Information screening
• Document checking
• Red flags

Mitigating Risk

• Know your customer and your customer’s customer
• Understand the trade cycle and what is ‘ordinary business’
• Compare and contrast
• Is the complexity of the transaction necessary?
• Follow the money, apply common sense, ask the right questions
• The importance of first line of defense
• Red flags
• Opportunity to refresh clarify key points, clarify
• Review main learning points.