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![Page 1: Economic Sanction Screening in Trade Finance* - ACAMSfiles.acams.org/pdfs/2015/CENOCA11192015_Accuity_Presentation.pdf · Economic Sanction Screening in Trade Finance* Henry Balani,](https://reader031.fdocuments.us/reader031/viewer/2022030500/5aabcf9a7f8b9a8f498c6da9/html5/thumbnails/1.jpg)
Economic Sanction Screening in Trade Finance*
Henry Balani, CAMS Head of Innovation
ACAMS Northern California Chapter Meeting
Nov 19th 2015
* Also includes quick update on Iran
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Accuity focuses on the needs of banks, financial services and
corporations to ensure efficient payment transactions while
minimizing regulatory compliance risks
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Key Takeaways
#AccuityTradeFinance
Here at Accuity, we recognize the increasing challenges Compliance Officers and Trade Finance departments face in screening transactions
Regulators around the world are focusing efforts to enhance guidance around Trade Based Money Laundering (TBML).
Best practices are available to ensure compliance while managing effectiveness of trade finance operations.
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Current Regulatory Landscape
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Trade-based money laundering (TBML) provides criminals an easy
way to move illegal proceeds typically impacting developing
countries
Source: Global Financial Integrity
From 2003 to 2012, developing countries
lost $6.6 trillion to illicit outflows
#AccuityTradeFinance
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Trade-based money laundering is a serious issue around the world
#AccuityTradeFinance
“Anything that can be priced can be mispriced,
and false pricing is done every day, in every
jurisdiction, on a large percentage of import and
export transactions. TBML ‘is the most
commonly used technique for generating and
transferring dirty money—money that breaks
laws in its origin, movement and use’.
Asia Pacific Group on Money Laundering
“Trade finance is a key
component in maintaining a
competitive and productive
economy”
UK Financial Conduct
Authority
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Trade-based money laundering is a serious issue around the world
#AccuityTradeFinance
“Singapore’s openness as an international
transport hub and financial center exposes it
to inherent cross-border ML/TF risks”
Monetary Authority of Singapore
“A few years ago American customs
investigators uncovered a scheme in which a
Colombian cartel used proceeds from drug
sales to buy stuffed animals in Los Angeles”
The Economist
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#AccuityTradeFinance
Regulators are now looking at TBML as traditional methods of detecting money laundering have been identified
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The UK HMT recently published a National Risk Assessment that highlighted TBML as an issue
#AccuityTradeFinance
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#AccuityTradeFinance
Regulators are now looking at TBML as
traditional methods of detecting money
laundering have been identified
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The Monetary Authority of Singapore recently issued guidance related to screening trade finance transactions
“As a trading and transportation hub, Singapore is vulnerable to money laundering (“ML”) risks posed by trade finance. Due to its significant volume and value, trade finance transactions are an attractive medium for money launderers to transfer large values across borders. Trade finance can also be exploited for terrorism and proliferation financing (“TF/PF”).”
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#AccuityTradeFinance
Regulators are now looking at TBML as
traditional methods of detecting money
laundering have been identified
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#AccuityTradeFinance
The recent OFAC enforcement action against a
major European bank highlights trade finance
as a key money laundering concern
“_____and _____ negotiated a
variety of trade finance
instruments on behalf of or that
involved parties subject to U.S.
sanctions on Sudan, Iran, Cuba
and Burma…”
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How does TMBL occur?Moving money from the US to Mexico through trade
Exporter Importer
Mexico USAGoods: $ 1 Million
Payments: $ 10 Million
$ 9 Million moved from US to Mexico
Goods are over invoiced
Goods actual value is $ 1 per unitGoods invoiced at $ 10 per unitBoth Exporter and Importer are colluding!
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Being fined is bad enough. However, there can be additional repercussions as well.
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Identifying Red Flags Best Practices to reduce TBML
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There are many sources that highlight best practices in regards to TBML
#AccuityTradeFinance
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The customer engages in transactions that are inconsistent with the customer’s business strategy or profile, or make no economic sense*
*BAFT Guidance for Identifying Potentially
Suspicious Activity in Letters of Credit and
Documentary Collections
#AccuityTradeFinanceSources: FATF, FCA, FFIEC, Wolfsberg
e.g. an agricultural
company that starts
dealing in paper products
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Customer conducts business in jurisdictions that are at higher risk for money laundering, terrorist financing or other financial crimes
#AccuityTradeFinanceSources: FATF, FCA, FFIEC
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Sources: FATF, FCA
The transaction appears to involve the use of front or shell companies for the purpose of hiding the true parties involved
#AccuityTradeFinance
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Customer shipping items to, through, or from higher money laundering risk jurisdictions, including countries identified by FATF as ‘non-cooperative jurisdictions’
Sources: FATF, FCA, FFIEC #AccuityTradeFinance
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Obvious over or under pricing goodsSources: FATF, FFIEC
#AccuityTradeFinanceSources: FATF, FFIEC
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Source: http://www.acfcs.org/trade-based-money-laundering-the-next-frontier/
Real examples of over/under invoicing from/to the USA
Metal Tweezers from Japan
Camshafts from Saudi Arabia
Plastic Buckets from Czech
Radial Truck Tires to UK
Toilet Bowls to Hong Kong
Prefabricated Buildings to Trinidad
#AccuityTradeFinance
$4,896/unit
$15,200/unit
$972/unit
$11.74/unit
$1.75/unit
$1.20/unit
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24
Sources: FCA #AccuityTradeFinance
Transactions that involve obvious dual use goods
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Dual use goods include a
wide range of goods that are
designed for commercial
applications but can have
military applications or
potentially be used as
precursors or components
of Weapons of Mass
Destruction (WMDs)
Strategic Goods Control, Singapore Customs #AccuityTradeFinance
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Case Study
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Shipment of graphite from Hong Kong to Dubai
27#AccuityTradeFinance
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How many Red Flags are there in this shipment?
28#AccuityTradeFinance
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Did you spot 7 or 8?
29#AccuityTradeFinance
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Screening the transaction through a single source database highlights all the risky elements in one step
30#AccuityTradeFinance
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Let’s also dig down into the possible connections
Al Mataf Shipping
Mataf Star
CKLBCNBJ
Graphite
31#AccuityTradeFinance
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32
Mataf Star is a sanctioned entity because of it’s links to Iran
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33#AccuityTradeFinance
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SCT (aka Sorinet Commercial Trust) is also a sanctioned entity due to links with Iran
34#AccuityTradeFinance
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35
Both SCT and Hong Kong Intertrade Company
are linked to the National Iranian Oil Company
#AccuityTradeFinance
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36
It looks like both shipper and consignee have the same ultimate beneficial owner
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Also, we cannot forget what they are shipping
37
Picture of Pripyat – near
Chernobyl, a graphite moderated
nuclear power plant
#AccuityTradeFinance
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Iran nuclear deal implications
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Joint Comprehensive Plan of Action
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40
Stage Action Date
Finalization Day Conclusion of agreement July 14th 2015
US Congress review Congress votes on agreement
Sep 17th 2015
Adoption Day 90 days after endorsement of JCPOA by UN Security Council
Oct 18th 2015
Implementation Day EU and US lift sanctions following IAEA verification
TBD (Key date when sanctions are lifted)
Transition Day IAEA states all nuclear material in Iran used for peaceful purposes
Oct 19th 2023 (8 years after Adoption Day)
Termination Day JCPOA terminates. All conditions removed.
July 19th 2025 (10 years after Adoption Day)
Lifting of sanctions will be in stages
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Total Iranian banks sanctioned 64 29
Sanctioned Banks liftedImplementation Day 13 24
Sanctioned Banks Lifted Transition Day
0 5
Total Iranian Banks that remained sanctioned 51 0
41
Related to sanctioned banks specifically, there is a difference between the OFAC and EU lists
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There will be differences between OFAC and EU list of lifted sanction entities causing conflict when dispositioning
OFAC EU
Lists from Annex II Attachment 2 & 3 of the JCPOA