Finance* Henry Balani, CAMS Head of Innovation ACAMS Northern - - PowerPoint PPT Presentation

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Finance* Henry Balani, CAMS Head of Innovation ACAMS Northern - - PowerPoint PPT Presentation

Jul 13, 2023 126 likes •565 views

Economic Sanction Screening in Trade Finance* Henry Balani, CAMS Head of Innovation ACAMS Northern California Chapter Meeting Nov 19 th 2015 * Also includes quick update on Iran Accuity ity focuse uses s on the needs of banks, s, financia

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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 ity focuse uses s on the needs of banks, s, financia ncial l servi vices ces and corporat

  • rations

ns to ensure re effi ficient cient payme ment nt tra ransa nsact ction

  • ns

s wh while min inim imizi izing ng regulator latory y complia liance nce ris isks ks

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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

  • perations.
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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 TM TMBL BL occu cur? Moving ng money y from the US US t to Mexico co through ugh trade de

Exporter Importer Mexico USA Goods: $ 1 Million Payments: $ 10 Million

$ 9 Million moved from US to Mexico

Goods are

  • ver

invoiced Goods actual value is $ 1 per unit Goods invoiced at $ 10 per unit Both 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,

  • r make no

economic sense*

*BAFT Guidance for Identifying Potentially Suspicious Activity in Letters of Credit and Documentary Collections #AccuityTradeFinance

Sources: 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

#AccuityTradeFinance

Sources: 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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Obv bvious ious ov

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er or

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unde der pr pric icing ing go good

  • ds

Sources: FATF, FFIEC

#AccuityTradeFinance

Sources: FATF, FFIEC

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Source: http://www.acfcs.org/trade-based-money-laundering-the-next-frontier/

Real al examples xamples of o f over/under ver/under invoici voicing ng fr from/to

  • m/to

th the e USA SA

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

  • f Weapons of Mass

Destruction (WMDs)

Strategic Goods Control, Singapore Customs

#AccuityTradeFinance

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Case Study

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Sh Shipment nt of graph phite ite from Hong Ko Kong to Dubai

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#AccuityTradeFinance

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How many Red Fl Flags gs are there re in this is shipm pmen ent? t?

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#AccuityTradeFinance

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Did you spot t 7 or 8?

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#AccuityTradeFinance

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Scree eenin ning g the transaction ansaction thro roug ugh h a si single source ce database ase highlights hts all the risky ky elements nts in on

  • ne step

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#AccuityTradeFinance

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Let’s also dig down into the possible connections

Al Mataf Shipping Mataf Star CKLBCNBJ Graphite

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#AccuityTradeFinance

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Mataf Star is a sanctioned entity because of it’s links to Iran

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#AccuityTradeFinance

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SCT (aka Sorinet Commercial Trust) is also a sanctioned entity due to links with Iran

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#AccuityTradeFinance

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Bo Both SC SCT a T and Hong Ko Kong Inter tertra trade e Company ny are linke ked to the Nation

  • nal

al Irani nian an Oil Company ny

#AccuityTradeFinance

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It looks like both shipper and consignee have the same ultimate beneficial owner

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Al Also, , we canno not t forge get t what they y are shipp ppin ing

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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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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

  • f 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 lifted Implementation Day 13 24 Sanctioned Banks Lifted Transition Day 5 Total Iranian Banks that remained sanctioned 51

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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

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Henry Balani

Head of Innovation henry.balani@accuity.com @hbalani #AccuityHenry Henry Balani

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