Financial crime authorities are upping efforts to tackle trade-based money laundering (TBML), urging lenders to watch for complex corporate structures or trade flows, circular payment arrangements and inconsistencies in documentation.
The warnings feature in new guidance from the Financial Action Task Force (FATF), an influential global standards-setting body. The document was produced in collaboration with the Egmont Group, an international organisation of various countries’ financial intelligence units.
The guidance sets out several risk factors for TBML, which involves criminals moving illicit funds through the international trade system in order to disguise their origin.
It says financial institutions should consider whether an importer or exporter’s corporate structure “appears unusually complex and illogical, such as the involvement of shell companies or companies registered in high-risk jurisdictions”. They should also assess its ownership model, staff arrangements and registered addresses.
The guidance emphasises that banks should continue to monitor the underlying trade activity itself. Risk factors include trading activity that is outside a company’s typical profile, such as the sale of atypical goods or the use of shipping routes that are inconsistent with the wider industry.
In terms of trade finance, it warns of traders making “unconventional or overly complex use of financial products, eg use of letters of credit for unusually long or frequently extended periods without any apparent reason, intermingling of different types of trade finance products for different segments of trade transactions”.
It is the second time in recent months that the TBML risks associated with documentary trade finance instruments have been highlighted by the task force.
Late changes to payment arrangements, use of transit or “pay-through” accounts, and payments “routed in a circle” back to the country of origin are also cited as potential red flags.
The FATF’s intervention follows increasing attention to money laundering through the international trade system, both from public authorities and the private sector.
The guidance sets out several risk factors for TBML, which involves criminals moving illicit funds through the international trade system in order to disguise their origin.
It says financial institutions should consider whether an importer or exporter’s corporate structure “appears unusually complex and illogical, such as the involvement of shell companies or companies registered in high-risk jurisdictions”. They should also assess its ownership model, staff arrangements and registered addresses.
The guidance emphasises that banks should continue to monitor the underlying trade activity itself. Risk factors include trading activity that is outside a company’s typical profile, such as the sale of atypical goods or the use of shipping routes that are inconsistent with the wider industry.
In terms of trade finance, it warns of traders making “unconventional or overly complex use of financial products, eg use of letters of credit for unusually long or frequently extended periods without any apparent reason, intermingling of different types of trade finance products for different segments of trade transactions”.
It is the second time in recent months that the TBML risks associated with documentary trade finance instruments have been highlighted by the task force.
Late changes to payment arrangements, use of transit or “pay-through” accounts, and payments “routed in a circle” back to the country of origin are also cited as potential red flags.
The FATF’s intervention follows increasing attention to money laundering through the international trade system, both from public authorities and the private sector.
