Compliance Risk in Trade Finance

Anti trade-based money laundering and sanctions compliance

Banks who have failed to have adequate AML and sanctions compliance programmes and training in place have incurred penal fines, reputational damage and faced the potential loss or suspension of their ability to operate in certain currency markets or jurisdictions

This three-day on-line virtual classroom training course is focused on the associated AML and sanctions compliance risks in Trade Finance. It has been designed for correspondent bankers, trade operational and sales personnel, compliance officers and audit inspectors to enable them to identify compliance risk zones in each of the trade product areas

Each day is structured into four separate 75 minute sessions. Case studies are discussed, and solutions formulated via delegate participation through virtual breakout syndicate rooms. The course uses a range of typologies, exercises, and case studies to develop the understanding of delegates in a practical and engaging way across a range of scenarios

Training objectives

By attending this on-line virtual classroom training course, the delegates will understand the function, parties, role, operation, and compliance risks of:

  • Correspondent banking;
    – Its fundamental role in the movement of international money and trade flows
    – The characteristics which result in high compliance risk

  • Vulnerability to compliance risk and red flags of:
    – Letters of credit (to include transferable and synthetic credits)
    – Collections, bank aval and forfaiting
    – Standby credits
    – Demand guarantees (to include transferable guarantees)
    – Trade receivable debt purchase finance
    – Pre-export finance
    – Warehouse finance

PROGRAM OUTLINE (on-line virtual classroom delivery)

SESSION 1

Compliance risk in cross-border money flows

  • Introduction to compliance risk
  • Nature of compliance risk in cross border transactions

Anti-money laundering (“AML”)

  • Risk-based approach
  • Overview of the stages: placement, layering, integration
  • Risk assessment:
    • Suspicious transactions

TYPOLOGY

The use of inflated invoicing representing ‘management charges’ to transfer illicit monies from an affiliate 

Sanctions violation

  • Nature, purpose, and impact of sanctions
  • Trade embargo and financial sanction
  • Goods:
    • Dual-use
    • Diversion risk
    • Shipping vessels: behavioural analysis
  • Global reach: the importance and implications of the currency of payment
    • Secondary action
  • Bank risk exposure
  • Risk assessment

Compliance risk: SWIFT messages

  • SWIFT message types
  • SWIFT RMA
  • Message abuse:
    • Screening
    • Tracking flow
    • Sampling
  • SWIFT analytics

Cost of non-compliance

CASE STUDY

Bank failure to apply AML & sanctions compliance

SESSION 2

Managing correspondent banking compliance risk

  • Introduction to correspondent banking: description, parties, function, and operation
  • Vital role of correspondent banking in cross border money transfer and trade flow
  • Gateway to compliance risk

TYPOLOGY

Use by a shell bank of a correspondent banking network to transfer illicit monies
  • Correspondent banking infrastructure:
    • SWIFT messaging:
      • Difference between network banks and respondent banks
    • Nostro and vostro accounts
  • Correspondent banking: key areas of compliance risk
  • Ongoing monitoring and assessment
  • Requests for further information:
    • Actions arising

RESPONDENT BANK: ASSESSMENT

Respondent bank due diligence and risk considerations
Virtual breakout syndicate exercise

SESSION 3

Understanding trade-based money laundering

  • Introduction to trade-based money laundering (TBML)
  • Common methods of TBML

TYPOLOGIES

1. Misrepresentation of transaction nature and value
2. Multiple invoices
  • Key areas of due diligence:
    • Sources of information
  • TBML red flags

Trade finance: a target for abuse

  • Why trade finance carries high compliance risk:
    • Trade documentation:
      • Importance and vulnerability of the bill of lading
    • Negotiable instruments
    • Use of third parties:
      • Masking the end-user and/or destination

BILL OF LADING: COMPLIANCE RISK ASSESSMENT

Identification of suspicious aspects on a bill of lading
Exercise

SESSION 4

Documentary collections

  • Description, parties, and operation
  • Types; DP, DA, Bank Aval
  • Identification of compliance risk:
    • Collection schedule working example: required due diligence
    • Vulnerability to TBML
  • Risk mitigation
  • Product compliance risk profile:
    • Red flags

DEBT PURCHASE: COMPLIANCE RISK ASSESSMENT

Dire Straits
Due diligence required to undertake a compliance risk-based assessment prior to the purchase of an avalised bill of exchange
Virtual breakout syndicate case study

SESSION 5

Letters of credit (part 1)

  • Description, parties, and operation
  • Key aspects
  • Identification of compliance risk:
    • LC SWIFT MT700 working example: required due diligence
    • Trade documentation: vulnerability
  • Sanctions clause
  • Key aspects of due diligence at each stage of the LC transaction process:
    • Issuance

IMPORT LETTER OF CREDIT: COMPLIANCE RISK ASSESSMENT 

Foreigner
Identification of unusual features of an import letter of credit request and associated red flags
Virtual breakout syndicate case study

SESSION 6

Letters of credit (part 2)

  • Key aspects of due diligence at each stage of the LC transaction process (continued):
    • Advising
    • Confirmation:
      • Financial engagement and responsibility
  • Product compliance risk profile:
    • Red flags

EXPORT LETTER OF CREDIT: COMPLIANCE RISK ASSESSMENT

Christopher Cross
Evaluation of a potential money laundering cross border export letter of credit transaction
Identification of compliance risk issues and further information required to make a risk-based assessment
Virtual breakout syndicate case study                                                                           

SESSION 7

Special types of letters of credit

Transferable letters of credit

  • Description, parties, and operation
  • Transfer changes allowed by UCP
  • Due diligence and risk mitigation
  • Product compliance risk profile:
    • Red flags

TRANSFERABLE LC: COMPLIANCE RISK ASSESSMENT      

Bad Company
Assessment of a transferable letter of credit request and identification of unusual features, potential compliance risk, and further information required to make a risk-based assessment
Consideration as to whether the transaction represents money laundering or sanctions violation
Virtual breakout syndicate case study                                              

SESSION 8

Standby credits

  • Description, parties, and operation
  • Commercial standby credit working example:
    • Key areas of vulnerability to abuse
  • Claim documentation: exposure to compliance risk
  • Due diligence and risk mitigation
  • Product compliance risk profile:
    • Red flags

STANDBY CREDIT: REDUCING RISK OF ABUSE

Lindisfarne Launderers
Consideration on the course of action resulting from a suspicious claim shortly after issuance of a standby credit
Structuring the standby credit terms to reduce money laundering risk
Virtual breakout syndicate case study 

SESSION 9

Receivables finance

  • What receivables finance is and when it is used
  • Evidence of debt (nature) and risk implications:
    • Invoice
    • Bill of exchange and promissory notes (working examples)
  • Validation of the underlying transaction:
    • Proof of delivery (relevance of the Incoterms® rule)
  • Disclosed and undisclosed facilities:
    • Risk implications
  • Prepayment
  • Recourse and repurchase events
  • Forms of receivables finance:
    • Selected debt purchase
    • Factoring
      • Risk profile comparison to confidential invoice discounting
  • Due diligence:
    • Audit: key aspects
  • Product compliance risk profile:
    • Red flags

INVOICE DEBT PURCHASE: COMPLIANCE RISK ASSESSMENT

Dire Straits
Key aspects of due diligence on a request to purchase an invoice
Virtual breakout syndicate case study

SESSION 10

Commodity finance

  • Introduction: description, function, and operation
  • Characteristics of commodity finance:
    • Key compliance risk zones

Pre-export finance & pre-payment

  • Description, parties, and operation
  • Compliance risk
  • Due diligence and risk mitigation
  • Product compliance risk profile:
    • Red flags

TYPOLOGY

Use of commodity based pre-payment to disguise the movement of illicit funds                                                  

SESSION 11

Warehouse finance

  • Description, parties, and operation
  • Compliance risk
  • Risk of fraud: warehouse receipts
  • Due diligence and risk mitigation
  • Role of collateral managers
  • Product compliance risk profile:
    • Red flags

SESSION 12

Commodity trade cycle: identifying and mitigating risk

  • Compliance risk identification and mitigation throughout the commodity trade cycle

COMMODITY FINANCE: TRANSACTION VALIDATION

Wizzard Traders
Consideration of the compliance risk aspects of a commodity-based transaction
Formulation of a pre-export trade payment solution to validate goods and control payment release
Virtual breakout syndicate case study