How can you detect and prevent trade finance fraud?

Some of the other red flags to detect Trade finance fraud and TBML: - Usage of shell companies for export/import trade - Wash trade transactions between a colluded merchant and customer, with a small variation of credits and debits between them, within a specific time range. - Avoiding regular distribution channels to deliver the goods. - Circumventing the goods through multiple jurisdictions, especially through the places having nexus to the sanctioned or high-risk jurisdictions. - Using an alternative remittance system to pay the gaps between declared trade transaction value and the true value of goods.

Perpetual KYC, or Continuous KYC (Know Your Customer), refers to an ongoing process of verifying and updating customer information throughout the entire business relationship. Traditional KYC processes often involve a one-time verification at the beginning of the relationship, while perpetual KYC aims to keep customer information current and accurate over time. it's essential for businesses to strike a balance between compliance and customer experience to ensure a smooth and non-intrusive process for their customers. Additionally, data privacy considerations should be carefully addressed in implementing perpetual KYC measures

Key aspects of KYC: -Customer Identity Verification -Risk Assessment -Ongoing Monitoring -Data Privacy and Security -Regulatory Compliance

What is Trade-Based Money Laundering (TBML)? TBML is a method used by criminals to launder the proceeds of illegal activities through international trade transactions. The Financial Action Task Force (FATF) and the Egmont Group, which is an international network of Financial Intelligence Units (FIUs), have both provided guidance and information on TBML. According to the FATF, TBML involves various techniques that exploit the complexity and international nature of trade to obscure the origins of illicit funds and make them appear legitimate. Some common TBML techniques associated are: 1.Over-or under-invoicing 2.Over & Under Shipment 3.Misleading Description of Goods 4.Phantom shipments 5.Multiple invoicing 6.Third-party money launderers

Why Enhanced Due Diligence (EDD) required before to mitigate TBML? TBML, involves manipulating the value, volume, or type of goods in trade transactions to move money across borders and obscure its illicit origins. EDD is recommended process that FIs and businesses use to assess and mitigate the risks associated with certain customers or transactions When it comes to TBML, EDD is particularly important for several reasons -For Risk Mitigation -Adhere to Legal and Regulatory Compliance -Reputation Management -Financial Security -National Security -Cross-Border Transactions By implementing effective EDD procedures, FI can play a crucial role in combating TBML and maintaining the integrity of the global financial system

Some of the documents that are required for Trade Transactions: - Proforma or Commercial Invoice - Certificate of Origin - Packing List - Bill of Lading or Air Waybill - Customs Clearance

2. Document Verification: Double-Check Documents: Scrutinize all trade documents, such as bills of lading, letters of credit, and invoices. Look for discrepancies or signs of tampering. Use Original Documents: Always insist on original documents over copies, as originals are harder to tamper with. Third-Party Verification: Employ third-party services to verify the authenticity of trade documents and the legitimacy of transactions.

Classic red flags such as small countries exporting sugar to Brazil, whereby Brazil is the major exporter of sugar. Reviewing the port destinations is a must, the seasons when the goods are travelling etc.

Document Verification: Verify the authenticity of trade documents, including invoices, bills of lading, and certificates of origin. Cross-reference document details with trade regulations and industry standards.

There are signs which pose as red flags under TBML such as payments to a vendor by unrelated parties, commodity misclassification with frequent over- or under-valuation, repeated importation and exportation of the same high-value commodity, double invoicing, unusual shipping routes, imporation and exportation from and to sanctioned countries

Technology Solutions: Blockchain: Implementing blockchain technology can help ensure the authenticity and traceability of trade transactions, making it harder for fraudsters to alter or fake documents. Machine Learning & AI: Use advanced analytics and machine learning algorithms to detect unusual patterns or anomalies in trade transactions. Digital Signatures: Employ digital signatures to verify the authenticity of electronic documents.

Maintain secure communication channels with involved parties, including banks. Be cautious about sharing sensitive information via email or unsecured platforms.

Effective Transaction Monitoring for Fraud Prevention: Define Suspicious Patterns: Recognize deviations from your business's "normal" transactions. Use Technology: Implement Transaction Monitoring Systems (TMS) and utilize AI for anomaly detection. Real-time Alerts: Set alerts for irregular transactions for immediate action. Periodic Reviews: Regularly review transaction data to catch any missed suspicious patterns. Audit Trails: Ensure every transaction has a traceable path for investigation. Employee Training: Educate staff to recognize and report suspicious activities. Collaborate with Banks: Leverage their monitoring systems and insights.

Why Compliance training is crucial? -Ensures Legal Adherence: Helps employees understand and follow laws, regulations, and company policies, reducing legal risks. -Mitigates Risks: Minimizes the likelihood of violations, fines, and reputational damage. -Promotes Ethics: Encourages ethical behavior and integrity within the organization. -Protects Data: Safeguards sensitive information and customer data. -Maintains Trust: Builds trust with stakeholders by demonstrating commitment to compliance. -Saves Costs: Avoids costly legal battles, penalties, and damage control efforts. -Drives Accountability: Holds employees accountable for their actions, promoting a culture of responsibility.

How important it is to connect with your AML Coach? Connecting with your AML (Anti-Money Laundering) coach is crucial for personalized guidance, understanding complex regulations, and staying updated on industry changes. Regular communication ensures effective compliance, risk mitigation, and professional development in the rapidly evolving landscape of financial regulations.

One of the four pillars of a successful compliance program is training. Ongoing, proper, and timely dissemination of information plays a very critical role. It will also act as a catalyst in building a culture of compliance across the organization.

Questions you have to ask yourself: - How often do you talk to your coach/ trainer? - When did you last talk to your coach / trainer him/her? - What is your coaches/ trainers reaction when you ask him that you want to talk / meet him 1on1? - Does he/she see value in you and in your interactions? THINK-----!!!!!!

4. Internal Controls and Training: Segregation of Duties: Ensure that duties are segregated so that no single employee or department has control over all aspects of any critical financial transaction. Regular Audits: Conduct regular internal and external audits to ensure compliance and to detect any irregularities. Employee Training: Train employees on the risks of trade finance fraud and how to detect red flags.

Trade Associations: Join trade associations that offer platforms for members to share information about potential threats and fraudsters. Collaborate with Banks: Work closely with your bank and use their expertise to verify the legitimacy of trade transactions.

As here comes to fraud rather than money laundering which often is associated with trades via the trade based money laundering I will mention things only that refer to fraud: Good understanding and knowledge of standard documents and market best practices and documentary trade requirements. Be able to spot the small deviations and adjustments. Fraud always targets to make an unjustified gain so there is always a gap to find as there is something missing. Be there about the details don't overlook documents. Make you CDD and KYC on the client and the involved counterparties and see if red flags appear where and for what. Fraud could then easily evolve into a money laundering case or even sanctions evasion. If you see any red flags go deep

Preventing and detecting trade finance fraud requires a combination of diligent processes, technology, and vigilance. Regularly update your knowledge about evolving fraud tactics and stay compliant with international trade laws and regulations.

8. Develop a Response Plan: Have a Plan: If you suspect fraud, it's essential to have a response plan in place to mitigate losses and gather evidence.