lcviews on compliance: Sanctions handling by banks
The following is a chapter from the lcviews White Paper on Trade Finance Compliance:
Financial sanctions are restrictive measures imposed on individuals or entities in an effort to curtail their activities and to exert pressure and influence on them (imposed for political reasons). These restrictive measures include, but are not limited to, financial sanctions, trade sanctions, restrictions on travel or civil aviation restrictions.
Various international bodies and countries (like UN Security Council, EU and US) have issued sanctions against persons, companies, commodities and countries.
Banks handling Trade Finance transactions have an obligation to ensure that the individual transaction does not violate the sanctions regimes that apply to them.
Since Trade Finance transactions are available to banks in both an electronic form (e.g. SWIFT messages) and paper form (e.g. the documents presented under a documentary credit), the sanctions checks performed are a combination of both automated checks and manual checks.
For sanction screening it is important to emphasise that regulators do not allow a “risk based approach” – i.e. only screening certain transaction or parties. All parties (known to the bank) related to the transactions at the time and additional parties that come into the picture, as the transaction progresses are required to be screened.
Typically the following elements are checked via an automated procedure:
* The SWIFT messages related to Trade Finance (see Appendix 1)
This normally consists of a name screening against persons, companies and names of vessels.
Although the goods’ description is part of some of the above messages (like the MT700 field 45A: Description of Goods and/or Services) often the commodity is not screened in the SWIFT message. The reason is that this is a free format text field used for various elements of information such as:
* Unit prices
* Number of items shipped
* Shipping marks
* Trade term – often an Incoterms rule followed by a place
* Commercial contract.
For a future update of the SWIFT messages it is recommended that the goods description field (45A) in the MT700, MT710 and MT720 messages, is split into different “segments.” The purpose of which should be to isolate the core description of goods, so that it can be used for an automated screening against the relevant lists.
Typically the following is checked via a manual (in whole or part) procedure:
* The documentary credit applications
* The guarantee applications
* The documents presented under import documentary credits
* The documents presented under export documentary credits
* The documents presented under import documentary collections
* The documents presented under export documentary collections.
* Guarantee demands
* All incoming and outgoing non-SWIFT messages
The lcviews White Paper on Trade Finance Compliance is drafted by:
C.S Vijaya Kumar (India)
Hari Janakiraman (Australia)
Andreu Vilà (Spain)
Emile Rummens (Belgium)
Huu Duc Nguyen (Vietnam)
Abrar Ahmed (United Kingdom)
Sponsors and partners:
GlobalTrade Corporation (www.globaltradecorp.com)
eBSI Export Academy (www.ebsiexportacademy.com)
Sindberg Consult (www.kimsindberg.com)
Download the full document free of charge at: www.lcviews.com
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