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
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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:
Accuity (www.accuity.com)
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
Kind
regards
Kim