Trade Finance Transaction Monitoring


In the previous newsletter I addressed the newly released “Wolfsberg Group, ICC and the BAFT Trade Finance Principles” – and focused on its view on the financial crime risks within Trade Finance.

In this blog post – and the coming ones I will look at other specific areas of the report.

For this blog post the topic is transaction monitoring on the Trade Finance transactions.

For starters let’s try to define “Transaction Monitoring”.

In the report it is:

“Defined as any activity to review completed or in progress transactions for the presence of unusual or potentially suspicious features.”

(Page 28)

For most people working with compliance in banks, this relates to the SWIFT payment messages. However, as it appears from the above it relates to “any activity”. Still the Trade Finance departments are often met with requirements from Compliance or Internal Audit to implement Transaction Monitoring on the individual SWIFT messages – i.e. not limited to name screening against sanctions lists, but also “AML screening” based on pre-defined and standardised scenarios.

This issue is also addressed by the report (page 28) as follows:

“For Documentary Trade transactions, it should be recognised that it is difficult, if not impossible, to introduce any standard patterning techniques in relation to transaction monitoring processes or systems. This is due to the range of variations which are present even in normal trading patterns. The significant presence of paper documents in this type of trade, and the continuing difficulty of global trade businesses to fully adopt standardised electronic solutions, will continue to see a need for manual input even in transaction monitoring."

In other words “The Wolfsberg Group, ICC and the BAFT Trade Finance Principles” acknowledges that the Trade Finance area is by nature different from the payments area, both due to the fact that there are paper documents involved, and also due to the level of possible acceptable variations.

The clear conclusion is “that it is difficult, if not impossible, to introduce any standard patterning techniques in relation to transaction monitoring processes or systems

In other words, it is not possible meaningfully to introduce transaction-monitoring scenarios on the Trade Finance SWIFT messages (i.e. the MT7XX and MT4XX messages)!

But does that mean that it is not possible to do transaction monitoring on the Trade Finance messages? The answer is: Of course not!

However the tool is NOT SWIFT transaction monitoring. Rather the tool is Red Flags; or as it is termed in the report “Risk Factors”. See e.g. page 39 in the report – or find a more comprehensive list of Red Flags in the “lcview White Paper on Trade Finance Compliance” (Chapter 7).

And in that respect “The Wolfsberg Group, ICC and the BAFT Trade Finance Principles” includes the following statement:

“For Banks involved in processing DCs, the knowledge and experience of their trade staff must therefore serve as the first and best line of defence against criminal abuses of these products and services.”

Or in other words: Performing a compliance check on a Trade Finance transaction is not a standardised process, then can be programmed into a computer – but rather a manual process based on the knowledge and experience of the Trade Finance staff.

And my experience tells me that the Trade Finance staff do take care of the LC!

Please do the same – and take care of each other – regardless which country you originate from.

Kind regards

Kim



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  • Mohammad Sohail on 2017-03-27 12:53am
    To me, people sitting in trade operations of various FIs are purely a practitioners or processors and not compliance experts. Thus, we need to keep this separate not only considering the complexities involved in Global Sanctions and TBML challenges but to avoid possible conflicts too. In order to attain the ultimate objective, Business needs to do proper KYC and Due Diligence while onboarding customers; Compliance to perform analytics to find out the gaps and Trade Ops to execute the transactions and yes they must also escalate obvious red flags, if any, find in these transactions. Regards, Sohail

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