Finance* Henry Balani, CAMS Head of Innovation ACAMS Northern - PowerPoint PPT Presentation

Economic Sanction Screening in Trade Finance* Henry Balani, CAMS Head of Innovation ACAMS Northern California Chapter Meeting Nov 19 th 2015 * Also includes quick update on Iran

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Key Takeaways Here at Accuity, we recognize the increasing challenges Compliance Officers and Trade Finance departments face in screening transactions Regulators around the world are focusing efforts to enhance guidance around Trade Based Money Laundering (TBML). Best practices are available to ensure compliance while managing effectiveness of trade finance operations. #AccuityTradeFinance

Current Regulatory Landscape

Trade-based money laundering (TBML) provides criminals an easy way to move illegal proceeds typically impacting developing countries From 2003 to 2012, developing countries lost $6.6 trillion to illicit outflows Source: Global Financial Integrity #AccuityTradeFinance

Trade-based money laundering is a serious issue around the world “A nything that can be priced can be mispriced, and false pricing is done every day, in every “Trade finance is a key jurisdiction, on a large percentage of import and component in maintaining a export transactions. TBML ‘is the most competitive and productive commonly used technique for generating and economy” transferring dirty money — money that breaks laws in its origin, movement and use’. UK Financial Conduct Authority Asia Pacific Group on Money Laundering #AccuityTradeFinance

Trade-based money laundering is a serious issue around the world “Singapore’s openness as an international “A few years ago American customs transport hub and financial center exposes it investigators uncovered a scheme in which a to inherent cross- border ML/TF risks” Colombian cartel used proceeds from drug sales to buy stuffed animals in Los Angeles” Monetary Authority of Singapore The Economist #AccuityTradeFinance

Regulators are now looking at TBML as traditional methods of detecting money laundering have been identified #AccuityTradeFinance

The UK HMT recently published a National Risk Assessment that highlighted TBML as an issue #AccuityTradeFinance

Regulators are now looking at TBML as traditional methods of detecting money laundering have been identified - #AccuityTradeFinance

The Monetary Authority of Singapore recently issued guidance related to screening trade finance transactions “As a trading and transportation hub, Singapore is vulnerable to money laundering (“ML”) risks posed by trade finance. Due to its significant volume and value, trade finance transactions are an attractive medium for money launderers to transfer large values across borders. Trade finance can also be exploited for terrorism and proliferation financing (“TF/PF”).”

Regulators are now looking at TBML as traditional methods of detecting money laundering have been identified #AccuityTradeFinance

The recent OFAC enforcement action against a major European bank highlights trade finance as a key money laundering concern “_____and _____ negotiated a variety of trade finance instruments on behalf of or that involved parties subject to U.S. sanctions on Sudan, Iran, Cuba and Burma…” #AccuityTradeFinance

How does TM TMBL BL occu cur? Moving ng money y from the US US t to Mexico co through ugh trade de Mexico USA Goods: $ 1 Million Goods are Exporter Importer over invoiced Payments: $ 10 Million $ 9 Million moved from US to Mexico Goods actual value is $ 1 per unit Goods invoiced at $ 10 per unit Both Exporter and Importer are colluding!

Being fined is bad enough. However, there can be additional repercussions as well.

Identifying Red Flags Best Practices to reduce TBML

There are many sources that highlight best practices in regards to TBML #AccuityTradeFinance

The customer engages in transactions that are inconsistent with the customer’s business strategy or profile, or make no economic sense* e.g. an agricultural company that starts *BAFT Guidance for Identifying Potentially dealing in paper products Suspicious Activity in Letters of Credit and Documentary Collections #AccuityTradeFinance Sources: FATF, FCA, FFIEC, Wolfsberg

Customer conducts business in jurisdictions that are at higher risk for money laundering, terrorist financing or other financial crimes #AccuityTradeFinance Sources: FATF, FCA, FFIEC

The transaction appears to involve the use of front or shell companies for the purpose of hiding the true parties involved Sources: FATF, FCA #AccuityTradeFinance

Customer shipping items to, through, or from higher money laundering risk jurisdictions, including countries identified by FATF as ‘non - cooperative jurisdictions’ #AccuityTradeFinance Sources: FATF, FCA, FFIEC

Obv bvious ious ov over er or or un unde der pr pric icing ing go good ods Sources: FATF, FFIEC #AccuityTradeFinance Sources: FATF, FFIEC

Real al examples xamples of o f over/under ver/under invoici voicing ng fr from/to om/to th the e USA SA Metal Tweezers from Japan $4,896/unit Camshafts from Saudi Arabia $15,200/unit Plastic Buckets from Czech $972/unit Radial Truck Tires to UK $11.74/unit Toilet Bowls to Hong Kong $1.75/unit Prefabricated Buildings to Trinidad $1.20/unit Source: http://www.acfcs.org/trade-based-money-laundering-the-next-frontier/ #AccuityTradeFinance

Transactions that involve obvious dual use goods Sources: FCA #AccuityTradeFinance 24

Dual use goods include a wide range of goods that are designed for commercial applications but can have military applications or potentially be used as precursors or components of Weapons of Mass Destruction (WMDs) Strategic Goods Control, Singapore Customs #AccuityTradeFinance

Case Study

Sh Shipment nt of graph phite ite from Hong Ko Kong to Dubai 27 #AccuityTradeFinance

How many Red Fl Flags gs are there re in this is shipm pmen ent? t? 28 #AccuityTradeFinance

Did you spot t 7 or 8? 29 #AccuityTradeFinance

Scree eenin ning g the transaction ansaction thro roug ugh h a si single source ce database ase highlights hts all the risky ky elements nts in on one step 30 #AccuityTradeFinance

Let’s also dig down into the possible connections Al Mataf Shipping Mataf Star CKLBCNBJ Graphite 31 #AccuityTradeFinance

Mataf Star is a sanctioned entity because of it’s links to Iran 32

33 #AccuityTradeFinance

SCT (aka Sorinet Commercial Trust) is also a sanctioned entity due to links with Iran 34 #AccuityTradeFinance

Both SC Bo SCT a T and Hong Ko Kong Inter tertra trade e Company ny are linke ked to the Nation onal al Irani nian an Oil Company ny 35 #AccuityTradeFinance

It looks like both shipper and consignee have the same ultimate beneficial owner 36

Al Also, , we canno not t forge get t what they y are shipp ppin ing Picture of Pripyat – near Chernobyl, a graphite moderated nuclear power plant 37 #AccuityTradeFinance

Iran nuclear deal implications

Joint Comprehensive Plan of Action

Lifting of sanctions will be in stages Stage Action Date July 14 th 2015 Finalization Day Conclusion of agreement Sep 17 th 2015 US Congress review Congress votes on agreement Oct 18 th 2015 Adoption Day 90 days after endorsement of JCPOA by UN Security Council Implementation Day EU and US lift sanctions TBD (Key date when following IAEA verification sanctions are lifted) Oct 19 th 2023 (8 years Transition Day IAEA states all nuclear material in Iran used for after Adoption Day) peaceful purposes July 19 th 2025 (10 years Termination Day JCPOA terminates. All conditions removed. after Adoption Day) 40

Related to sanctioned banks specifically, there is a difference between the OFAC and EU lists Total Iranian banks sanctioned 64 29 Sanctioned Banks lifted 13 24 Implementation Day Sanctioned Banks Lifted 0 5 Transition Day Total Iranian Banks that 51 0 remained sanctioned 41

There will be differences between OFAC and EU list of lifted sanction entities causing conflict when dispositioning OFAC EU Lists from Annex II Attachment 2 & 3 of the JCPOA

Contact Henry Balani Head of Innovation henry.balani@accuity.com @hbalani #AccuityHenry Henry Balani