The Hong Kong Association of Banks (HKAB) has published a paper that aims to be a valuable resource for the island’s banking industry to combat trade-based money laundering (TBML).
The Guidance Paper on Combating Trade-based Money Laundering is an industry-led paper, prepared in collaboration with the Hong Kong Monetary Authority (HKMA).
The HKMA considers that adopting the paper’s practices will help the island’s banks meet their obligations under the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO) and the AMLO Guideline.
It also aims to help financial institutions manage risks associated with sanctions as well as hone their anti-money laundering (AML) and counter terrorist financing (CFT) strategies.
The paper focuses on banks’ trade-related activities with their customers and relevant third parties, which can include non-banking entities.
However, it also recommends that financial institutions consider TBML risks in their bank-to-bank relationships, and take appropriate steps as necessary.
Products and services
While recognising there is no exhaustive list of trade-related products and services associated with TBML, the paper suggests the following products or services fall with the paper’s scope:
Bank guarantees; documentary collections; financing under open account transactions; forfaiting and risk participation; import/export loans; packing loans; pre-shipment loans; structured trade financing; trust receipts, and warehouse financing.
The paper highlights the importance of sound transaction review processes, providing a helpful sample review process demonstrating best practice and the expertise required at each level of review.
This may be useful to banks benchmarking their internal review processes.
Banks should take a risk-based approach in their TBML operations and the paper provides a useful annex outlining typical TBML typologies.
It provides, for example, the over-invoicing mode of TBML and suggests systems for detecting this risk by examination of product categories, product descriptions, unit prices and the number of units.
The extensive paper reiterates the importance of reporting knowledge or suspicions to the authorities and stresses the need for continuous risk awareness and trade specific AML/CFT training.
A PDF of the Guidance Paper on Combating Trade-based Money Laundering can be found and downloaded here
Categories: Trade Based Financial crimes News