A new paper released by the Bankers Association for Finance and Trade (BAFT) is calling for increased partnerships between the public and private sectors to help curb the use of trade transactions to facilitate illicit fund flows.

Combating Trade Based Money Laundering: Rethinking the Approach, is a result of a BAFT working group established to help provide clarification and guidance on the complex financial crime and know your customer (KYC) compliance requirements associated with trade finance.

Not enough

In March 2015, BAFT issued Guidance for Identifying Potentially Suspicious Activity in Letters of Credit and Documentary Collections, a comprehensive compilation of 16 trade red flags identified by the US Federal Financial Institutions Examination Council, the Financial Action Task Force, the Wolfsberg Group, and the UK Financial Conduct Authority.

While helpful, such clarification of regulations is not enough to solve the problem according to BAFT.

It says that the core problem with trade-based financial crime is that it is a methodology criminals use to hide illicit funds by integrating them into normal commercial flows. So there is an inherent trade-off between interrupting normal commerce and intercepting illicit transactions.

Proposals

The paper proposes alternative collaborative approaches to the public and private sectors for solving the problem of trade-based financial crime.

The authors also seek to clarify misconceptions about bank-intermediated trade and the ability of banks to interdict illicit activity.

The paper also explores ways in which the broader group of stakeholders in international trade can better align to help reduce trade-based money laundering and the financing of terrorist activities using trade.

The full version of Combating Trade Based Money Laundering: Rethinking the Approach can be found here.

Categories: Trade Based Financial crimes News