Importers, exporters, and their financial institutions have shifted away from traditional, document-based trade finance instruments over recent years towards non-documentary, open account settlement through clean wire transfers, which significantly increases sanctions risks according to maritime insight provider Windward.
It says banks should respond to this by applying letter of credit (L/C) standard due diligence to certain high-risk wire transfers.
Increased sanctions risks
Open account trade today accounts for 80 per cent of international trade transactions but provides banks with only a fraction of the risk-relevant information they would receive through document-based trade finance arrangements.
This significantly increases the sanctions risks that financial institutions face in the maritime sector, which has been a recent focus of US and European authorities says Windward.
Illicit shipments, TBML and sanctions
The maritime insight provider maintains that without access to the information included in traditional trade finance documents banks may be insufficiently positioned to identify illicit shipments and vessels, flag trade-based money laundering (TBML) schemes, and assess key sanctions and proliferation financing risks.
By applying L/C standard due diligence to certain high-risk wire transfers, banks would be able to mitigate these risks by identifying all parties and underlying economic activity involved in such high-risk transactions according to Windward.
Categories: Trade Based Financial crimes News