TACKLING TRADE BASED MONEY LAUNDERING (TBML)
R&C: To what extent are financial institutions (FIs) being impacted by trade based money laundering (TBML) activity in today’s business world? Has this risk increased in recent years?
Meshell: In today’s highly-connected global economy, FIs are looking to increase their market share in international trade by linking importers and exporters to provide financing, letters of credit, insurance and other sophisticated products – through export factoring and forfaiting, for example. With the World Trade Organization forecasting trade growth of over 4 percent in 2018, FIs should expect to increase their share of trade-related transactions and, as a by-product, their exposure to potential fraud and TBML. In addition to an increase in overall trade-related activity, the majority of trade happens under open account terms, where FIs have significantly less insight into the underlying purpose of the transaction, as opposed to directly financing the deal. Moreover, studies performed in 2017 by Global Financial Integrity show a substantial uptick in illicit activity facilitated through global trade, especially in developing countries. Global Financial Integrity estimated that the amount of illicit activities flowing to and from global markets is more than US$1 trillion. When you combine these activities with an increase in overall trade – and FIs’ general lack of transactional insight – FIs will be challenged to mitigate significant risks.
Apr-Jun 2018 Issue
EY