Webinar: Why Continuous Monitoring is Critical for Trade ... · IndusInd Bank & Faculty Member, Fintelekt Pramod Khandelwal is a retired senior banker with over four decades of corporate

Webinar:Why Continuous Monitoring is Critical for Trade-Based Money

Laundering

May 08, 2019

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Webinar: Why Continuous Monitoring is Critical for Trade-Based Money Laundering

©Fintelekt 2019

AGENDA

Introduction10 min

Panel Discussion30 min

Closing Remarks10 min

Interactive Session with Participants10 min

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©Fintelekt 2019

SCOPE OF TBML

Definition

The FATF defines Trade-based money laundering (TBML) as the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimise their illicit origins.

Estimates by Global Financial Integrity for 2005-2014 show that:• Illicit financial flows (IFFs) likely accounted

for between 14.1 percent and 24.0 percent of total developing country trade.

• Trade mis-invoicing was the primary measurable means for shifting funds in and out of developing countries illicitly.

US$ 19.48 trillionWorld merchandise trade

in 2018

US$ 5.8 trillionWorld commercial services

trade in 2018

The share of Asia is 30 per cent. It was also the fastest growing region

for trade.

Global Trade Statistics by the World Trade Organisation

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TBML IS AMONG THE TOP RISKS

Source: Country level surveys conducted by Fintelekt in 2017-18

Philippines

1.Understand-ing the sources of customers’ funds

2.Trade-based money laundering activities

3.Cybercrime

Vietnam

1.Monitoring customers that transact across several lines of business


3.Fraud

India


2.Ultimate Beneficial Ownership identification

3.Terrorist financing

Sri Lanka

1.Understand-ing beneficial ownership



Bangladesh



3.Monitoring customers that transact across several lines of business

Nepal


2.Understand-ing beneficial ownership


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DISPARITY IN TBML CONTROLSE

xte

rna

l F

acto

rs Regulatory provisions not stringent enough

Lack of data availability

Lack of collaboration among various agencies In

tern

al

Fa

cto

rs Low awareness of the risks posed by TBML

Lack of senior managerial involvement

No budgets for technology and training

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©Fintelekt 2019

Pramod KhandelwalFormer Chief

Compliance Officer, IndusInd Bank

& Faculty Member, Fintelekt

Pramod Khandelwal is a retired senior banker with over four decades of corporate

experience. He made his banking career, beginning from 1974, first with State Bank

of India, the premier bank of India, then with IndusInd Bank, one of the dynamic

private sector banks in India. Pramod has handled several banking functions covering

retail banking, corporate banking, rural banking & SME banking. He has also handled

merchant banking activities. He has developed deep insights into various banking

activities.

Pramod has been the Chief Compliance Officer and Principal Officer of IndusInd Bank

and retired therefrom at end-2017. He has rich experience in application of banking

laws/ regulations, and AML/ CFT norms and guidelines in development of policies and

procedures by banking organisation. He is an expert AML/CFT professional.

Pramod is an engineering graduate from IIT, Kharagpur. Driven by his engineering

education, his training programmes are methodical and precise in content. He is a

Certified Associate of Indian Institute of Banker and holds a Diploma in Business

Finance. He is a Certified Trainer from Cranfield Institute of Technology, UK.

Driven by his penchant for training, during his banking career, Pramod has been

engaged in banking professional training in-house in both the banks he served. He

has also been visiting faculty at the Indian Institute of Banking and Finance, the oldest

Institute for training and education of working bankers in India. He is also engaged in

other academic activities like developing courseware for Certificate Courses on

banking, Compliance in Banks, and KYC/AML/CFT, and setting questions for the

examinations held by the Institute. He is currently a visiting Faculty Member at

Fintelekt Advisory Services Pvt. Ltd.

GUEST SPEAKER

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Samir BhatankarVice-President

AML Compliance, RBL Bank

Samir Bhatankar has spent more than fifteen years in the banking industry in India having held leadership and technical roles in institutional, wholesale, retail, commercial and merchant banking. Whilst his background was in Operations and Compliance, in recent years, Samir has acquired significant expertise in developing and implementing regulatory compliance frameworks and AML frameworks and policies to drive appropriate levels of governance in the business. Past roles included the handling AML compliance for New Business for IndusInd Bank and HDFC Bank.

More recently Samir has developed frameworks and managed AML and KYC in multilateral jurisdictions. He has successfully implemented automated AML monitoring system in his previous banks. He has expertise in preparing AML & KYC framework with close integration with local regulations as well as US Sanction Programme to have robust processes.

Samir currently works for RBL Bank Ltd which one of the fastest growing bank in India and which operates in all parts of the country. He is the Head of AML Operations for the RBL Bank in India. Samir has advanced qualifications in Banking and MBA in Financial Management from Mumbai University.

GUEST SPEAKER

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KEY DEVELOPMENTS IN GLOBAL TRADE

Key Developments

Leading to Enhanced ML Risks in Trade

Growing trade volumes and complexity

Strengthening of legal provisions

across jurisdictions

Intermingling of illicit trade transactions with

genuine trade

Trade finance and remittances providing

readymade ML channels

Move to open account trade

New supply chain finance modes, such as factoring,

invoice purchasing

Revolutionary changes due to

technology

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CHALLENGES FOR TBML MONITORING

No knowledge / information about underlying trade transaction in an open account system

Difficulty separating illicit trade transactions from genuine ones

Lack of co-ordination among related agencies

Lack of holistic view among departments of the institution

Lack of skills and poor co-ordination between operations and customer relationship staff

Less than adequate sharing of data among various agencies such as Customs, Trade & Commerce Registry, FIUs, Law Enforcement Agencies.

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CHALLENGES FACED BY AML TEAMS

AML Team -Challenges

Trade transactions

monitoring seen as a necessity and not as an

enforced regulation Robust systems

to capture customer and

trade transaction data

Availability of systems and technology

Regulations providing

relaxation to traders for

facilitating trade

Timely updates of customer data making monitoring a

challenge

Shortage of skilled workers

in the AML team

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COMMON TBML TYPOLOGIES

Variation in Price

Variation in Quantity

Variation in Quality

Double invoicing

Phantom invoicing

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TYPOLOGIES – VARIATION IN PRICE

100 cell phones of USD 100 each are exported from Country A to Country B.

Fair price of the transaction is USD 100,000

Over-Invoicing

Phones invoiced at USD 200 each.

Exporter gets an additional USD 100,000 value from the transaction.

Under-Invoicing

Phones invoiced at USD 50 each.

Importer gets an additional USD 50,000 value from the transaction.

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TYPOLOGIES – VARIATION IN QUANTITY

1000 cell phones of USD 100 each are exported from

Country A to Country B. Fair price of the transaction

is USD 100,000

Under-Shipping

500 phones shipped against an invoice of 1000.


Over-Shipping

2000 phones shipped against an invoice of 1000.


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TYPOLOGIES – VARIATION IN QUALITY



is USD 100,000

Lower Quality Shipment

1000 phones of USD 50 each are shipped.


Higher Quality Shipment

1000 phones of USD 100 are shipped against invoice of USD 50.


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TYPOLOGIES – MIS-INVOICING



is USD 100,000

Double Invoicing

Two transactions on the basis of two invoices for the same

transaction.

Phantom Invoicing

No physical shipment is made but invoice is raised.

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CASE STUDY: RE-INVOICING BY NORWEGIAN COMPANY

Source: FATF-GAFI June 2006

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TBML RED FLAG INDICATORS

Customer/ counterparty

Documents

GoodsTransaction

ShipmentRFIs in Trade

Transactions

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DUE DILIGENCE FOR TRADE TRANSACTIONS

Check against Customer’s profile data for –

✓ Volume of trade

✓ Frequency of trade

✓ Type of goods traded

✓ Countries of operation

Document verification

Check against sanctioned countries/ ports/ vessels

Check for dual-use goods

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DUE DILIGENCE FOR NEW ACCOUNTS

✓ Activity of the Customer

✓ Imports/ Exports made

✓ Source/ Destination countries

✓ Customer’s Customers

✓ Value of yearly Imports/Exports

✓ Other information – mode of transport used, terms of payment, banking products/services required

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▪ Training and education, and skill development throughout the organisation about TBML risks and measures

▪ Use of distributed ledger technology, artificial intelligence, machine learning will ensure real-time processing and monitoring of trade transactions

▪ Continuous monitoring will lead to “Live” Suspicious Transaction Reports, which are more useful to Law Enforcement Agencies.

BEST PRACTICES FOR BANKS

Awareness about TBML Risks at all levels

Skilled resources in business, trade and AML

operations

Periodic as well as continuous monitoring of

trade transactions

Banks need to ensure:

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©Fintelekt 2019

FINTELEKT ASIA AML/CFT SUMMIT 2019

ASIA AML/CFT SUMMIT 2019Uniting Stakeholders to Build a Stronger AML/CFT Regime

Lindsay ChanFormer Director of

Mutual Evaluations -APGML

Tom KeatingeDirector, Royal United Services Institute (RUSI)

Atty Mel Georgie Racela

Executive Director - AML Council, Philippines

Dr. John CoyneHead of Border

Security Program -Australian Strategic

Policy Institute

Ravi LahotiPrincipal Officer & Head AML - HDFC

Bank

Archana KotechaAsia Region Director and Head of Legal -

Liberty Shared

Chief Guest

Abu Hena Md. Razee HassanHead - Bangladesh Financial

Intelligence Unit - Co-Chair, Asia Pacific Group on Money Laundering

Keynote Speaker

Liat ShetretProgram Manager - Egmont Centre Of FIU Excellence and Leadership

(ECOFEL)

11-12 September 2019 Hanoi, Vietnam

Webinar:

Why Continuous Monitoring is Critical for Trade-Based Money Laundering

QUESTION & ANSWER SESSION