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Trade Based Money Laundering (TBML) and Sanctions Compliance

Learn TBML and sanctions compliance by identifying and understanding risk features of core product areas and key aspects from an audit and compliance risk perspective

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A one-day course

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Part 1: TBML Training

Introductions

  • Trainer & participant
  • Aims and objectives
  • Course context 

Financial Crime Compliance

  • Principally money laundering, terrorist financing, sanctions breaches
  • Current examples
  • Other areas of financial crime
  • An introduction to the nature of compliance risk in cross-border transactions
  • Why are international trade transactions increasingly a target for abuse?
  • The consequences of non-compliance (for banks, corporates and individuals) 

Anti-Money Laundering (“AML”)

  • What is money laundering?
  • Why and how is money laundered?
  • The key stages of money laundering
  • Customer Due Diligence (CDD)
  • A risk-based approach to anti-money laundering (AML)
  • Money laundering and terrorist financing
  • During this session, various case studies and videos are used to show the involvement of businesses and an international bank involved in money laundering and the consequences for those entities. 

Countering the Financing of Terrorism (CFT)

  • Key differences between anti-money laundering and terrorist financing
  • The importance of due diligence and focused screening 

Sanctions Compliance Training

  • What are sanctions?
  • Why are they imposed and what is their intended impact?
  • Who imposes them and on whom are they imposed?
  • What is the difference between a trade embargo and financial sanctions?
  • Case study - Balthar Group was fined by the US authorities for sanctions breaches. What were the breaches and ultimate consequences for the business?
  • Dual-use goods and proliferation
  • Examples of sanctions imposed in recent years
  • The relevance of due diligence and screening
  • Case study – MC, a UK-based engineering company unwittingly used to provide dual-use goods. 

Facilitation of Money Laundering

  • Complexity
  • Three stages of money laundering
  • Financial products vs open account
  • Co-mingling
  • Fraud, smuggling, transfer pricing, etc.
  • Capital Flight
  • Foreign Exchange
  • Examples of legitimising the movement of illicit monies.
    1. the use of fraudulent and misleading invoicing to transfer value illegally.
    2. other mechanisms used 

Correspondent Banking

  • What is the role of a correspondent bank?
  • Why is correspondent banking fundamental to cross-border money flows?
  • The counterparty compliance risk of using Correspondent Banks
  • The use and operation of Nostro, Vostro and Loro accounts
  • Correspondent banking infrastructure.
  • Risk profile of remitting, receiving and reimbursement parties in cross border-transactions
  • Know your customer (KYC) and the impact of ”KYCC”
  • Key compliance risk areas 

Financial Institutions - as Customers:

  • Compliance risk assessment TBML framework; key components
  • Due diligence and risk assessment
  • Unacceptable customers
  • Monitoring activity – warning signals, red flags, Financial Action Taskforce (FATF) recommendations. 

International Payments / SWIFT Messaging

  • The mechanics of cross-border fund transfers and the nature of payment instruction
  • Principal parties
  • What is SWIFT, its function and operations?
  • Understanding the use and role of SWIFT “MT” message types in payments and trade transactions
  • Compliance risk
  • Methods of international bank transfer:
  • Value dating
  • Key compliance risk areas:
  • The compliance risk exposure of US dollar transfers
  • High-risk customers requiring payment services
  • Trade-based money laundering (TBML) red flag suspicious activity indicators 

Managing Risk

  • Risk Assessment and due diligence
  • Know your customer (KYC), red flags and identifying suspicious activity
  • Regulatory environment
  • Video/discussion on CDD, KYC, etc.

Part 2: TBML Training

Trade Finance:

Trade Transactions

  • Principal parties and associated risks
  • Objectives of principal parties
  • Understanding the trade cycle
  • Additional risks of trading internationally 

Description, Function and Operation

  • The nature and purpose of trade finance
  • What is trade finance and why it is required?
  • Why trade finance carries high compliance risk
  • High-risk components (e.g.)
  • Trade finance compliance risk characteristics. 

Comparison Between International Payments and Documentary Trade Finance in the Compliance Risk Environment

  • Automated screening
  • Message stripping
  • Manual-based due diligence 

Trade-Based Money Laundering Training (TBML)

  • Definition
  • Financial Conduct Authority (FCA) Thematic Review
  • Increasing focus on criminal activity
  • Compliance considerations
  • Risk mitigation (KYC; KYCC; information screening; document checking; red flags; etc.)
  • Common methods of trade-based money laundering
  • Case study; Metal Components Ltd, involving the assessment of a business transaction, requiring the identification of potential risk issues 

Core Trade Finance Products:

Trading Considerations

  • Trade cycle
  • Incoterms
  • Risk considerations (counterparty, credit, FCC (financial crime compliance))
  • Case study; Aldwych Textiles Ltd, involving the review of a business, in particular a series of transactions which require further investigation to assess potential trade-based money laundering (TBML) risk.

Documentary Collections

  • What is a documentary collection?
  • What is the purpose of a documentary collection?
  • Principal parties and roles
  • Document requirements and purpose
  • Types; sight (DP), usance (DA)
  • Uniform Rules for Collections (URC522)
  • Compliance risk assessment;
  • Case study; Abco Limited, the assessment of a potential trade-based AML / CFT / sanctions breach through the use of documentary collection transaction, requiring the delegates to identify key compliance risk issues and the need for further information to make a risk-based assessment 

Documentary Letters of Credit

  • What is a letter of credit?
  • What is the purpose of a letter of credit?
  • Principal parties and roles
  • Other considerations:
    • The independence principle
    • Application process
    • Workability
  • Different types of letters of credit (overview)
  • Trade documentation; vulnerability to abuse and compliance risk
  • Uniform Customs and Practice for Documentary Credits (UCP 600) – The role of banks
  • Compliance risk assessment.
  • LC confirmation; financial engagement and responsibility; discounting
  • Case study; Advance Plant Limited. The delegates need to identify unusual features of a letter of credit request and identify the red flag suspicious activity characteristics 

Bank Guarantees

  • What are bank guarantees?
  • Principal parties
  • The characteristics of “on-demand” unconditional guarantees
  • Autonomy and the Independence Principle
  • Types and use of guarantees in trade (bid, Advance Payment Guarantee (APG), performance)
  • Direct, indirect and counter guarantees
  • Transferable guarantees; key compliance risks aspects
  • Foreign laws and usage
  • General compliance risk and vulnerability to criminal abuse
  • Structuring guarantees to reduce compliance risk exposure
  • Uniform Rules for Demand Guarantees (URDG 758)
  • Case studies;
    1. Global Laundromat looks at the use of guarantees and SBLC to facilitate cross-border money laundering.
    2. Rymills Bakeries Ltd to consider the compliance risk aspects of a request for a guarantee
    3. Both cases consider further information required to undertake due diligence; use of additional information to identify unusual features and consider an appropriate course of action 

Sanctions Compliance Training: Compliance Considerations

  • Trade-based money laundering characteristics
  • Vulnerability of cross-border transactions to fraud
  • Information screening
  • Document checking
  • Trade based money laundering red flags

Mitigating Risk 

  • Know your customer and your customer’s customer
  • Understand the trade cycle and what is ‘ordinary business’
  • Compare and contrast
  • Is the complexity of the transaction necessary?
  • Follow the money, apply common sense and ask the right questions
  • The importance of the first line of defence
  • Trade based money laundering red flags
  • Opportunity to refresh and clarify key points
  • Review main learning points. 

Conclusion & next steps for action

Our trade based money laundering course trainer is a highly experienced banker with a 40-year-long successful career HSB.

Passionate about international trade financing, this trainer ensures good outcomes for both the bank and its customers. He has experience in many industry sectors including international businesses, debt syndication, acquisition finance, credit risk and debt recovery management. Redcliffe’s sanctions compliance course leader's principal specialism is trade and commodities financing. During his career, he was selected for several key roles involving complex problem identification, analysis and resolution, leading to reductions in risk and loss and improved processes and compliance.

For 36 years of his career, this trainer undertook a wide range of management roles in business commercial and corporate banking. Positions included working in Credit & Risk, but predominantly as a relationship manager with a portfolio of trade-intensive customers, including 10 years as a Senior Trade Corporate Banking Manager, based in the City of London. This position included responsibility for 20+ large trade-intensive relationships (import/export and commodities), where the turnover of the largest clients was c£6 billion. Our TBML course trainer was also responsible for credit risk management aspects and, during this time, began running courses, initially on the subject of trade finance credit. He spent his final seven years at HSBC as Senior Trade Portfolio Risk Manager in London. His roles there included:
  • overseeing the UK commercial segment’s trade portfolio, monitoring general performance and quality assurance.
  • providing expert advice to sales managers, credit officers and other stakeholders on debt structuring and the use of appropriate products.
  • developing analytical and monitoring models to support increased facilities or to identify adverse trends.
  • assisting corporate recovery managers in minimising potential losses due to debt exposure or from an operational perspective.
  • delivering trade finance training courses to stakeholders (in debt structuring and products).

Before leaving HSBC he completed the Certificate in Trade Based Financial Crime Compliance issued by ICA / Manchester University Business School.

Since leaving HSBC he has been delivering sessions including our trade based money laundering course, to a wide range of banks, finance houses and trading companies.

Our sanctions compliance training covers the following:
  • Introduction to the key characteristics of Anti-Money Laundering compliance, Countering the Financing of Terrorism and Sanctions adherence.
  • Extend understanding of the principles of compliance risk, with particular reference to Trade Finance and cross-border transactions.
  • Gain an insight into current trends and issues in trade based financial crime and the risks of non-compliance, using practical examples.
  • Be more informed and therefore better equipped to understand their role and responsibilities and make considered risk decisions more quickly, based on a sound knowledge of financial crime risk management.
  • Be better placed to protect clients from financial crime risks in their supply chains, thereby helping them to achieve sustainable growth.
  • Have key skills to protect your clients from individuals and organisations seeking to commit trade based financial crime through the recognition/identification of red flags and understanding how to respond appropriately.
  • Be able to view transactions holistically regarding AML, CFT, Sanctions and Compliance Risk.
  • By the end of this TBML and sanctions compliance training course, you will have an overview of the role of correspondent banks and other financial institutions, and payment methods including SWIFT messaging.

  • Our TBML training course leader has 40 years of first-hand practical trade finance experience with a major international bank, latterly overseeing all aspects of risk in their UK trade finance book.
  • Training includes governance and compliance issues, relating them to the use of trade finance products, covering the major risk considerations.
  • The varied case studies taken from the trainer’s personal experience are practical examples that will greatly assist in understanding this subject.
  • The varied examples/case studies assist in identifying money laundering, terrorist financing and sanctions, as well as showing how risks can be mitigated.
  • TBML and sanctions compliance training is a ‘must’ for any finance, legal or risk compliance team which has oversight of trade finance.

Whilst beginners are welcome, this trade based money laundering course is based on the premise that attendees have a working knowledge and understanding of core trade finance products and international trade finance.

This course is a ‘must know’ for:
  • Trade finance professionals looking to understand how:
    • core trade products and processes are used to facilitate money laundering, terrorist financing and sanctions breaches
    • to identify suspicious activity in trade transactions
    • to mitigate the trade finance money laundering, etc. risks
  • Bank Officers, Compliance Managers, Risk Managers and Money Laundering Reporting Officers (MLROs) whose role includes oversight of aspects of trade finance/transactions, who wish to:
    • obtain a basic knowledge of trade finance, trade products and processes and understand how:
      • these products are used to facilitate money laundering, terrorist financing and sanctions breaches
      • to identify suspicious activity in trade transactions
      • to mitigate money laundering, etc. risks associated with trade finance
  • Bank Relationship Managers whose portfolio includes international trading entities, who wish to enhance their knowledge and understanding of TBML in banking and CFT (Countering Financing of Terrorism) and Sanctions Breach risks in banking are also covered.
Redcliffe’s TBML & sanctions compliance course is a ‘nice to know’ for:
  • Financial, Legal and Corporate compliance professionals seeking an understanding of trade based money laundering, trade products and processes, how they are used to facilitate trade finance money laundering, terrorist financing and sanctions breaches and means of mitigating those risks, using practical examples.

Whilst trade finance is perceived to be low in credit risk, it has the potential to expose banks to high compliance risks. Reports from various regulators and agencies have identified that trade finance money laundering (usually referred to as trade-based money laundering) has become more widespread. Alongside anti-money laundering and terrorist financing risks, banks have had to consider identifying sanctions breaches in a rapidly changing environment.
Banks that have failed to implement adequate Trade Based Financial Crime Compliance programmes and training have incurred fines, and reputational damage. They have also faced the potential loss or suspension of their ability to operate in certain currency markets or jurisdictions.

This TBML course covers all aspects of Trade Based Financial Crime Compliance (including the regulatory framework) with particular regard to money laundering, terrorist financing and sanctions risks (principles and core products), Correspondent Banking, International Payments, Global Cash Management, their associated compliance risks and the suspicious money laundering/sanctions violation activity red flag indicators of each. The course builds on other AML training courses by providing practical examples from the trainer’s experience of money laundering in trade finance.

Through attending this course participants will be able to identify compliance risk features in core product areas and key aspects from an audit and compliance risk perspective.

TBML training uses a range of typologies, exercises and case studies to enable the participants to consider transactions and identify the key risk compliance features, areas of due diligence and further information required to make a risk-based assessment.
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