Business alliance sheds light on trade-based money laundering, ‘least understood’ financial crime

ICC’s partnership with the Wolfsberg Group and the Bankers Association for Finance Trade (BAFT) sets guidelines and offers recommendations for governments and the private sector to more effectively combat this international challenge. 

The challenge of stemming TBML is magnified by the global and multistakeholder context in which trade transactions take place. Outside of the importers and exporters themselves, no one party has a complete view of trade transactions, with banks providing traditional financing and risk mitigation for no more than 20% of global trade transactions. As the volume of these non-traditional ‘open account transactions’ increases, it is becoming harder to monitor transactions.  This is due to the fact that transactions facilitated through traditional bank products provide greater visibility of the underlying transactions.

In an effort to shed light on TBML, which is often considered one of the least understood financial crimes, the ICC Banking Commission, the Wolfsberg Group, and BAFT have launched a short awareness video.

The video supplements the three organisations’ 2017 Trade Finance Principles, aimed at addressing the due diligence required by global and regional financial institutions of all sizes in the financing of international trade. The 2017 paper also includes recommendations on how governments, banks and other trade finance stakeholders can better work together to counter the threat of financial crime.

Rob Wainwright, Executive Director of Europol, said: “Trade-based money laundering is a highly effective way of mixing large volumes of criminal proceeds with legitimate funds, but also of moving them outside of the country of activity within business transactions. TBML is very attractive to organised crime groups and very hard to identify and investigate because of its transnational nature and complexity. Recent cases have highlighted the sophisticated methods used to exploit the complex supply chains of international trade to launder criminal assets. I welcome this video as a useful tool to raise awareness about this important issue.”

Avoidable de-risking

While some banks have sought to mitigate TBML by introducing increasingly stringent controls on trade finance provision, this has – in some instances – led to avoidable de-risking, contributing to a ‘trade finance gap’ for the companies and regions that need financing the most. This has adversely impacted legitimate trade activity, particularly with respect to small- and medium-sized enterprises and financial institutions in the developing world.

As set out in the 2017 paper, the ICC Banking Commission believes that banks can, and should, remain an important partner for those involved in international trade and should enhance their standards and controls in order to detect and prevent TBML activity. However, in light of the lack of an end-to-end view of the majority of trade transactions, this alone is not likely to have a material impact.

Successful mitigation of TBML requires greater collaboration and information sharing between other key international trade players in the public and private sectors. These include shippers, airlines, truckers, port and customs authorities, businesses and law enforcement agencies. Working together to create a complete picture of illicit TBML flows and typologies will ensure that more can be done to disrupt criminals.

Daniel Schmand, Chair of the ICC Banking Commission, noted: “While tackling trade-based money laundering is always complex, it is made even more challenging given that the perpetrators recognise and understand bank controls and, therefore, work to ensure that their activities remain undetected. Documentary trade – unlike open account transactions – brings additional transparency to transactions. A collaborative approach in this space is critical for the future of financial crime detection.”

Note: this video is the property of the Wolfsberg Group and may not be used, or otherwise distributed, without express permission. Permission should be requested from the Wolfsberg Group Secretariat: info@wolfsberg-principles.com