Financial Crime Compliance Checks on the Price of Goods in Trade Transactions – Are Price Checking Controls Plausible?
The price of goods involved in a trade finance transaction is sometimes manipulated by those wishing to launder the proceeds of crime through the financial system.
The price of goods involved in a trade finance transaction is sometimes manipulated by those wishing to launder the proceeds of crime through the financial system. Depending on the methods used, this is called either over- or under-invoicing or over- or under-supplying. As such, some regulators have suggested that a simple way to identify such activities is by banks implementing a price-check on all their Trade transactions.
This paper outlines the various potential methods for checking the price of goods, and their feasibility, demonstrating that there are significant difficulties in implementing effective price checking for Trade Finance transactions:
- Price Checking, beyond a common sense check for manifestly unusual pricing, is extremely challenging for Financial Institutions to carry out when processing trade documentation.
- It is not plausible for a Financial Institution to develop a binary financial crime control for price checking and automated systems have, to date, not proved to be effective.
- Even where publically available pricing information is available (such as for commodities) price checking remains challenging due to the multiple factors which constitute the final price of the underlying commodity in a transaction