In December 2020, FAFT released a report on Trade-Based Money Laundering which empathises on some of the risks associated in trading within increasingly complicated and complex supply chains. The implication of this is that Organised Criminal Groups (OCGs), Professional Money Launderers (PMLs), and Terrorist Financing (TF) networks exploit these complications to facilitate money laundering, drug trafficking, terrorism and the evasion of sanctions.
Some of the report’s findings include the need of public sector bodies to deepen their understanding of trade financing processes, including how different financing processes are managed as this will increase their chances of detecting and disrupting TBML. Also, it was revealed that third-party intermediaries who are part of the financial settlement process could be linked to OCGs, PMLs or TFs and as such are an additional source of risk. However, even though financial institutions are often aware of the risks associated with these third-party intermediaries, others in the supply chain such as legitimate importers or exporters or auditors and accountants tend not to have such awareness levels.
Why is this important for your organisation?
As companies, governments and various stakeholders seek to explore the African Continental Free Trade Agreement (AfCFTA), it is vital to be cognisant of TBML issues and guard against them. Failure to develop rigorous anti-TBML processes and mechanisms may deter foreign investments, therefore leading to an under the realisation of the full potential of the AfCFTA. Accordingly, some of the steps that can be taken include:
- Knowledge development: Firms and institutions need to increase their understanding of TBML. Public sector institutions need to identify and assess TBML risks within their jurisdictions, including the economic sectors and financial instruments involved. Private sector entities should raise awareness amongst their customers to reduce their chances of getting involved in a TBML scheme. For example, in the Netherlands, a financial institution provided its business customers with flyers to increase their awareness of TBML risks.
- The role of FIUs: Financial Intelligence Units (FIUS) have access to valuable information sources which can reveal potential TBML schemes. For example, they often have access to documentation underlying trade transactions; thus, they are in a unique position to detect possible TBML schemes and share this intelligence which national and international partners.
- The role of PPPs: Finally, through public-private partnerships, both public and private entities can collaborate to achieve mutual objectives, Within the context of AML/CFT, PPPs can act as platforms for information and knowledge sharing about new and emerging risks. PPPs can also act as an additional channel for exchanging financial intelligence between operational authorities and reporting entities.
You can learn more here.