May 5, 2021

The Joint Money Laundering Steering Group (JMLSG) Publishes Proposed Revisions To Sector 15 (Trade Finance) In Part II Of Its Guidance

On 14th April, The Joint Money Laundering Steering Group (JMLSG) published proposed revisions to Sector 15 (Trade Finance) in Part II of its Guidance. As part of the proposed changes, “A non-exhaustive list of broad financial crime red flag risk factors relating to transactions, customers, documents, payments and shipments are included in Annex 15-IV of the guidance. The focus is on money laundering and terrorist financing, but they may indicate other predicate offences involving bribery, corruption, tax evasion and fraud”.

Comments on the proposed revisions should be received by 18th June 2021.

Impact on relevant organisations

  • This non-exhaustive list of broad financial crime red flag risk factors should be treated as a possible increased risk prompting further enquiries and assessment.
  • Firms are required to undertake periodic assessments of their money laundering and terrorist financing risks.
  • When carrying out an enterprise-wide risk assessment (EWRA), firms should further consider the following from an inherent risk perspective:
    • Correspondent Relationships for Trade Finance – The nature and scale of the risks that arise through correspondent relationships maintained that supports trade finance activities with other international financial institutions.
    • Non-customer third parties – The risk exposure to non-customer 3rd parties, either via trade finance clients or transactions. These may include but are not limited to, applicants, beneficiaries, brokers, intermediaries, introducers, vessels, ports, money service businesses (MSBs), other non-financial businesses and professions, including professional trustees, legal professionals and financial advisors.
    • Types of Commodities/Traded Items – The risk exposure to facilitating trade (via trade finance clients or transactions) of certain types of commodities or items that indicate potentially increased risk. These include, for example, oil, arms, precious metals.
    • Supply Chain – The risk exposure from a firm’s client’s customer base, e.g. buyers or suppliers of a customer. There may be an increased risk from the counterparties of a client who sources goods from developing markets/sanctioned countries and/or who sells goods to such countries.

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