Financial institutions have come under immense pressure for fighting against money laundering risks and developing more robust compliance system to address this risk.
Global trade of physical commodities is one such high risk business sector that involves multiple jurisdictions and various connections to stakeholders. Such global trade transactions are easily exploited by global organised criminal networks to launder money, evade taxes and even breach sanctions.
Modus Operandi of such operations comes in many forms such as:
- Over and under pricing declarations
- Ghost shipments
- Fictitious descriptions of goods
- Misrepresentation of ultimate beneficiaries
- Making unrelated transactions to third parties
- Round tripping of transactions
The current global covid situations have upped the ante on the identification and fight against such money laundering schemes.
- There are many concerns that arise from the social distancing and work from home arrangements. These include
- Use of electronic means instead of the physical inspection of documents
- Limitations on checking the authenticity of signatures on bills of lading,,, certificates of origin and for inspection purposes
- Turn around time for verification of documents are significantly delayed
- As a result of delayed turn around time for output, there is the domino effect of work building up and backlog of potential alerts pending compliance review
All these concerns will raise the risk significantly as financial institutions are churning out deadlines with less physical workforce and productivity
The importance of risk-based approach to such identification and screening will become paramount under such situations. This strategy will work on the quality screening but may expose the institutions to a significant residual risks of failing to identify high risk groups.
Then there is the issue of comparable technological resources and manpower across international borders. For large volume of global transactions, the work from home technology will be difficult to address all the important checklists on the transactions for money laundering risks. The result is likely a lower standard of care on the KYC due diligence.
Criminals have also grown more adapt to anti-money laundering due diligence and become accustomed to the standard approach taken by the financial institutions. It is not surprising that we get see more uncovering of financial scandals that go unchecked until recently.
Bolivia’s health minister, Marcelo Navajas, was arrested in May for authorising the purchase of medical equipment (ventilators) at the price of €27.6k per unit through an intermediary, who had bought the ventilators for €9.5k per unit from the manufacturer. The payment totalled nearly €5 million–three times higher than the actual value of goods–and was allegedly intended to benefit the intermediary, which is based in a foreign country.
It is of paramount importance for financial institutions to raise awareness among their staff members around emerging typologies of financial crime through global trade.