Efforts to combat trade-based money laundering (TBML) intensify as the Hong Kong Association Banks (HKAB) issued a detailed industry guideline that can bolster the industry’s fight against laundering and terrorist financing.

 

The guidelines get that backing of the Hong Kong Monetary Authority, which urges institutions to adopt best practices in instituting anti-money laundering and counter terrorist financing (AML/CFT) processes and systems, says Sean Norris, head of Asia-Pacific at Accuity, a payments and AML screening solutions provider. 

 

“Since 2013 when the UK Financial Conduct Authority (FCA) published “Banks, Control of Financial Crime Risks in Trade Finance”, we've seen a significant change in focus by regulators across Asia-Pacific with regulators in India, Singapore, Australia and Hong Kong being particularly proactive in raising awareness and defining best practices related to the combatting of TBML and dual-use goods (DUG) screening,” notes Norris. DUG are products and technologies normally used for civilian purposes, but which may have military applications.

 

 

“The UK FCA report was the spark that intensified global focus on TBML. Indeed, even in the US, there was a recent congressional hearing around this topic with members of Congress recognizing the increasing threat of TBML as related to financing terrorism.”

 

Banks and other regulated institutions have strong AML/CFT controls for traditional banking process related to client onboarding, payment screening and transaction behaviour. As momentum and focus moves from these traditional banking areas to trade finance, the cost of compliance will go up as banks will need to prepare additional budget to combat TBML, says Norris.

 

Larger institutions with international and regional operations will need to determine if a centralized or decentralized model works when combating TBML as the information gathered closer to the port or source may come at higher operational cost. “This approach, however, actually may be the best way to limit the risk as knowledge is built up by the trade operations people in the country,” says Norris.

 

Due to the paper-based nature of trade transactions and the limitations of automated transaction monitoring in a trade context, the majority of risk assessments are reliant on the judgement of staff. “The importance of trade operations experience when developing a policy, escalation procedures and defining roles/ responsibilities related to combating TBML cannot be underestimated; the absolute key to a successful programme is the collaboration of compliance and trade finance operations,” he adds.

 

The HKAB guidance paper acknowledges that dual-use goods screening is complex and can require specialist knowledge, however it sets an expectation that firms utilize both manual and automated methods of screening for dual-use goods.

 

“We have seen a large increase in the adoption of dual-use goods screening services in jurisdictions with stronger regulatory oversight. In the case of the foreign banks in these jurisdictions, this has in turn raised the standard of the dual-use goods screening programme in the home country, with several banks rolling out the service globally,” he adds.

 

The focus to combat TBML is gaining momentum with more and more regulators starting to review banking standards in this area.