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Case Studies
Trade-based financial crime
No hiding place
Trade finance has increasingly come under the regulatory spotlight as a channel for money laundering, bribery activities and potential breaches of sanction regimes.
From the Financial Conduct Authority to the monetary authorities in Hong Kong and Singapore to the Wolfsberg Group, regulators across the globe are calling on financial institutions to improve their trade finance controls.
The client
Trade finance transactions are an attractive medium for money launderers and criminals. They can be used to hide the illegal movement of funds; for example, by misrepresenting the price, quality or quantity of goods, or even faking their existence.
Our client is a major supplier of trade finance services to customers and counter-parties. Based in the UK, they provide a number of trade finance products and services including letters of credit, documentary collections, standby letters of credits and guarantees with key focus on businesses with import, export and guarantee requirements. On average, our client processes 40,000 trade transactions on a monthly basis in it's UK service centres.
One of the key controls designed to mitigate sanctions risk is the use of a global systemic sanction screening solution which interfaces with the core trade system. This control looks to ensure that all in-scope trade transactions are automatically screened for potential sanction violations in accordance with international standards.
The problem
Trade finance is a high-volume business involving multiple parties from numerous territories. To service its global customer base, our client must comply with sanctions regulations across differing jurisdictions. Violations of trade embargoes and trade sanctions are punishable by imprisonment and high fines.
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Internal sanctions controls require that information about customers, counter-parties, correspondents and the substance of the transaction is screened progressively through the process from the initial acquisition of the customer, screening the set-up of the product for the customer, to payments that are made as the product is used by the customer or counter-party. This information is not static and over the course of a trade transaction could change multiple times.
Our client requested that we assess the adequacy and effectiveness of their sanctions controls relating to its UK trade finance operations to prevent breaches from taking place. Specifically, they wanted an independent assessment of their trade finance sanctions screening procedures against their global sanction policy, along with a review of the design effectiveness of their implemented sanctions screening controls.
​The majority of banks are not taking adequate measures to mitigate the risk of money laundering and terrorist financing in their trade finance business.
Financial Conduct Authority
What we did
Using our bespoke financial crime audit methodology, we produced a customised sanctions control framework for the bank’s UK trade finance operations covering key areas of sanctions risk. With this customised framework in hand, we identified the bank’s key controls relating to sanctions, and considered whether these controls were both appropriate and effective for managing financial crime risks.
We also reviewed the appropriateness of the bank’s global sanctions policy against current regulatory requirements, before looking at the alignment and implementation of global trade finance procedures against the policy.
Alongside the review of the sanctions control environment, our client required detailed forensic testing of the sanctions screening process operating in their UK trade finance business. There were four main strands of work:
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Transaction Identification.
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Independent alert investigation.
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Analysis of historic alert investigation.
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Comparison of the independent and historic alert investigation.
Using our alert management methodology and alert review tool, we independently reviewed all the alerts and to determine whether they were false positives, true hits, or required further information. For each alert that was determined to be a false positive, we provided a reason as to why the alert could be disposed of; for each alert, which was determined to be a true hit, we provided an explanation for the decision.
When building up the picture of the sanctions screening of transactions, we also determined whether there was evidence that people involved in the process researched whether an alert was a false-positive or required escalation and review by others. We identified what procedures were followed and whether any attempt was made to gather additional information from relationship managers or the customers.
For transactions that failed sanctions screening at any point, we characterised the type of alert and, where possible, the process that the operators followed to review the alert. In the case of alerts that an operator had the ability to amend, we looked at whether there were patterns in the pre- and post-alert entries and whether all operators treated the same category of alert in the same way.
Outcome for the client
Our client now has confidence that controls over the sanctions screening process are operating as expected and that staff have implemented procedures in line with their global sanctions policy. Additionally, senior management and key stakeholders have good visibility over a process that was previously difficult for them to see.