On 14 May 2018, ACIP published two best practice papers, titled Legal Persons - Misuse Typologies and Best Practices and Best Practices for Countering Trade Based Money Laundering, to improve the prevention of money laundering and the misuse of company structures for illicit purposes, in response to the increased sophistication of financial crimes.
The ACIP papers discuss common red flag customer behaviours and patterns in transactions which may indicate illicit financial activities. The papers also make recommendations on practices that can be taken in order to prevent such illicit activities. The papers were produced by two industry-led working groups, comprising representatives from major banks, professional services providers and governmental agencies.
Some examples of red flags connected with letters of credit set out in the papers are:
- deal structures beyond the capacity or substance of the customer, or with unusual complexity or unconventional use of financial products;
- illogical payment instructions
- last minute changes to payment instructions
- where a third party or unrelated party remits the payment
- goods that are totally out of line with a customer’s known business
- constantly amended or extended letters of credit, and
- waivers provided in advance.
Banks are encouraged to review the red flags published in the papers and maintain a list of red flags and case studies that would apply specifically to their trade finance business. Relevant staff should be trained on the use of these checklists and the manner in which the red flags should be assessed, documented, escalated or closed.
The papers also consider recent typologies involving the misuse of companies and other legal persons, including pass-through transactions, round-tripping activities and the physical movement of cash across borders. Banks are encouraged to obtain detailed information about their customers as well as to perform some level of due diligence to understand if their purported trade of business is aligned to the customer’s business including understanding the corporate structure and ownership, where sanctions related red flags are noted.
The publications are timely, in the aftermath of the 1MDB scandal and a wave of sophisticated financial crimes in the region. They highlight the need to standardise the practice of financial crimes compliance for trade transactions. They also show a continued commitment of Singapore regulators to combat trade based money laundering.
Trade based money laundering is an increasingly important consideration in the arena of cross-border trade financing. Simmons & Simmons have been offering training on trade based money laundering and has published Structures & Solutions in Trade Finance, a reference guide and glossary on techniques and products in trade finance, including a new chapter on TBML.
If you would like to arrange a training session or a copy of Structures & Solutions in Trade Finance, contact Jolyon Ellwood-Russell
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.