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Manual trade processes hinder anti-money laundering efforts
The perfect storm of increased trade and cumbersome trade finance processes makes it easier for illicit transactions to go undetected.
Getting to know a client’s business, and monitoring it for material changes, is especially challenging. This is even more difficult when facilitating trade transactions for SMEs doing business in developing countries with limited know-your-customer (KYC) controls. The anti-money laundering think tank Global Financial Integrity estimates that 87% of illicit financial flows from developing countries are classified as TBML– that’s as much as $970b per year.
At the same time, trade with these regions forms an important part of many western countries’ economic recovery plans. The UK’s Department for International Trade (DIT), for example, recently announced a Developing Countries Trading Scheme (DCTS) that would grow commerce with up to 70 countries. Although this is good news for hard-hit SMEs, it increases the operational burden for banks trying to assess such trades for money laundering risks.
EY data shows that as much as 30% of banks’ trade operations capacity is consumed by manual reviews for compliance. Trade transactions go through a compliance review process 2 to 4 times during a typical lifecycle. For example, an Export Letter of Credit must be reviewed on receipt, reviewed again when associated documents are collected and amended, and reviewed once more when payments are requested or received. When you add the challenge of sourcing accurate customer information, it’s easy to see why banks struggle to safely grow their trade finance business while complying with escalating regulatory demands.