Over the last couple of years, trade finance units of merchant banks have come under increasing scrutiny from not only internal compliance functions across the world but also regulators. The penny dropped a while ago that all chains are only as strong as the weakest link and when it come to money laundering, trade finance has been the most obvious channel up for exploitation. If the Bankers Association for Finance and Trade has its say, that is about to change.
Last week the Wolfsburg Group, BAFT and the International Chamber of Commerce released Trade Finance Principles for performing screening, due diligence and escalating anomalies for a wide range of trade finance instruments. In addition to the guidance is the recommendation for banks to adopt a three lines of defence model that auditors should already familiar with.
"Banks can build on existing transaction processes to add in [ control checks ] at key points as described in the appendices I, II, and III [ of the core guideline ]"
Various instruments are Included in the brief taking in Documentary Credits, Bills for Collection, Stand By Letters of Credit and even Guarantees. This should come as a relief for compliance officers and auditors who often struggle to not only understand the processes around trade finance but also how far AML control should be taken. More information can be found here LINK.