The Banking and Corporate Finance Training Specialist

Trade Based Money Laundering

(TBML) and Sanctions Compliance

This course is presented in London on:

15-17 March 2017, 11-13 October 2017

Course Overview

Whilst trade and commodity finance is low in credit risk it exposes banks to high compliance risks.

Banks who have failed to have adequate AML and sanctions compliance programmes and training in place have incurred penal fines, reputational damage and faced the potential

loss or suspension of their ability to operate in certain currency markets or jurisdictions.

This 3 day course for bank auditors, compliance officers and relationship managers provides an explanation of the operation of the methods of payment and financing used in international trade and commodity transactions and the nature of compliance risks

associated with each.

The course covers Correspondent Banking, International Payments, Global Cash Management, Trade & Commodity Finance and the compliance risk profile, and the suspicious money laundering and sanctions violation activity red flag indicators of each.

Analysis is provided of the key features, the attractiveness and vulnerability of each trade product or structure to criminal activity.

This course will enable the delegates to identify compliance risk zones in each of these product areas and key aspects from an audit and compliance risk perspective.

The course uses a range of typologies, exercises and case studies to enable the delegates

to consider transactions and identify the key risk compliance features, areas of due diligence and further information required to make a risk based assessment.

Course objectives

By attending this foundation level training course the delegates will understand the role, parties, operation and compliance risks of:

Correspondent banking; the gateway to cross border compliance risk exposure together with its fundamental role in the movement of international money flows

SWIFT messages; their function, operation and methods of abuse International payments; the mechanics of direct, serial processing and cover

payments

Global cash management; its function and operation of pooling/concentration accounts, and its vulnerability to money laundering

Trade finance; collections, letters of credit (to include transferable and synthetic credits), standby credits, on demand bank guarantees, receivables finance, forfaiting, payables finance and supply chain finance and the compliance risk profile of each

Structured commodity finance; pre-payment, pre-export, warehouse, tolling and receivables financing structures and compliance risk aspects

Red flag suspicious activity indicators and warning signals that can be used in cross

border international trade transactions

Course Content

Day 1

What compliance risk is

An introduction to the nature of compliance risk in cross border transactions Why international trade transactions are increasingly a target for abuse

Anti-money laundering (“AML”) What money laundering is

The key stages of money laundering; placement, layering, integration The risk-based approach to anti-money laundering

Typology – the use of over-inflated invoicing representing “management charges” to transfer illicit monies from an affiliate company

Countering the financing of terrorism (”CFT”) The characteristics of the cross border financing of terrorist activities using trade

transactions Key differences between CFT and AML

Typology – the co-mingling of legitimate cross border trade wired receipts with

terrorist financing funds by a diaspora owned business

Sanctions violation What sanctions are, why they are imposed and their intended impact

Trade embargo and financial sanction (to include export licensing and dual-use goods) Global reach; the importance and implications of the currency of payment Sanctions; fundamentals of due diligence and screening

Correspondent banking

What correspondent banking is and why this is fundamental to cross border money flows Gateway to compliance risk exposure; the high risk nature of correspondent banking Correspondent and respondent parties

An explanation of the use and operation of Nostro, Vostro and Loro accounts

Exercise; Nostro, Vostro and Loro accounts Correspondent banking infrastructure;

Message authentication;

Provision of payment, trade and treasury services; Cash management

Roles and risk profile of remitting, receiving and reimbursement parties in cross border transactions

Exercise; due diligence and risk considerations Correspondent banking; key areas of compliance risk

Know your customer; the impact of ”KYCC” Key compliance risk zones:

Ownership and control Jurisdiction Quality of jurisdictional regulatory and supervisory framework

Adequacy of AML and sanctions compliance procedures Nature of respondent’s business

Client base Shell banks Direct access accounts

Downstream correspondents

Typology; the use by a shell bank of its correspondent banking network to move

criminally obtained money across jurisdictions to purchase high value tradable goods

Financial Institutions as customers: Compliance risk assessment framework; key components

Compliance checklist; example Unacceptable customers

Due diligence and risk assessment Monitoring activity – warning signals Red flags

Financial Action Taskforce (FATF); recommendations: Recent market trends in respect of compliance challenges:

LEI (legal entity identifier) Correspondent network rationalisation

Serial payment processing versus the cover method

SWIFT messages Their function and operation

The use and role of SWIFT “MT” message types in: Payments

Trade transactions Compliance risk; message abuse:

Inappropriate use of message types

Message stripping

International payments

The mechanics of how money is transferred cross border The nature of the payment instruction

Parties; remitter, originator bank, receiving bank, beneficiary, cover/reimbursing bank Methods of international bank transfer:

Direct and serial processing method (the use of SWIFT MT 103)

Cover method (the use of SWIFT MT103 plus SWIFT MT202 COV) The compliance risk implications of SWIFT MT202

Value dating Examples; direct, serial and cover methods

Key compliance risk zones:

Message information Originator; ownership, jurisdiction Beneficiary; ownership, jurisdiction

Nature and value of payment – ordinary course of business? Screening – designated persons – sanctioned countries?

Exercise; completion of payment related SWIFT messages

The compliance risk exposure of US dollar transfers High risk customers requiring payment services Red flag suspicious activity indicators

Alternative remittance services (ARS)

Types; money value transfer services (MVTS), currency exchange offices/brokers How they work Potential for mis-use and compliance risk

Red flags

Global cash management (cash pooling) Its role and function

Concentration/pooling, zero and target balancing Parties; pool participants and banks

Key compliance risk zones: Pool participants; ownership, jurisdiction Nature of business

Correspondent/partner banks Origin and nature of funds

Co-mingling of legitimate and illicit monies Monitoring activity – warning signals Compliance risk profile

Case study; the use of a corporate group cross border cash concentration

arrangement to mask the illicit origination of funds from a subsidiary participant and the recirculation of illicit monies in a disguised manner for apparent trade purposes

The cost of non-compliance

Case study; AML and sanctions violation

Trade finance

Introduction to trade finance; description, function and operation:

Conflicting requirements of sellers and buyers What trade finance is and why it is required Why trade finance carries high compliance risk

High risk customers; transactions; jurisdictions

Trade finance compliance risk characteristics; Key compliance risk zones

Trade cycle appreciation – “know your customer’s customer” The different roles of banks; fragmented bank involvement Banks deal in documents – no responsibility to validate

Negotiable instruments; implications for compliance risk Third party involvement; compliance risk implications

The role of finance in cross border abuse

Comparison between international payments and documentary trade finance in the compliance risk environment:

Automated screening Message stripping

Manual based due diligence Trade based money laundering (TBML)

An introduction to trade based money laundering Why it is becoming an increasing focus of criminal activity

Common methods of trade based money laundering

Typologies; examples of misrepresentation of invoice value, multiple invoicing and false description of goods as a means to attempt to legitimise the movement of illicit monies via trade flows

TRADE FINANCE PRODUCTS

Documentary collections

What collections are Their role, parties and operation Types; DP, DA, bank aval

Example transaction and trade documentation Compliance risk assessment;

Remitting bank due diligence Collecting bank due diligence

Product compliance risk profile

Day 2

Letters of credit What letters of credit are

Their role, parties and operation Irrevocable undertaking to pay or honour against complying documentation The independence principle

Trade documentation; vulnerability to abuse and compliance risk Example transaction and trade documentation

Sanctions clausing Differing and fragmented roles of banks; the importance of LC availability Payment terms

LC confirmation; financial engagement and responsibility

Case study; the assessment of a potential money laundering cross border letter

of credit transaction requiring delegates to identify key compliance risk issues and further information required to make a risk based assessment

Mechanisms for financing letters of credit Compliance risk assessment; issuance, presentation of documents, payment

Issuing bank Advising bank

Negotiating bank Product compliance risk profile

Case study; delegates will be asked to identify unusual features of a letter of credit request and identify the red flag suspicious activity characteristics

Transferable letters of credit What transferable letters of credit are

Their role, parties and operation Transfer changes

Vulnerability to compliance risk Product compliance risk profile

Case study; the assessment of a transferable letter of credit transaction with suspicion of breaching international trade sanctions. The delegates will be

required to identify any unusual features, to identify key compliance risk issues and further information required to make a risk based assessment

Synthetic letters of credit Description and operation

Parties Product compliance risk profile

Case study; delegates will examine a transaction and identify the compliance risk aspects

Forfaiting

What forfaiting is Primary and secondary forfaiting transactions How to establish debt instrument authenticity

The importance of due diligence; is there an underlying trade transaction? Product compliance risk profile

Case study; purchase of an avalised bill of exchange. Delegates will be required to undertake due diligence and identify further information required

to undertake a compliance risk based assessment of the transaction

Receivables finance

What receivables finance is Compliance risk vulnerabilities of financing open account transactions

Forms of receivables finance: Full factoring Confidential invoice discounting

Specific insured receivables finance The use of receivables finance in the context of trade finance

Product compliance risk profile

Case study; purchase of a trade receivable. Delegates will be required to undertake due diligence and identify further information required to undertake

a compliance risk based assessment of the transaction

Case study; delegates will consider a request to issue a letter of credit which is not in the ordinary course of business of the applicant and to identify the nature of the underlying transaction

Day 3

Standby letters of credit What standby credits are and how they differ to letters of credit and bank

guarantees Their role, parties and operation Example transaction; commercial standby credit

Claim documentation Its vulnerability to abuse; money laundering and sanctions violation

Structuring standby credits to reduce compliance risk exposure Product compliance risk profile

Case study; delegates will be required to consider the course of action resulting from a suspicious claim under a standby LC and how the use of this product for money laundering can be reduced

“On demand” bank guarantees

What “on demand” bank guarantees are Their role, parties and operation The nature and risk of “on demand” unconditional guarantees

Autonomy; the independence principle The types and use of guarantees in trade:

Bid Advance payment Performance

Payment Direct guarantees

Indirect guarantees Counter guarantees Foreign laws and usage

Example guarantees Transferable guarantees; key compliance risks aspects

“On demand” bank guarantees; vulnerability to criminal abuse Structuring guarantees to reduce compliance risk exposure An appreciation of URDG 758

Product compliance risk profile

Case study; the delegates will consider the compliance risk aspects of a request

to issue a transferable letter of guarantee and the further information required to undertake due diligence. Upon the receipt of additional information the delegates will be required to identify any unusual features and consider the

course of action

Payables finance (supply chain finance) What payables finance is and when it is used

Types of payables finance; description, operation and parties: Pre-shipment payables finance (supplier-led) Approved payables finance (buyer-led)

Product compliance risk profile

COMMODITY FINANCE PRODUCTS

What commodity finance is Characteristics of commodity finance

Key compliance risk zones : Emerging markets/high risk jurisdictions Commodity traders

Value and existence of goods Syndicated facilities (due diligence on other lenders/participants)

Commodity traders Nature and vulnerability to compliance risk exposure Key compliance risk considerations

Pre-export & pre-payment finance What pre-export and pre-payment finance is

Key compliance risk aspects Deployment of risk mitigation in this high risk environment

Product compliance risk profile Typology; the use of commodity based pre-payments to disguise the movement

of laundered funds

Warehouse financing

Description and operation Parties

Key compliance risk aspects Deployment of risk mitigation techniques The use and vulnerability of warehouse receipts

The role of collateral managers Product compliance risk profile

Tolling What tolling is

Parties and operation Compliance risk exposure

Case study; delegates will be required to construct a trade cycle timeline and determine how they can validate, control and manage a cotton commodity

finance transaction through each stage of the cycle from a compliance risk perspective Trade Product Compliance Risk Framwork

Trade compliance risk summary Compliance risk profile summary for each key trade product

Red flags Trade based money laundering

Sanctions

Fraud Vulnerability of cross border transactions

10 warning signs to avoid fraud

SUMMARY/CONCLUSION

What our clients are saying about the course

“Very nice presentation style of the speaker and practical case studies”

“Very well prepared slides, examples and presenter. Huge load of information of the most common trade products”

“Very detailed information of trade tools on banking operations, how these can

be used for AML purposes”

“Perfect mix of products training and financial crime aspects”

“Case studies are very good and useful”

“Interesting case studies, interaction with the trainer and multinational participants”

“Very helpful and well-explained oversaw of the operational and compliance aspects of trade finance”

09:30-17:00

London

£1,800 +VAT (£2,160)

Discounts available for multiple participants:

3-4 participants: 15% discount per participant

5-6 participants: 20% discount per participant 7-8 participants: 25% discount per participant

9 or more participants: 30% discount per participant

http://redcliffetraining.co.uk enquiries@redcliffetraining.co.uk

+44 (0)20 7387 4484

Delivering this course in-house for you to a number of participants could be very cost effective.