Regulators in the major Asia-Pacific financial centres will continue their supervisory focus on trade-based money laundering in the year ahead, officials said. Authorities in Singapore and Hong Kong have signalled their plans to take a harder line on money laundering, terrorist financing and weapons proliferation in 2017. The Australian Transaction Reports and Analysis Centre ("AUSTRAC") is also expected to boost its supervisory focus in response to international pressure.
The Financial Action Task Force ("FATF") has identified trade-based money laundering as one of the main channels that criminal organisations and terrorist financiers are using to move money throughout the global economy. The problem is widespread across the Asia-Pacific region where there are high levels of manufacturing, established shipping industries and a number of important financial centres.
The AML/CFT regulators in Singapore and Hong Kong have both said confidence in the integrity of their financial centres will be undermined if financial institutions lack effective systems and controls to manage these risks.
To improve compliance in this area, the MAS issued guidance for banks on managing trade-based money laundering controls in late 2015. Since then it has been undertaking targeted supervision work focusing on trade-based laundering compliance. The Hong Kong Association of Banks ("HKAB") followed suit with similar guidance in February last year, with input from the Hong Kong Monetary Authority ("HKMA").
Both of the guidance papers said banks need to establish effective AML/CFT risk management systems and controls to offset the financial crime risks arising from trade financing. They also need to have controls in place to manage the risks associated with financing dual-use goods, which can be used in weapons manufacturing.
Australia has been watching these developments closely and is also taking steps to encourage reporting entities to manage the risks associated with trade-based laundering.
Bradley Brown, AUSTRAC's national manager for strategic intelligence and policy, said the agency and its law enforcement partners had repeatedly highlighted trade-based money laundering as a critical risk for Australia.
Brown told Thomson Reuters Regulatory Intelligence that managing the risks associated with trade-based money laundering would require continuous investigation and due diligence from reporting entities.
"The over, under or false invoicing of goods for import and export can have significant implications on Australia's revenue collection and facilitate transnational organised crime," Brown said.
AUSTRAC is also providing financial intelligence support the Australian Federal Police, the Australian Border Force, the Australian Criminal Intelligence Commission, the Australian Taxation Office and other partner agencies.
"A major example has been AUSTRAC's work within the ACIC Taskforce Eligo, which has focused on Australian and international networks involved in money laundering through various means, including trade-based money laundering," Brown said.
Leading the Charge
Singapore and Hong Kong are still leading the charge when it comes to trade-based money laundering. The MAS has made it clear it intends to take a harder line on AML/CFT supervision and enforcement in coming years. The recent closure of BSI Bank in Singapore was an example of its heightened focus on regulatory compliance.
The MAS also set up a dedicated AML enforcement department in June last year to tackle this issue, among others.
"For Singapore to maintain her reputation as a clean and trusted commercial, trading and transportation hub, banks must ensure that their AML/CFT controls remain effective and are commensurate with the size, nature and complexity of their business," the MAS said in its guidance on trade-based laundering.
"It is imperative that senior management set the right tone at the top and inculcate an appropriate risk and compliance culture among its staff, across all levels and functions, to ensure effective implementation of a strong AML/CFT framework."
Regulators have said risk assessments targeting trade financing risks can be conducted as part of the broader risk assessments that banks perform. These assessments should identify any risk areas in their trade finance activities and determine whether the controls are adequate.
In addition to the standard customer due diligence obligations, banks are expected to obtain further information to assess the financial crime risks specific to a trade finance transaction. This enhanced due diligence should cover all of the parties to a transaction, including the beneficiaries of letters of credit and documentary collections, agents and third parties.
The MAS said last year, when establishing the new enforcement team, that the increasing complexity of trade and finance meant there was a need for more targeted supervision and enforcement work. The MAS's AML/CTF enforcement team is understood to have more than 30 dedicated staff.
The Financial Action Task Force's ("FATF") recent mutual evaluation said that trade-based laundering was an "emerging threat" in Australia. In addition to AUSTRAC's work, the Australian customs service has established a trade enforcement unit to target trade-based laundering in the region.