In an effort to help organisations identify trade-based money laundering (TBML), the Financial Action Task Force (FATF) and the Egmont Group of Financial Intelligence Units have recently published a joint report highlighting a list of indicators. This follows on from a report published in December 2020 by the same bodies highlighting pertinent trends and developments with respect to TBML for market participants to be aware of.
The risk indicators are derived from a sampling of the data received by the FATF and the Egmont Group of FIUs in the course of the Trade-Based Money Laundering (TBML) project.
Who are the indicators for?
The risk indicators are designed for both the public and private sector and are relevant to:
- Financial institutions, including banks and money value transfer services
- Designated non-financial businesses and professions
- Small, mid-size businesses and large conglomerates
Within the private sector, these indicators are intended to be used by personnel responsible for:
- transaction monitoring
- investigative analysis
- client onboarding and relationship management
- areas that work to prevent financial crime
What are the risk indicators?
The risk indicators are split into four categories: structural; trade activity; trade document and commodity; account and transactions.
Structural risk indicators: these relate to the legal form and/or structure, business activities, footprint and presence of the parties involved in the trade transaction. These include indicators such as:
- A trade entity lacking an online presence.
- The organisation is registered or has offices in a jurisdiction with weak AML/CFT compliance.
- An entity is not compliant with regular business obligations, such as filing VAT returns.
Trade activity risk indicators: these consider attributes/features/patterns of the trade transactions executed by the party. These include indicators such as:
- A trade entity consistently displays unreasonably low profit margins in its trade transactions.
- Engaging in complex trade deals involving numerous third-party intermediaries in incongruent lines of business.
- A trade entity makes unconventional or overly complex use of financial products.
Trade document and commodity risk indicators: these highlight potential risks associated with trade documentation, such as contracts, invoices and valuation/quantity reports. These include:
- Contracts supporting complex or regular trade transactions appear to be unusually simple.
- Contracts, invoices, or other trade documents display fees or prices that do not seem to be in line with commercial considerations, are inconsistent with market value, or significantly fluctuate from previous comparable transactions.
Account and transaction activity risk indicators: these consider behaviours with respect to how the trading party uses/manages their account, and any changes with respect to this (such as an increase in cash usage or significant trade volume/value variances). Such indicators include:
- A trade entity makes very late changes to payment arrangements for the transaction.
- Payments are routed in a circle – funds are sent out from one country and received back in the same country, after passing through another country or countries.
The FATF and Egmont Group advise that this report should be used to train and support firms and individuals with respect to identifying and escalating potentially suspicious trade activity. Before using the risk indicators, users are encouraged to read the guide’s accompanying notes and FATF/Egmont’s landmark report, Trade-Based Money Laundering: Trends and Developments, which provides a comprehensive overview of current TBML risks and outlines a number of best practices in mitigating these risks.
To read the full risk indicator report, click here.