How this course will assist the delegates

By attending this training course the delegates will understand the role, parties, mechanics and operation of:

• Trade finance; letters of credit, collections, standby LCs, receivables finance and forfaiting
• Structured commodity finance; pre-export finance, warehouse finance and tolling
• Identify the compliance risk zones in each of the above areas from a sanction/embargo, AML and CFT perspective
• Gain an appreciation of the red flag suspicious activity indicators and warning signals

Day 1

Why cross border transactions are a target for abuse

• The importance and vulnerability of the correspondent banking relationship

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

International payments versus documentary trade in the compliance environment:

• Automated screening
• Message stripping
• Manual based due diligence

Typology; the use of a 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 examples

Trade finance

Introduction to trade finance; description, function and operation:

• Conflicting requirements of sellers and buyers
• 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
• The role of finance in cross border abuse

Trade based money laundering (TBML)

• Common methods of TBML

Typology; the co-mingling of legitimate cross border trade wired receipts with terrorist financing funds by a diaspora owned business

Trade finance; vulnerability to sanctions violation

• Sanctions risk identification

TRADE FINANCE PRODUCTS

Letters of credit

Description and operation

Parties
Example transaction and trade documentation

• Payment conditionality
• The independence principle
• Trade documentation; compliance risk
• Sanctions clausing
• Differing roles of banks; the importance of LC availability
• Payment terms
• LC confirmation; financial engagement and responsibility
• Mechanisms for financing letters of credit
• Compliance risk assessment; issuance, presentation of documents, payment

- Issuing bank
- Advising bank

• Product compliance risk profile

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

Transferable letters of credit

• Description and operation
• Parties
• Transfer changes
• 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 case study transaction and identify the compliance risk aspects

Documentary collections

• Description and operation
• Parties
• Types; DP, DA
• Example transaction and trade documentation
• Compliance risk assessment;

- Remitting bank due diligence
- Collecting bank due diligence

• Product compliance risk profile

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

Day 2

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

Forfaiting

• Description and operation
• Parties
• Primary and secondary purchase
• Debt instrument authenticity
• The importance of due diligence; 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

Standby letters of credit

• Description and operation
• Parties
• Example transaction
• Claim documentation
• Its use in money laundering
• 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

COMMODITY FINANCE PRODUCTS

• Introduction to commodity finance; description, function and operation
• Key compliance risk zones (in addition to those listed under trade finance)

- Emerging markets/high risk jurisdictions
- Value and existence of goods
- Syndicated facilities (due diligence on other lenders/participants)

Commodity traders

• Compliance risk profile

Pre-export finance

• Description and operation
• Parties
• Purpose of borrowing
• Sources of supply; due diligence
• 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
• Warehouse receipts
• The role of collateral managers
• Product compliance risk profile

Tolling

• Description and operation
• Parties
• Changed nature of product

Product compliance risk profile
Case study; delegates will be required to construct a trade cycle timeline and determine how they can validate, control and manage the transaction through each stage of the cycle from a compliance risk perspective