Risk-based trade monitoring is essential for organizations to proactively identify potential violations and ensure adherence to international trade regulations and laws.
Suppose that trade compliance team of a bank is planning the trade transactions monitoring for a particular period. The TBMLRO asks the trade compliance team members to develop a risk-based transaction monitoring plan.
Now, think about what the TBMLRO would like to see in the risk-based transaction monitoring plan for types of trade transactions.
The TBMLRO shall first identify trade transactions that are facilitated, incurred, and recorded by the bank. The TBMLRO shall check the bank’s system and analyse transaction types, which are incurred and recorded.
Risk-Based Trade Monitoring
Based on analysis of the trading system, let’s say the TBMLRO comes to know the trade customers use the following types of transactions:
Processing of Export Documentation
To facilitate the exporters, the bank processes export documents and negotiates with the correspondent bank or importer’s bank.
ATM and Debit Card Transactions by Trade Customers
Trade customers also use ATM cards, Debit Cards, etc. When cash is withdrawn from the bank’s ATM, then the cash withdrawal transaction is recorded in the customer’s account as a debit transaction on a real-time basis.
Branch Transactions
Transactions, including payments and withdrawals by the trade customers, to settle the trade transactions.
Check Clearing Transactions
Transactions where a trade customer may deposit a check in their bank, which is lodged for clearing and then credited to the relevant customer’s account after the necessary clearing process is completed.
Funds Transfers
These include transferring funds from one trade account to another. This transaction may be between two trade customers, a trade customer, and a foreign company, or between local and foreign companies. Funds are transferred outside the country to the importer’s account in another country.
After identifying transaction types performed by trade customers, the TBMLRO shall assess ML/TF risks for each type of transaction. TBMLRO shall scan and check the transaction volume and significance under each transaction type.
TBMLRO will put more focus on inward and outward “funds transfers” and “check clearing” because of the potential of money laundering and terrorist financing in such types of transactions. TBMLRO shall also want to scrutinize the trade documents and the relevant regulatory requirements, to process the trade transactions and documents.
Accordingly, the TBMLRO shall develop a risk-based trade transaction monitoring plan, where more focus shall be put on different types of trade transactions facilitated by the bank and other banking facilities availed by the trade customers.
Final Thoughts
In response to the TBMLRO’s directive, the trade compliance team meticulously analyzed the bank’s trading system, identifying five primary types of transactions that trade customers frequently engage in: processing of export documentation, ATM and debit card transactions, branch transactions, check clearing, and funds transfers. Recognizing the potential vulnerabilities for money laundering and terrorist financing, particularly within funds transfers and check clearing transactions, the TBMLRO emphasizes the importance of a vigilant monitoring approach.
As a result, the forthcoming risk-based transaction monitoring plan will not only prioritize these higher-risk transactions but will also ensure a thorough review of trade documents against relevant regulatory requirements. This holistic approach is indicative of the bank’s commitment to safeguarding its operations and stakeholders from financial malfeasance.
