When all is said and done with regards to systematic analysis of trade-based money laundering, more has been said than done.
There are typically 2 parallel conversations; one of them concerns the risks of TBML (Trade Based Money Laundering) and the importance of monitoring, the other explains why it's too hard to address systematically.
This leaves even large banks, big players in trade finance, justifying their reliance on manual systems.
Personally, I take my cue from Voltaire, who said "The perfect is the enemy of the good." There are systematic things that can be done that specifically address Trade Finance questions in the FFIEC exam manual.
This post concerns itself with a very basic one; Are the items consistent with the nature of the customer's business?
Step 1. Use the industry codes associated with customers on your own books. In the US (and for the rest of this example), that will likely be a NAICS code.
Step 2. Build a reference list of the keywords associated with the industry. These are available from NAICS as well.
Step 3. Using list-matching software, or something similar, compare 'description of goods' with the keyword references for the customer's industry.
Step 4. Alert on mismatches.
Step 5. Investigate.
Simple example:
You scan a letter of credit between Denel Pty in South Africa, and your customer, Camden Manufacturing where the description of goods reads;
5,000 M1 AC Grenades
1,000 M1 CNS Grenades
1,200 XM47 primers
1,200 40mm Barricade Penetrator CS Grenades
Your KYC system identifies Camden Manufacturing with the NAICS code 332993, Ammunition (except small arms) Manufacturing.
Reference keywords for this industry code would include:
Artillery shells
bomb cluster
Ammunition
Arming and fusing devices,
Artillery ammunition
Bomb loading
Bomb cluster adapters
Bombs
Boosters and bursters, artillery, manufacturing
Artillery cartridges
Canisters, ammunition, manufacturing
Caps, bomb, manufacturing
Depth charges
Detonators,
Fin assemblies, mortar, manufacturing
Fin assemblies, torpedo and bomb, manufacturing
Fuses
Grenades, hand or projectile, manufacturing
Igniters, ammunition tracer
Jet propulsion projectiles
Loading and assembling bombs
Mines
Missiles
Missile warheads
Mortar shells
Primers
Projectiles
Rockets
Shell loading
Torpedoes
Tracer igniters
Based on this reference list, the items are in fact consistent with your customer's business. They are also consistent with Denel's but that's another story.
What if your customer's NAIC was instead 812990, Miscellaneous Personal Services? (you can let your imagination run wild. That NAIC includes massage therapists, nail salons and escort services.)
There would be no match at all between the description of goods and your customer's industry (cough, cough), and you should receive an alert on that inconsistency.
You should also receive an alert for another reason, but that will be the topic of the next post.
