TBML-Q1:Are items consistent with the nature of the customer's business?

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.

ERI: Blurring the line between payments and trade

In November 2011, the Federal Reserve Bank introduced a new variation on the basic customer transfer, a payment message that includes Extended Remittance Information (ERI). It's a wire transfer that includes invoice details, 9000 bytes worth of invoice details.

There are banks and financial institutions that require that the purpose be present on wire transfers. There are jurisdictions that encourage/require that the purpose be present on wire transfers. In the SWIFT world, there are typically 210 bytes available for this purpose. The Fed provides space for 9000 bytes.

With 4 double-spaced pages on invoice data accompanying the payment; at what point do your payment AML concerns start sounding like trade finance AML concerns? (NOTE: Invoice details are completely fictional.)

Is the amount of the payment equal to the sum of the invoiced items?

Are the goods listed over-priced or under-priced?

Looking at the example invoice data below, what do you do if the payment is for $15,000?

Is $2.00 too much or too little for a polyester pajama top?

For example:

FABRIC: 100 PERCENT POLYESTER JERSEY -200GSM

EACH

STYLE NO. DESCRIPTION PO QTY COST SHIP DATE

EB58BD76 MILITAR STAR

LAYERED SLEEVE PJ TOP 2914 420 2.00 07-01-07

EB58BE88 SPORTS SHIELD

L/SLV PJ TOP 2914 576 2.00 07-01-07

EB58BC76 MILITARY STAR

LAYERED SLEEVE PJ TOP 2914 588 2.00 07-01-07

EB58BB88 SPORTS SHIELD

LONG SLV PJ TOP 2914 564 2.00 07-01-07

EB58BD76 MILITAR STAR

LAYERED SLEEVE PJ TOP 2915 108 2.00 07-01-07

EB58BE88 SPORTS SHIELD

L/SLV PJ TOP 2915 162 2.00 07-01-07

EB58BC76 MILITARY STAR

LAYERED SLEEVE PJ TOP 2915 162 2.00 07-01-07

EB58BB88 SPORTS SHIELD

LONG SLV PJ TOP 2915 162 2.00 07-01-07

EB58BD76 MILITAR STAR

LAYERED SLEEVE PJ TOP 2616 72 2.00 07-01-07

EB58BE88 SPORTS SHIELD

L/SLV PJ TOP 2916 144 2.00 07-01-07

EB58BC76 MILITARY STAR

LAYERED SLEEVE PJ TOP 2916 144 2.00 07-01-07

EB58BB88 SPORTS SHIELD

LONG SLV PJ TOP 2916 138 2.00 07-01-07

EB58BD76 MILITARY STAR

LAYERED SLEEVE PJ TOP 2917 84 2.00 07-01-07

Are the goods consistent the nature of the parties?

For example:

Originator: Wal-Mart

Beneficiary: Samsung

50 Televisions, Model LN26R71BAX/XBG

90 Televisions, Model LN32R71BAX/XBG

10 Functional MRIs, Model MagFinder II

Are the goods of a high-risk nature?

Are there instructions to trans-ship items to an unrelated third party?

Originator: Cabela’s

Beneficiary: Argus Publications

890,000 12 GAUGE 00 BUCKSHOT

5,800,000 9mm BALL

9,600,000 5.56x45mm M200

10,000 40mm HEDP

4,500 20mm VULCAN HEIT SD M246 WITH M14A2 LINK

100,000,000 M855 5.56 Ball

20,000,000 5.56mm Tracer

16,700,000 5.56mm Blank

5,700,000 5.56mm 4 Ball/1 Tracer

13,600,000 7.62mm Ball Long

790,000 .50 Caliber 4 Ball/1 Tracer

10,000 40mm HEDP Grenades

32,000 60mm HE Mortar Rounds

32,000 60mm Illumination Rounds

5,000 81mm HE Mortar Rounds

5,000 81mm Illumination Rounds

7,000 Signal Flares

7,300 Stun Grenades

6,700 HC Smoke Grenades

12,035 M4 Carbines

What if (and I suspect this is the most likely case) the included invoice detail does not tell you a darn thing about the payment?

For example:

PO NO LINE QTY PRICE TOTAL LSHIPDATE COLR

-------- ----- ------ ------- ---------- ---------- ----

SK233C 711 16 130.03 2080.48 2007-07-15 WBP

SK242C 712 12 66.01 792.12 2007-07-15 WCM

SK243C 713 25 66.01 1650.25 2007-07-15 GRN

SK244C 714 9 70.12 631.08 2007-07-15 KCO

SK930R 231 19 207.62 3944.78 2007-07-25 BLK

SNK930 1003 31 207.62 6436.22 2007-07-25 BLK

SNK931 1004 79 63.99 5055.21 2007-07-25 PLD

SNK932 1005 80 43.66 3492.79 2007-07-25 GRY

SNK932 1006 75 43.66 3274.49 2007-07-25 OLV

SNK950 1014 180 108.36 19504.80 2007-07-30 GRY

SNK951 1015 172 39.90 6862.80 2007-07-25 AAP

SNK951 1016 220 39.90 8778.00 2007-07-25 BLK

SNK952 1017 12 21.09 253.07 2007-07-20 BLK

SNK952 1018 89 21.09 1877.01 2007-07-20 BLY

SNK952 1019 134 21.09 2826.06 2007-07-20 RAS

SNK952 1020 95 21.09 2003.55 2007-07-20 ROS

SNK953 1021 28 40.61 1137.08 2007-07-25 BBE

SNK953 1022 410 40.61 16650.10 2007-07-25 CBB

SNK953 1023 143 40.61 5807.23 2007-07-25 CPD

SNK953 1024 220 40.61 8934.20 2007-07-25 FDG

SNK953 1025 32 40.61 1299.52 2007-07-25 OCB

SNK954 1026 561 43.46 24381.06 2007-07-20 BBE

SNK954 1027 701 43.46 30465.46 2007-07-20 CBB

SNK955 1028 425 43.46 18470.50 2007-07-20 FDG

SNK956 1029 770 43.46 33464.20 2007-07-20 CPD

SNK956 1030 535 43.46 23251.10 2007-07-20 WPD

SNK957 1031 147 43.46 6388.62 2007-07-20 OCB

The inclusion of invoice data on payments certainly provides a benefit to commercial customers; they can, more or less clearly, marry the payments to the goods. The inclusion of invoice details on a payment also suggests to banks and their regulators that more information is available on these payments with which to answer critical questions. In most cases, though, the bank will have data, but it will not have usable information.