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How to Address the Risks Posed By Trade-Based Money Laundering?

Capital Markets CIO Outlook | Tuesday, December 17, 2019

As the menace of trade-based money laundering is rising, traders are increasingly obliged to take stringent approaches to ensure that they are not facilitating illicit trading.

FREMONT, CA: The use of trading to launder money is a topic seldom raised. There are headline-grabbing cases on trade-based money laundering, but that fall short of driving industry efforts. Trade-based money laundering is a real threat to the global economy. Because of the changing nature of today's trading processes, the liability of mitigating the risks of money laundering is increasing. Know more here.

Traders need dedicated procedures to prevent any illegal trade. Transaction monitoring enables traders to keep a record of any suspicious trade activity and also to establish anomalies between declared and actual traders. This addresses the risks posed by the methods in which criminals undertake money laundering. Transaction monitoring can collect all relevant documents of trades from both traders and benefitting parties. It can also give alerts on any malicious activities. Following the KYC method, trading firms can also carry out extensive due diligence to form a better understanding of trading. Through this research, firms should be able to develop a keen assessment of the risks involved with each trader. The artificial intelligence system is at the forefront of the march against trade-based money laundering, and it aims to understand the risks around the people and businesses that interact together.

Although the approaches mentioned earlier are recognized as being the main pillars of protection against trade-based money laundering, there are several other steps trade businesses can take to minimize the risks. Firms need specific procedures that prevent illegal trade and need to focus on training their staff to recognize any activity, which could be detrimental to anti-money laundering. Trading firms are also implementing robust sets of audit checks and risk assessments that traders must pass in order to interact with them.

As trade laundering will continue to grow, keeping track of trade finance transactions will be a compliance challenge for traders. However, with practical applications, traders can be well-placed to address the risks of trade-based laundering and adapt heightened regulation required to tackle this emerging threat.