Examining Financial Crime Risks in Trade Finance Tod Burwell President & CEO, BAFT April 23, 2015 GTR Trade & Commodity Finance Conference Jakarta, Indonesia

BAFT – Bankers Association for Finance & Trade BAFT is the leading global association for International Transaction Banking. It helps bridge solutions across financial institutions, service providers and the regulatory community that promote sound financial practices enabling innovation, efficiency and commercial growth. Thought Leadership & Best Practices Advocacy Training & Education Global Community

Financial Crime - Overview Money Laundering Trade Based Money Laundering Sanctions Terrorist Financing Cybersecurity Fraud Tax Evasion

Money Laundering Criminals launder 2-5% of global GDP annually (USD 1.7-3.8 Trillion) 80% of illicit flows from developing countries use trade-based schemes 2012 - USD101 Billion illicitly smuggled into China via export over-invoicing, and an additional US$54 billion flowed in illegally in the first quarter of 2013 alone

TBML Practices Over/under invoicing Multiple invoicing Over/under shipment Misrepresentation of goods Cash / money exchange networks to circumvent banking controls

Financial Crime – Regulatory Response Massive fines and settlements Cease & desist orders / ongoing monitoring Suspension of clearing authority Revocation of export licenses Personal accountability for executives Cross-jurisdiction cooperation Extension of regulatory authority

Trade Transparency Units Designed to examine international transactions to identify trade anomalies and financial irregularities indicative of TBML, customs fraud, contraband smuggling, tax evasion, and contravention of international sanctions. TTUs are active in USA, Argentina, Brazil, Colombia, Mexico, Panama, Paraguay, and the Philippines.

Financial Crime – Bank Response Board level priority Increase in compliance staff, investment in IT De-risking: 1 in 3 surveyed banks exited correspondent relationships 68% of banks declined transactions due to AML/KYC concerns 61% of banks noted AML/KYC requirements are a significant impediment to providing credit

Compliance Best Practice Compliance Culture KYC / CDD Policies & Procedures Screening Audit Risk-based Approach

Suspicious Activity – Red Flags High risk jurisdictions / free trade zones Activity unrelated to core business Inconsistent transaction structure / tenor Involvement of unrelated parties Dual-use goods High-value / low volume goods for resale Obvious misrepresentations of price Substitution of documents

Evolving Sanctions Iran Syria Iraq Cuba Russia/Ukraine Counter-terrorism / non-proliferations Cyber-related

FATF Report - Indonesia Improvements Criminalization Freezing of Assets Deficiencies FATF 40 + 9 Cash-based 3rd Party A/Cs Corruption

Q & A Tod Burwell President & CEO, BAFT 1120 Connecticut Ave. NW Washington, DC 20036 O: (202) 663-7575 E: tburwell@baft.org W: www.baft.org