Post by anenro on Jan 30, 2020 14:46:31 GMT 4
Banks Have ‘Limited Visibility’ into 80 Percent of Trade Transactions: GAO
Trade-based money laundering is believed to be on the rise, but the financial institutions charged with flagging payments linked to the illicit practice often have little insight into the nature of the deals, according to a governmental watchdog.
In a report made public on Wednesday, the US Government Accountability Office (GAO) said that so-called “open-account” trade is “one of the primary vulnerabilities of the US financial and trade systems,” largely because such deals forego bank financing arrangements that would draw closer scrutiny of the parties and payments involved.
Open-account trade contrasts with so-called “documentary transactions”, in which banks review related bills of lading, invoices, packing lists or other types of documentation in order to mitigate the risks of providing letters of credit or other financing.
“In open-account trade, the financial transactions between the buyer and seller—which underpins the trade transaction—is usually processed through a bank’s automatic payment systems, without human intervention, by the bank sending the payment on behalf of its customer,” the GAO said.
In processing open-account transactions, banks typically do not examine the documentation that would allow them to identify under- and over-invoicing or other types of suspicious activity, according to the report.
Citing the Wolfsberg Group, the agency noted that roughly 80 percent of global trade is processed through the financial sector via open-account deals.
US officials believe that, since 2013, a consistent drop in bulk-case seizures by various agencies likely signals a rise in the use of trade-based money laundering schemes by transnational criminal organizations.
Trade-based money laundering is believed to be on the rise, but the financial institutions charged with flagging payments linked to the illicit practice often have little insight into the nature of the deals, according to a governmental watchdog.
In a report made public on Wednesday, the US Government Accountability Office (GAO) said that so-called “open-account” trade is “one of the primary vulnerabilities of the US financial and trade systems,” largely because such deals forego bank financing arrangements that would draw closer scrutiny of the parties and payments involved.
Open-account trade contrasts with so-called “documentary transactions”, in which banks review related bills of lading, invoices, packing lists or other types of documentation in order to mitigate the risks of providing letters of credit or other financing.
“In open-account trade, the financial transactions between the buyer and seller—which underpins the trade transaction—is usually processed through a bank’s automatic payment systems, without human intervention, by the bank sending the payment on behalf of its customer,” the GAO said.
In processing open-account transactions, banks typically do not examine the documentation that would allow them to identify under- and over-invoicing or other types of suspicious activity, according to the report.
Citing the Wolfsberg Group, the agency noted that roughly 80 percent of global trade is processed through the financial sector via open-account deals.
US officials believe that, since 2013, a consistent drop in bulk-case seizures by various agencies likely signals a rise in the use of trade-based money laundering schemes by transnational criminal organizations.
