Fighting illicit financial flows

According to Global Financial Integrity’s update, “Illicit Financial Flows to and from 148 Developing Countries 2006−2015’ developing economies saw more in illicit trade related payments leaving their counties than the value of the aid budgets flowing into them.

Robert Parson, a partner in the law firm Clyde & Co specialising in trade finance – who is also editor of the monthly legal journal Finance & Credit Law, stepped into the Trade Finance TV studio on location in Amsterdam to tell us more about the problem.

Enshrined in his April 2019 article on the same topic published Finance & Credit Law, is the list of how the financial criminals operate, with trade misinvoicing being the principle scam.

Industry collaboration is vital, and “banks have their part to play,” says Parson, despite the “grating” effect of data protection regulation. The Wolfsberg Group has outlined the standards for the control of this financial crime risks in the Trade Finance Principles 2019 and he believes that artificial intelligence (AI) will play an important role in stamping out this insidious form of financial crime.

Come and join us on Trade Finance TV to hear more about how crime must not pay.

Transcript of interview:

Clarissa Dann Good morning and welcome to Trade Finance TV on location here in lovely Amsterdam. I’m Clarissa Dann, your presenter. I have here in the studio with me Robert Parson, he’s a partner at Clyde & Co., and he’s also editor of a legal journal. Tell us a bit more, Robert.

Robert Parson Yes, I’m the editor of a legal journal called Finance and Credit Law, in which I, as well as putting other people’s material in, I also penned some articles myself. And one of those actually gained interest, talking about it today, is an article that I wrote about the recently published, joint Initiative by BAFT/ICC and the Wolfsberg Group on how to combat illicit financial flows in international trade.

Clarissa Dann So we don’t really want crime to pay, do we? So how are you going to prevent financial crime in trade? What are the findings? What are the thoughts of the group?

Robert Parson Well, first of all, a little word about the people involved in it. We know that BAFT, ICC, the Wolfsberg Group, there’s a group of 13 banks, including Deutsche Bank, who have really set the scene in terms of putting out the principles that people should apply in terms of a risk-based approach to combating illicit financial flows.

Clarissa Dann There’s been some new principles quite recently, haven’t they?

Robert Parson They’ve updated a previous set of prints, partly to really deal with the pace at which financial crime overtakes the measures that are put in place by law enforcement. So it’s not just a case of the law enforcement agencies looking at this, but banks of all shapes and sizes have got their part to play. And there’s some very simple techniques that criminals use to extract money from the financial system, and some of the figures involved are pretty frightening.

Clarissa Dann So tell us a bit more about the sort of scams that go on.

Robert Parson Well, first of all, to give you an idea of what’s involved. Global Financial Integrity also published a report this year, estimated just for the year 2015 alone the amount of money was lost in international trade ran into the hundreds of billions. In many countries we’re talking about an average in developing countries, about 20% of international trade payments, so some really significant figures, often greater than the amount of international aid that’s going into the country. So it’s really something that we need to stamp out.

Clarissa Dann The ICC has got its own Financial Crime Prevention Agency, and we’ve heard quite a bit about that. But what can the industry together do more about to prevent this happening?

Robert Parson Well, I think a number of things. One of one of those things is collaboration. Of course, banking secrecy and confidentiality is something we’re all very concerned about, and in a way the whole road of effort of travel in terms of data protection has a slight breaking effect on the ability of people to cooperate in this field. However, there’s a lot more that can be done in terms of sharing information, sharing the telltale signs. So the classic ways in which money is extracted from the system are; over-invoicing, under-invoicing, over-shipment, under-shipment, phantom shipments, and out of those, probably over-invoicing is the classic way that money is extracted. Under-invoicing is a slightly more complex criminal, because they’ve got to use the goods to extract the money. But how this can be committed, I think in the future we might see the technology in stamping that out. It’s not a magic wand, though. The technology is only going to be as good as the data that comes out, fx governments giving out standardized and reliable data of what normal looks like is making it easier for banks to see what abnormal looks like, And I think that’s really part of the answer to it.

Clarissa Dann So, fx if you’ve got a load of bills of lading and all the numbers are exactly sequential, is that a bit iffy or what should people be looking out for?

Robert Parson I think one of the things that we’ll see is artificial intelligence is certainly going to play a part in this, which we’ve already heard a lot about…

Clarissa Dann So they will check the numbers?

Robert Parson What they can do is also check abnormal flows, things that don’t look normal, even the percentage of mistakes that come up in documents are a telltale sign as to whether they’re genuine or not. So all of those things, I think will play a part.

Clarissa Dann Robert, thank you very much for telling us all about this. We hope we can stamp out financial crime, and thank you all for watching Trade Finance TV.

Published on September 24, 2019

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