A recent report by the Dubai Financial Services Authority (DFSA) highlights that while many banks operating in the Dubai International Financial Centre (DIFC) have strong internal controls regarding general credit risk, some companies have a lack of awareness regarding trade-based money laundering risks.
The observation could be apt for trade creditors experiencing the increased cost of doing business throughout the world associated with a recent fall in global correspondent banking relationships (CBRs). Data compiled by Henry Balani of technology provider Accuity show CBRs have declined globally to 223,247 in 2016 from 360,785 in 2013. North America and Western Europe experienced the largest drop, 46% and 39%, respectively, he said.
Banks worldwide are reducing their CBRs with a focus on perceived higher-risk countries, including the UAE, according to financial messaging service Swift. As a result, more banks have lost access to international financial networks and products.
“There is an increased focus globally on trade-based money laundering risks from international groups such as the Financial Action Task Force and financial service regulators,” said Ian Johnston, chief executive of the DFSA. “Given the importance of trade to this region, regulators need to effectively oversee and supervise trade finance without hindering actual trade. We urge firms to benefit from all international guidance issued in that regard.”
Regarding anti-money laundering risk assessment, banks tend to lack specific assessment methods for trade-based money laundering and tend to focus more on credit risk and monitoring potential sanction breaches, the report notes.
Also, “…controls around identifying and dealing with the risk of dual-use goods need improvement,” the report adds.
– Nicholas Stern, editorial associate