International trade is huge; in 2016, world merchandise exports were valued at US$ 15.46 trillion and the growth rate is projected over two percent annually. Unfortunately, this also creates an environment that’s rife for abuse – trade-based money laundering (TBML) accounts for hundreds of billions of dollars of illegal money flows annually. With sums of that magnitude, it’s no surprise that TBML is highly sophisticated. And, as it hides its activities amongst massive volumes of legitimate trade, it’s difficult to uncover. Techniques such as under- or over-invoicing, falsifying documents, and misrepresenting financial transactions, are difficult to trace as they can involve multiple parties, jurisdictions and transactions. Additionally, true value is often difficult to set accurately. Is someone overpaying on purpose to hide illicit funds or is that what they think its worth? Consider artwork; as art is so subjective, how could authorities prove that the price paid was to hide funds, if everyone involved is in on the scam? Only 35 out of 220 jurisdictions have Anti-Money Laundering (AML) rules that specifically deal with art or antiquities. Of course, there are many other avenues for TBML. What is the proper price for a dress; $30? $300? $3000? Compliance officers assigned the role of uncovering TBML face a distinct lack of information for specifics that can help determine accurate pricing. Even if more information about the quality of the product is available, it’s difficult for compliance officers to be experts in the pricing vagrancies of multiple industries. Complicating the matter is the lack of shipping, import/export, and customs information that would help compliance teams assess the risk of a transaction. They are not privy to the same information that Customs and Border Protection (CBP) has. Due to privacy and confidentiality considerations, some jurisdictions don’t allow sharing information across borders — even within the same institution. In addition, 80 percent of trade activity is so-called open account trade, which is not documentary-based, thus offering no banking documentation to help make determinations. As in other areas of compliance, there’s trade-offs between allowing the free flow of commerce with ensuring that steps to effectively counter TBML are taken. After all, no one wants to unnecessarily burden legitimate trade but we can’t accept unfettered TBML. What’s a compliance officer to do? Know Your Customer While the tactics needed to properly vet against TBML require more extensive analysis, fortunately the overall strategy is well-known – or more precisely Know Your Business (KYB), as we are talking about business entities. Note that the second step of KYC is to understand the nature of the client’s activities. In regards to pricing, you can collect information from your business clients about the product range and pricing during the due diligence process. You can also research online to check the accuracy of the data. After you have completed gathering research, you can check transactions against that data to ensure they are in line with expectations. It’s not only the clients themselves that you need to concern yourself with. Who are they doing business with? Third party due diligence policies, screening and processes (Know Your Customers Customer or KYCC) are necessary to mitigate your risk. What is your company’s appetite for risk and what risk does that client pose for TBML? There are certain industries, such as used cars that pose a much higher risk for TBML, or certain countries that pose a higher risk. In these high-risk situations, enhanced due diligence procedures (EDD) are in order to fully check the background, ownership and business dealings of the client. In higher risk situations, an actual on-site visit can illuminate more information about the nature of the client. Combatting TBML Other specific measures to combat TBML, as recommended by the FATF, include: a) Assessing the adequacy of a bank’s systems for managing the risks associated with trade finance activities, including whether the bank effectively identifies and monitors its trade finance portfolio for suspicious or unusual activities, particularly those that pose a higher risk for money laundering. b) Determining whether a bank’s system for monitoring trade finance activities for suspicious activities, and for reporting suspicious activities, is adequate, given the bank’s size, complexity, location, and types of customer relationships. c) Sample testing trade finance accounts with a view to verifying whether the bank is meeting its customer due diligence, record keeping, monitoring and reporting obligations. d) Providing AML training to financial institutions’ global trade services departments and personnel. Allowing financial institutions (FIs) to see more information from exporters, importers, shippers, and authorities would enable them to better perform due diligence and monitoring. As TBML is so widespread, sophisticated, and cross-border, it’ll require coordinated international efforts from numerous agencies, regulators and FIs to successfully combat money laundering. With technological advances, such as distributed ledger technology, the capabilities to monitor complex, multi-part transactions are improving. If regulators across jurisdictions can formulate agreements for better information sharing and improve harmonization of cross-border data, dramatically reducing the scourge of TBML is a strong possibility. What comes to mind when someone mentions “eCommerce” or “merchant”? In the beginning, the world of eCommerce was dominated by the big players; companies with access to financial services and capital for resources, such as supply chain, marketing, software and hardware, and payment systems. Now, the tides have turned and small businesses, entrepreneurs, and merchants are able to access the same financial services that were once only available to large, traditional businesses. The face of eCommerce is changing, and in turn, the industry is destined to introduce a new vernacular into the ecosystem. Enter: micro-merchants. A micro-merchant is anyone that conducts the majority of their business activities in the form of lower-value transactions. This can include anyone who accepts payments for selling goods on Etsy or professional services on Fiverr, to a Farmers Market vendor or Uber driver. Previously, micro-merchants were excluded from using traditional business accounts and financial services, because the associated fees were astronomical compared to the dollar amount being transacted. The increase in cross-border business relationships and transactions, the move towards a mobile-first mindset and an evolving digital marketplace, coupled with the explosion of Peer-to-Peer (P2P) marketplaces, has culminated in the rapid development of an economy where everybody has the capacity to become a merchant. Now, it is estimated that there are over 55 million micro-merchants and 25 million small merchants in emerging markets. Why is this happening? What began as a gig economy – an environment in which organizations contract temporary workers for short-term engagements – is now transforming into a burgeoning micro-merchant economy. A study by Intuit predicts that by 2020, 40 percent of American workers will be independent contractors. Driven by an increasingly mobile workforce and a changing digital landscape, this shift towards a truly borderless marketplace for goods and services is changing the way we do business. However, this move towards a wider merchant ecosystem is not without issue. As the merchant chain continues to grow, so too does its risk profile, which is leading towards stricter due diligence and regulatory processes. Regulators and payment networks must shoulder the burden of facilitating this new wave of eCommerce, whilst adhering to the appropriate regulations. So, will the rise of the micro-merchant economy spur the progress of establishing frameworks of trust and safety online, or will the Internet descend into a Westworld-esque chaos – lawless and anarchic? What safeguards should be in place to facilitate this growing economy? The need for ubiquitous, rigorous online identity verification is clear. While once upon a time it was believed that the anonymity provided by the Internet was key, the dramatic increase in cybercrime, eCommerce and a myriad of other services requiring user verification has dispelled this notion. No matter what kind of merchant we are talking about – a micro-merchant who operates solely online, or someone in a more traditional brick and mortar setting – they all have something in common; they require a frictionless payment process that meets regulatory compliance requirements. Identity verification is crucial for anyone looking to onboard micro-merchants because it enables the overarching organization to have sufficient information about the merchants and their businesses. It’s important to vet merchants to help mitigate risk, detect fraud, and comply with regulatory compliance obligations, such as Know Your Customer (KYC), Know Your Business (KYB), and Anti-Money Laundering (AML) rules. It’s not all rainbows and butterflies: Fraudulent and nefarious activities As a result of a booming merchant economy, merchant-based online fraud is on the rise. While it is a relatively new concept, this form of fraud is spreading quickly and often goes undetected by merchant acquirers due to the inability to verify micro-merchants accurately, quickly and cost-effectively. Onboarding a merchant in today’s digital world is not an easy task. Merchant acquirers and payment providers are required to collect relevant information about the merchant as part of their due diligence. This presents a challenge for businesses who are required to perform due diligence on micro-merchants and SMBs because some countries lack the technology to enable instant access to business registries, some have business registration documents that are not standardized or structured for optical character recognition, and others have business data kept in multiple directories and locations. The ease of becoming a micro-merchant in today’s exploding gig economy has added a new layer of risk and complexity, making it even more difficult for regulators to ensure safety and protection against fraud and financial crime. A risk management approach is key when onboarding merchants; it’s important to know the transaction level and network of a merchant, their industry and what countries they operate in. So, what’s next? The increased complexity of the payment ecosystem has resulted in a rise in financial crime, and the response of regulators is as to be expected: extend the requirements for merchant onboarding in order to facilitate a trusted marketplace. Traditional payment institutions have been building out global networks and retrofitting their legacy systems to satisfy regulatory requirements for years, and now any business involved in digital payments – from P2P marketplaces to messenger and mobile apps – must adhere to compliance obligations in order to ensure trust and safety online, and protect against fraud and financial crime. With the dramatic increase in demand for merchant accounts from micro-merchants there is a clear case for developing appropriate onboarding procedures and processes that facilitate financial inclusion and trust. The ability to know exactly who you are doing business with is becoming increasingly important and proper protocols need to be put in place to keep not only merchant acquirers and the merchants themselves safe, but to ensure the safety of everyone who transacts with merchants. If you’d like to learn more, download our Whitepaper: Posts navigation Previous 1 … 143 144 145 … 158 Next
International trade is huge; in 2016, world merchandise exports were valued at US$ 15.46 trillion and the growth rate is projected over two percent annually. Unfortunately, this also creates an environment that’s rife for abuse – trade-based money laundering (TBML) accounts for hundreds of billions of dollars of illegal money flows annually. With sums of that magnitude, it’s no surprise that TBML is highly sophisticated. And, as it hides its activities amongst massive volumes of legitimate trade, it’s difficult to uncover. Techniques such as under- or over-invoicing, falsifying documents, and misrepresenting financial transactions, are difficult to trace as they can involve multiple parties, jurisdictions and transactions. Additionally, true value is often difficult to set accurately. Is someone overpaying on purpose to hide illicit funds or is that what they think its worth? Consider artwork; as art is so subjective, how could authorities prove that the price paid was to hide funds, if everyone involved is in on the scam? Only 35 out of 220 jurisdictions have Anti-Money Laundering (AML) rules that specifically deal with art or antiquities. Of course, there are many other avenues for TBML. What is the proper price for a dress; $30? $300? $3000? Compliance officers assigned the role of uncovering TBML face a distinct lack of information for specifics that can help determine accurate pricing. Even if more information about the quality of the product is available, it’s difficult for compliance officers to be experts in the pricing vagrancies of multiple industries. Complicating the matter is the lack of shipping, import/export, and customs information that would help compliance teams assess the risk of a transaction. They are not privy to the same information that Customs and Border Protection (CBP) has. Due to privacy and confidentiality considerations, some jurisdictions don’t allow sharing information across borders — even within the same institution. In addition, 80 percent of trade activity is so-called open account trade, which is not documentary-based, thus offering no banking documentation to help make determinations. As in other areas of compliance, there’s trade-offs between allowing the free flow of commerce with ensuring that steps to effectively counter TBML are taken. After all, no one wants to unnecessarily burden legitimate trade but we can’t accept unfettered TBML. What’s a compliance officer to do? Know Your Customer While the tactics needed to properly vet against TBML require more extensive analysis, fortunately the overall strategy is well-known – or more precisely Know Your Business (KYB), as we are talking about business entities. Note that the second step of KYC is to understand the nature of the client’s activities. In regards to pricing, you can collect information from your business clients about the product range and pricing during the due diligence process. You can also research online to check the accuracy of the data. After you have completed gathering research, you can check transactions against that data to ensure they are in line with expectations. It’s not only the clients themselves that you need to concern yourself with. Who are they doing business with? Third party due diligence policies, screening and processes (Know Your Customers Customer or KYCC) are necessary to mitigate your risk. What is your company’s appetite for risk and what risk does that client pose for TBML? There are certain industries, such as used cars that pose a much higher risk for TBML, or certain countries that pose a higher risk. In these high-risk situations, enhanced due diligence procedures (EDD) are in order to fully check the background, ownership and business dealings of the client. In higher risk situations, an actual on-site visit can illuminate more information about the nature of the client. Combatting TBML Other specific measures to combat TBML, as recommended by the FATF, include: a) Assessing the adequacy of a bank’s systems for managing the risks associated with trade finance activities, including whether the bank effectively identifies and monitors its trade finance portfolio for suspicious or unusual activities, particularly those that pose a higher risk for money laundering. b) Determining whether a bank’s system for monitoring trade finance activities for suspicious activities, and for reporting suspicious activities, is adequate, given the bank’s size, complexity, location, and types of customer relationships. c) Sample testing trade finance accounts with a view to verifying whether the bank is meeting its customer due diligence, record keeping, monitoring and reporting obligations. d) Providing AML training to financial institutions’ global trade services departments and personnel. Allowing financial institutions (FIs) to see more information from exporters, importers, shippers, and authorities would enable them to better perform due diligence and monitoring. As TBML is so widespread, sophisticated, and cross-border, it’ll require coordinated international efforts from numerous agencies, regulators and FIs to successfully combat money laundering. With technological advances, such as distributed ledger technology, the capabilities to monitor complex, multi-part transactions are improving. If regulators across jurisdictions can formulate agreements for better information sharing and improve harmonization of cross-border data, dramatically reducing the scourge of TBML is a strong possibility.
What comes to mind when someone mentions “eCommerce” or “merchant”? In the beginning, the world of eCommerce was dominated by the big players; companies with access to financial services and capital for resources, such as supply chain, marketing, software and hardware, and payment systems. Now, the tides have turned and small businesses, entrepreneurs, and merchants are able to access the same financial services that were once only available to large, traditional businesses. The face of eCommerce is changing, and in turn, the industry is destined to introduce a new vernacular into the ecosystem. Enter: micro-merchants. A micro-merchant is anyone that conducts the majority of their business activities in the form of lower-value transactions. This can include anyone who accepts payments for selling goods on Etsy or professional services on Fiverr, to a Farmers Market vendor or Uber driver. Previously, micro-merchants were excluded from using traditional business accounts and financial services, because the associated fees were astronomical compared to the dollar amount being transacted. The increase in cross-border business relationships and transactions, the move towards a mobile-first mindset and an evolving digital marketplace, coupled with the explosion of Peer-to-Peer (P2P) marketplaces, has culminated in the rapid development of an economy where everybody has the capacity to become a merchant. Now, it is estimated that there are over 55 million micro-merchants and 25 million small merchants in emerging markets. Why is this happening? What began as a gig economy – an environment in which organizations contract temporary workers for short-term engagements – is now transforming into a burgeoning micro-merchant economy. A study by Intuit predicts that by 2020, 40 percent of American workers will be independent contractors. Driven by an increasingly mobile workforce and a changing digital landscape, this shift towards a truly borderless marketplace for goods and services is changing the way we do business. However, this move towards a wider merchant ecosystem is not without issue. As the merchant chain continues to grow, so too does its risk profile, which is leading towards stricter due diligence and regulatory processes. Regulators and payment networks must shoulder the burden of facilitating this new wave of eCommerce, whilst adhering to the appropriate regulations. So, will the rise of the micro-merchant economy spur the progress of establishing frameworks of trust and safety online, or will the Internet descend into a Westworld-esque chaos – lawless and anarchic? What safeguards should be in place to facilitate this growing economy? The need for ubiquitous, rigorous online identity verification is clear. While once upon a time it was believed that the anonymity provided by the Internet was key, the dramatic increase in cybercrime, eCommerce and a myriad of other services requiring user verification has dispelled this notion. No matter what kind of merchant we are talking about – a micro-merchant who operates solely online, or someone in a more traditional brick and mortar setting – they all have something in common; they require a frictionless payment process that meets regulatory compliance requirements. Identity verification is crucial for anyone looking to onboard micro-merchants because it enables the overarching organization to have sufficient information about the merchants and their businesses. It’s important to vet merchants to help mitigate risk, detect fraud, and comply with regulatory compliance obligations, such as Know Your Customer (KYC), Know Your Business (KYB), and Anti-Money Laundering (AML) rules. It’s not all rainbows and butterflies: Fraudulent and nefarious activities As a result of a booming merchant economy, merchant-based online fraud is on the rise. While it is a relatively new concept, this form of fraud is spreading quickly and often goes undetected by merchant acquirers due to the inability to verify micro-merchants accurately, quickly and cost-effectively. Onboarding a merchant in today’s digital world is not an easy task. Merchant acquirers and payment providers are required to collect relevant information about the merchant as part of their due diligence. This presents a challenge for businesses who are required to perform due diligence on micro-merchants and SMBs because some countries lack the technology to enable instant access to business registries, some have business registration documents that are not standardized or structured for optical character recognition, and others have business data kept in multiple directories and locations. The ease of becoming a micro-merchant in today’s exploding gig economy has added a new layer of risk and complexity, making it even more difficult for regulators to ensure safety and protection against fraud and financial crime. A risk management approach is key when onboarding merchants; it’s important to know the transaction level and network of a merchant, their industry and what countries they operate in. So, what’s next? The increased complexity of the payment ecosystem has resulted in a rise in financial crime, and the response of regulators is as to be expected: extend the requirements for merchant onboarding in order to facilitate a trusted marketplace. Traditional payment institutions have been building out global networks and retrofitting their legacy systems to satisfy regulatory requirements for years, and now any business involved in digital payments – from P2P marketplaces to messenger and mobile apps – must adhere to compliance obligations in order to ensure trust and safety online, and protect against fraud and financial crime. With the dramatic increase in demand for merchant accounts from micro-merchants there is a clear case for developing appropriate onboarding procedures and processes that facilitate financial inclusion and trust. The ability to know exactly who you are doing business with is becoming increasingly important and proper protocols need to be put in place to keep not only merchant acquirers and the merchants themselves safe, but to ensure the safety of everyone who transacts with merchants. If you’d like to learn more, download our Whitepaper: