How COVID-19 Encourages Financial Crime in the Physical Commodities Sector
PHYSICAL COMMODITIES: ALWAYS A HIGH-RISK SECTOR
From a financial crime enforcement viewpoint, companies within the financial services sector regard the global trading of physical goods as a high-risk operation.
Tracking, controlling, and reducing the risk of financial crime has become a real challenge, especially when several jurisdictions and stakeholders are involved across various stages of a global trade transaction. And while financial institutions may decide to adjust their screening strategy through a risk-based approach, reducing the scope of screening may expose the institution to a substantial residual risk of failing to detect any bad actors in a commercial transaction.
Such nuances can be a godsend to organised criminal networks, who are then easily able to launder money, evade taxes, commit fraud by record modification, or violate global sanctions through strategies including phantom shipments, variable volumes, misrepresentation of the actual recipients or goods, under-pricing, over-pricing, and making payments to unrelated parties.
HOW COVID-19 HAS HEIGHTENED THE ISSUE
These are issues which have only been magnified by COVID-19.
Under normal circumstances, trade finance is a very manual, paper-based service. The majority of documents relating to a trade finance transaction include physical inspection, such as confirmation of the trade document’s validity, inspection of watermarks and signatures of wet ink on different documents including lading notices, certificates of origin, and certificates of inspection.
But under the current conditions, these physical inspections have become almost impossible to complete to the required standards.
Add to that the increasing prevalence of counterfeited goods (personal protective equipment such as face masks, protective gowns, and gloves for medical staff has repeatedly been amongst the most reported fraudulent activities within the last few months) and financial institutions are now facing a host of new pandemic-related obstacles, which burden an already challenging process.
In order to minimise the checks carried out on trade transactions, many financial institutions have changed their procedures. And though the lack of rigorous checks due to resource limitations may be a permissible tactical response to such a risk-based issue, the majority of companies in the industry are failing to pick up on red flags.
Granted, major efforts to automate the processing of global trade transactions and effectively manage dynamic global trade and regulatory requirements are already underway. But the industry as a whole is still years away from effectively coping with the host of issues caused by the global pandemic.
AUTOMATION IS THE ONLY EFFECTIVE SOLUTION
As the months pass and COVID-19 continues to wreak havoc across the physical commodities sector, one things has become very clear: full automation is the only solution.
iSIPRAL’s REGTEK+ solution is a fully automated platform that utilises advanced technologies and delivers high-tech software which enable both pattern recognition and advanced data analysis. Chief amongst its advantages are the AML Transaction Monitoring and Transaction Screening tools, two technologies which detect fraud and financial crime in near real-time fashion.
A stand-out, state-of the-art solution, REGTEK+ is amongst the most effective and highly-regarded measures employed by financial institutions coping with the global trade of physical commodities: a solution designed specifically to bring the industry into the digital era, and successfully combat the myriad of issues caused by COVID-19.