Combating Trade Based Money Laundering & Terrorist Funding With BlockChain by FinErts

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COMBATINGFinErts FinErts FinErts FinErts
TRADE BASED
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MONEY LAUNDERING FinErts
AND
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TERRORIST FINANCING FinErts FinErts
State Bank Of Pakistan
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State Bank Of Pakistan FinErts FinErts FinErts
Authorized Dealers (ADs) shall emphasize on the overall trade related risks in
their AML/CFT policy and relevant trade business guidelines, policies and
procedures. Such policies and procedures should, inter alia, specify:
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a)
b) FinErts
Screening procedure of customers for trade transactions.
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Procedure for identification and monitoring of trade transactions with
related party.
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c)
d)
Procedure for complete risk profiling of customers dealing in or intending to
deal in trade.
Procedure for developing Authorized Dealer’s own risk profile.
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e) Procedure for verification of prices of underlying contracts related to
import/export of goods/services.
f) Procedure for handling descriptions, which are unclear, coded or worded in

a language other than English.
g) Screening procedure of goods being traded as per relevant Trade Policy
h) Procedure for Identification of dual use of goods such as:

i. Import/Export Licensing Requirement
ii. Reference: Pakistan National Control Lists of dual used goods and
technologies available at http://www.secdiv.gov.pk/GET)

iii. Identification of end usage and end user.
iv. Focus on counterparties.
v. Goods screening from UNSC Resolutions.
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State Bank Of Pakistan FinErts FinErts FinErts
Control Framework to Manage Trade
related ML/TF Risks FinErts
a.
b.
Price related Due Diligence
Form “I”, Form “E” related Due Diligence
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c.
d.
High Risk Transactions and Enhanced Due Diligence
Development and Maintenance of Goods related MIS FinErts
e. Trade related Data/MIS and Regulatory Reporting
f. Transaction Monitoring
g. Suspicious Transaction Reporting

h. Technology Based Solutions
i. Staffing Requirements
j. Risk Awareness and Trade related ML/TF Risks

Training
k. Collaboration with Stakeholders including Customs, FinErts
Shipping Companies etc.
l. Internal Audit
Process Flow Letter Of Credit
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International FinErts FinErts
Payment Methods FinErts
Most Commonly Used Methods
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Most Protection
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FinErts FinErts FinErts FinErts CASH IN ADVANCE
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LETTER OF CREDIT
DOCUMENTARY COLLECTION
FinErts FinErts FinErts FinErts OPEN ACCOUNT FinErts

FinErts Least FinErts
Protection
International Payment Methods: Letters of credit
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•Letter of Credit (LC) Characteristics FinErts FinErts•Sight FinErts
> Offers the most protection to the SELLER > Payment effected when documents are presented which are in
> Three independent “agreements” underline letters of credit compliance with the terms and conditions of the credit
• between BUYER and SELLER (their contract) > Payment may or may not occur immediately

• between Applicant and Issuing Bank (application and • if payable in local territory
reimbursement agreement) • if payablefor
Timeline in a Sight
foreign country
Letter of Credit
• between Issuing Bank and Beneficiary (the LC) • LC terms may contain special provisions about timing

> Banks deal in documents only. BUYER’s recourse for problems Advising/
Seller Buyer/Issuing Bank Presenting Bank Reimb. Bank
with goods is to the contract with the SELLER. Commercial
dispute
ts
> Documents presented under an LC must comply with its terms
en
t
en
m
and conditions, otherwise there is no obligation to honor
ds
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LC
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Days ? ? ? ? ? ? ? ?
1 2 3 4 5 6 7 8

1. Buyer/Seller Negotiate Contract and LC Terms
International Payment Methods: Letters of credit 2. Buyer applies for LC; issued by buyer's bank
3. US bank receives LC, processes, and transmits to seller
Timeline for sight letter of credit

4. Seller produces or secures goods; arranges shipment
5. Seller presents LC documents to the bank
6. Bank examines documents
7. Bank claims reimbursement; reimbursing bank remits funds
8. Funds are paid to exporter
Typologies: Types of Money Laundering Schemes
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•

Over or under invoicing: Misrepresenting the price of the
goods. FinErts
• Multiple invoicing: Invoicing one shipment several times.
• Short or over shipping: Shipping more or less goods than

invoiced.
• Obfuscation: Shipping something other than what is
invoiced.
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•
Phantom shipping: Shipping nothing at all with false
invoices.
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Pain Points in Letter Of Credit
BlockChain Based Banking
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Source
Four use-case
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scenarios FinErts FinErts FinErts FinErts
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The Euro Banking Association (EBA) report groups FinErts FinErts FinErts
blockchain technologies into four key categories:
1- Currencies,
2- Asset Registries,
3- Application Stacks

4- Asset-Centric Technologies.
With this in mind, the paper describes four real use

cases where blockchain technology could improve
1- Foreign Exchange and remittances,
2- Real-Time Payouts,
3- Documentary Trade

4- Asset Servicing
concluding that asset-centric developments were
potentially the most interesting for transaction

banking and the payments industry.
The paper suggests that the banking and payment

industries should attempt to “reach, conversion and
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cost advantages of currencies and reductions in
auditing and governance expenditures from asset-
centric as well as radical innovation from application
stack technologies”.
A chronological representation of the four development categories of technologies, according to EBA’s report.
BlockChain Work Flow/Typology
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Transformative PotentialFinErts FinErts FinErts
The EBA’s report follows on from a
European Central Bank publication, FinErts
which described banking using digital
currency as “inherently unstable” but
potentially transformative in the realm

of payments.

The blockchain has captured the
attention of companies from outside FinErts
the banking space.
US insurance giant USSA is pouring

resources to incorporate the
blockchain into its existing
infrastructure.
The Impact Of Blockchain On
Trade FinanceFinErts FinErts
Operating blockchain based banking with

traders, banks, shipping firms and warehouse
operators has potential to speed up payments

and document handling, reduce administrative
costs and fraud, and improve traceability.
Trade Finance opportunity
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Evolution of foreign trade (exports) fromFinErts
1978 onwards * FinErts FinErts
•
•
•
Fast growing area of activity of economy and of banking activity
Growth to continue, although at a smoother pace
Open account taking 80% of volume. Doc trade flat / in decrease
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• Doc trade generates proportionally more revenue for the banking industry (higher financing
penetration), although with very high operational work
• Reduced transparency and control in open account: SCF solutions / platforms
Source: Standard definition for techniques of Supply Chain Finance (Global Supply Chain Finance Forum) - 2016
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Rationale:FinErts FinErts
Highly Fragmented FinErts
EcoSystem FinErts
Source: BCG SIBOS Digital Innovation in Trade Finance (2017)
Issues in International Open Trade
A Catch 22 – The risk of advanced payment and shipment
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Today, access of companies to international
trade is limited and involves high risk

Companies face a trade-off between bearing the risk, FinErts
purchasing complex/expensive coverage or turning
down business opportunities

This hampers expansion and puts a cap on
international trade
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Trust
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Financing

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Our Solution
A Platform which…
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• offers a simple, FinErts
intuitive way to find FinErts
trade counterparties FinErts
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• make trade proposals with these FinErts
counterparties FinErts FinErts
• request services from their banks against these trades
• set payment conditions which can be agreed upon and executed in
a secure, trustless manner
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Product Features
What is being built?
Hyperledger Fabric Integration Ready
Foundation for developing blockchain applications For other financials services such as payment
with a modular, plug and play architecture undertaking and invoice financing
FinErtsMarketing
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Directory
FinErts Social
FinErtsScoring
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Marketplace to search for prospective trades
Allowing buyers and seller to rate the counterparty
FinErtsSmartFinErts
Contracts FinErts Track
Code-backed smart contract sends payment instruction
FinErts& Trace FinErts
Ability for customers to include Proof of Delivery
when trade conditions are met (“automated settlement”) confirmation by shipper (where supported)

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How it works
How we ensure trust in trade
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Buyer
FinErts Supplier
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1
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Buyer initiates purchase order with 60 days payment terms
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3
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2 Buyer requests bank to provide Bank Payment FinErts
Undertaking (BPU)
4
Supplier ships order and sends invoice through the
3
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platform
2
4 Buyer confirms the receipt of goods
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6
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5 FinErts
Supplier asks his bank to provide invoice financing
arrangement for next 60 days (optional)
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Buyer’s
FinErts Supplier’s
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6 FinErts
Buyer’s bank debits buyer account and initiates payment of
invoice on due date, either…

bank bank − to supplier’s bank, if invoice has been financed or
− to supplier’s account
How
●
it works- continued FinErts
One single platform: enables transparency and constant follow-up at each stage of the lifecycle
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●
●
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Verified customers: buyer and seller have been verified by their respective bank
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Access to financial services: unique customer experience and more possibilities for trade
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●
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Legal framework: increased security
FinErts 1FinErts
Login via Bank access FinErts FinErts 1 Login via Bank access FinErts
Transparency Follow-up
2 Draw-up contract
Receive contract,
3 check and confirm

4 Request Bank Service 4 Request Bank Service
Seller (Optional) (Optional) Buyer
Belgian Beer French drink
Brewer
5 Track & Trace Payment Trust Access to Finance 5 Track & Trace Shipping
distributor
John Boisson

Payment
Seller‘s Bank Buyer‘s Bank

Clients register on platform and are validated and approved Payments will be executed by the banks upon smart contract
by their respective bank – instructions negotiated amongst the clients,
only clients who are already bank clients and went therefore no payment executed through the platform
through KYC process can participate
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Customer Dashboard
FinErts FinErtsMain screenFinErts
when
FinErts FinErts FinErts FinErtslogging in
FinErts
Seller Creates a New Order
FinErts FinErts FinErts FinErtsSeller can FinErts
create a
FinErts FinErts FinErts FinErtstransactionFinErts
new order with
details,
FinErts FinErts FinErts FinErtsand FinErts

attached documents
counterparty

details

Order Details
FinErts FinErts FinErts FinErtsSeller can FinErts
create an
FinErts FinErts FinErts FinErtsthat goodsFinErts
invoice and confirm
are ready

for collection

Key Benefits for Customers
A digital one stop shop accessible by all parties
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Identification of unknown counterparts (all
clients on are KYC’d)
Invoice Financing: Additional working
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capital without leveraging credit lines

Bank Payment Undertaking (BPU):
Track and trace across Board
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Counterparty risk transferred to bank

Event based automatic payment triggers
through smart contracts
Real time settlement enabled by one
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platform for all parties

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Key Benefits for Banks FinErts
Working together to build a leading solution
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Trusted access by banks’ commercial
clients
Help your clients to engage in the
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estimated €3 trillion intra-EU trade
FinErts FinErts FinErts FinErts Access new revenue streams by offering

FinErts
Pooled resources and expertise
additional trade services

Offer additional non-financial services by
Full leverage of blockchain through
third-party providers
network effects
(insurance, customs, etc.)
FinErts(managed FinErts
Easy integration for banks
cloud service
FinErts
or self-
FinErts Be a frontrunner in blockchain
FinErts
hosted)
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Let’s
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build more trust
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Let’sFinErts FinErts
build more FinErts
trade
FinErtsLet’sFinErts FinErts FinErts
shape the future together! FinErts
Contact us via mag@finerts.com
FinErts

Combating Trade Based Money Laundering & Terrorist Funding With BlockChain by FinErts

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Combating Trade Based Money Laundering & Terrorist Funding With BlockChain by FinErts

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With this in mind, the paper describes four real use

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The paper suggests that the banking and payment

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US insurance giant USSA is pouring

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FinErts FinErts FinErts FinErts Access new revenue streams by offering

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