Digitisation of compliance process a must to prevent Trade-based money laundering

The biggest and the most powerful economies look for a trading partner that is strongly regulated and has a clean record, supplemented by the ease of doing business

Updated: Jan 17, 2018 11:05:16 AM UTC
Image: Shutterstock

International trade is the backbone of globalisation and an imperative for economies to grow. For India as well, growing its trading prowess is critical to its rise as a global economy. The biggest and the most powerful economies look for a trading partner that is strongly regulated and has a clean record, supplemented by the ease of doing business. It is therefore a priority for India as an economy to have strong checks and balances to ensure that the trading framework is free from any loopholes for any trade based money laundering (TBML) activity.

Trade-based money laundering (TBML) is the use of international trade as a channel for legitimizing money attained from illicit activities. Schemes vary in complexity but typically involve misrepresentation of the price, quantity, or quality of imports or exports. Financial institutions may wittingly or unwittingly be implicated in these schemes when they are used to settle, facilitate, or finance international trade transactions.

Banks are key intermediaries for trade facilitation, and money launderers are constantly on a lookout for opportunities to layer their black money. From a trade finance perspective, the objective for banks is to drive business growth through higher volume / value while ensuring that they prevent dirty money from entering their books. While banks are digitizing their trade finance operations to ensure a healthy volume growth, they must also ensure that due diligence and the checks and balances processed are also automated to meet the regulatory objective.

Most banks in India are currently running manual checks for due diligence of counter party, vessel tracking, dual use goods, invoice frauds and other related areas, which leaves them vulnerable to oversight and errors. At the same time, banks are struggling to meet the regulatory justification for suspicious trades passed through the manual scanning process. As a result they are incurring huge operational inefficiencies and high costs for trade finance transactions.

Over the last few years, some of the largest global banks have been fined billions of dollars by the US Department of Justice for compliance failures relating to anti-money laundering and sanctions breaches. This has led to increased regulatory pressure on the banks and the onus of detecting and reporting suspected criminal behavior now lies with them. This calls for robust systems and controls to automate processes from client on-boarding and counterparty due diligence, to monitoring goods movement, check dual-use goods within every transaction, invoice frauds and other related checks. Failure to establish appropriate controls can give rise to the risks of both monetary (through fines) and reputational.


Digitisation and the automation of compliance checks will play a significant role in the fight against trade-based money laundering by replacing subjective manual compliance with a consistent and scalable process. If harnessed fully, digitisation can enable banks bring down compliance costs substantially over the longer term, increase transparency and mitigate the risk of facing fines or reputational damage. Once banks automate the compliance checks that need to be conducted, operations can be streamlined and operational bandwidth released can thus be leveraged more productively on value-added activities, thus boosting efficiency and margins.

-By Anurag Jain, Head of Risk Business, Thomson Reuters, South Asia

The thoughts and opinions shared here are of the author.

Check out our end of season subscription discounts with a Moneycontrol pro subscription absolutely free. Use code EOSO2021. Click here for details.