A report released this week by the Dubai Financial Services Authority (DFSA) has found a certain lack of awareness of trade-based money laundering (TBML) in firms operating at the Dubai International Financial Centre (DIFC).
The Trade finance report 2016 points out that while banks have strong internal controls for general credit risk, the same is not true for TBML risks. It also finds that skills are lacking when it comes to understanding the specific risks surrounding trade finance, and that banks should take that into account when recruiting, whether internally or externally.
“An inadequate focus on the specific financial crime risks associated with trade has had a negative impact across several system and control elements included in the review, namely: governance, risk assessment, customer onboarding and ongoing customer due diligence. Firms are required to have a certain level of awareness regarding TBML risks prior to designing effective risk-based controls to manage them,” says the report.
One of the risks comes from the widespread practice of outsourcing. The report notes that in some cases, banks are unable to explain the functions that are being outsourced.
In terms of anti-money laundering (AML) risk assessment, firms tend to lack specific assessment methods for TBML, focusing rather on credit risk. Firms also tend to focus more on monitoring potential sanction breaches than potential money laundering risk.
The DFSA adds that it is “concerned” that almost all firms could improve their customer onboarding and ongoing due diligence processes. “In particular, controls around identifying and dealing with the risk of dual-use goods need improvement,” the report adds.
Ian Johnston, chief executive of the DFSA, says: “There is an increased focus globally, on trade-based money laundering risks from international groups such the Financial Action Task Force, and financial service regulators. Our review and the published report are further testament to the DFSA’s commitment to maintaining the highest international standards in the DIFC. 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.”