On 11 March 2021 the Financial Action Task Force (FATF) and Egmont Group published a joint report on trade-based money laundering (TBML) risk indicators. This follows on from a report published in December last year by the same bodies highlighting pertinent trends and developments with respect to TBML for market participants to be aware of. The FATF and Egmont Group encourage the market to read both reports in conjunction with each other.
The new report provides practical examples of risk indicators (otherwise known as “red flags”) which have been determined through sampling data from research conducted by the FATF and the Egmont Group. The risk indicators are split into four categories to help both public and private sector firms to identify potential instances of suspicious activity in international trade transactions. These are:
- Structural risk indicators – these red flags relate to the legal form and/or structure, business activities, footprint and presence of the parties involved in the trade transaction;
- Trade activity risk indicators – these red flags consider attributes/features/patterns of the trade transactions executed by the party;
- Trade document and commodity risk indicators – these red flags highlight potential risks associated with trade documentation, such as contracts, invoices and valuation/quantity reports; and
- Account and transaction activity risk indicators – these red flags consider behaviours with respect to how the trading party uses/manages their account, and any changes with respect to this (such as an increase in cash usage or significant trade volume/value variances).
The FATF and Egmont Group advise that this report should be used to train and support firms and individuals with respect to identifying and escalating potentially suspicious trade activity. However, they also highlight that the risk indicators are by no means exclusive, and staff should remain alert to any other behaviour/activity which they consider to be unusual or suspicious.