June 7, 2020 / Financial and Banking Law / By Daniela Alejandra Lobato
On May 15, the National Banking and Securities Commission, together with the Financial Intelligence Unit of the Ministry of Finance and Public Credit, issued the “Guide for the implementation of warning and monitoring scenarios for the prevention and identification of Transactions with Illegally-Obtained Funds and Terrorism Financing related to Business email Compromise (BEC) and Trade-based Money Laundering,(hereinafter, the “Guide”).
Therefore, the purpose of this information bulletin is to provide a brief summary of the measures established in the Guide, which the obligated persons may implement to prevent and identify the perpetration of money laundering crimes (hereinafter, “ML”) and terrorism financing (hereinafter, “TF”), through the establishment of criteria, rules, or warning, monitoring scenarios, and analysis processes.
A. INTERNATIONAL CONTEXT
As a result of the use of new communication technologies and the complexity of financial transactions for the perpetration of ML/FT crimes, international bodies such as the Vienna Convention of 1988, the Palermo Convention, and FATF have implemented different tools to fight the aforementioned crimes, which, in general, are as follows:
- Definition of unlawful conducts derived from the perpetration of drug trafficking and money laundering, as well as the establishment of sanctions to penalize the “laundering of crime proceeds”.
- FATF recommendations include: (i) identify and assess ML/FT Risks that may arise in connection with new technologies; and (ii) monitor wire transfers to identify those transfers that lack the required originator and/or beneficiary information, and act properly.
Therefore, it is important to mention that, in 2006, FATF published a report entitled “Trade-Based Money Laundering”, which mentions the great risks and vulnerabilities of the international trade system, derived from the large volume of trade flows, which has the consequence of hiding unlawful profits, and integrating them into the formal economy through the following means: (i) the use of the financial system; (ii) physical movement of money; and (iii) the movement of goods through the commercial system.
B. INTERNATIONAL CONTEXT
Our country has several financial laws that require obligated persons to establish policies and procedures to minimize the perpetration of ML/FT crimes. Some of these policies are established in the general provisions applicable to each sector, which are: (i) identification and recognition of clients and users; (ii) establishment of a methodology to assess the risks to which supervised persons are exposed; (iii) delivery of reports; (iv) establishment of internal structures for the compliance with the obligations; and (v) use of automated systems which help minimize the risk of the obligated persons.
However, despite of the aforementioned measures, it is necessary to reinforce warning scenarios to detect potentially unusual conducts, and, consequently, identify and mitigate risks. In the same way, the obligated persons must be aware of the use of new technologies, financial transactions, and the elements of ML/FT crimes.
On the other hand, derived from the mutual evaluation conducted on our country by FATF in 2017, it was identified that the main national crimes can be divided into 3 magnitude levels: (a) international and national organized crimes; (b) corruption; and (c) tax evasion. In addition, it is true that with technological advances, organized crime has implemented more sophisticated mechanisms for the perpetration of the aforementioned crimes.
C. BUSINESS EMAIL COMPROMISE (“BEC”)
Recently, high-risk conducts related to BEC have been identified, through which wire frauds are carried out by means of keyloggers or phishing. In such frauds, the apparent lender tells the victims to make transfers to an account other than the one originally agreed or to make the total or partial payment without obtaining the agreed remuneration or good. Once the fraudsters receive the funds in one of the accounts operated by the supervised persons, they send the funds to other accounts or withdraw them in cash to avoid tracking and recovery of the amount of the fraud.
As part of the analysis process, supervised persons are encouraged to consider and review the following: (i) recent account openings; (ii) amounts traded within a specific period; (iii) transfer payers are persons who have no apparent relationship with the customer; (iv) channel used for the withdrawal of funds, whether national or international; (v) low permanence of funds; and (vi) beneficiaries declare their economic activity.
D. INTERNATIONAL BUSINESS TRANSACTIONS
Another problem has been identified in relation to individuals or legal entities importing or exporting goods and receiving and/or sending wire transfers in their accounts from other individuals or legal entities without having a corporate purpose that justifies the commercial relationship.
The foregoing derives from invoicing manipulation, and it has detected behaviors like: (i) the exporter submits an overvalued invoice; (ii) falsification of business invoices; (iii) underinvoicing of goods; and (iv) submission of invoices in which different payments are received for the same product and the additional invoices are paid with unlawful funds.
The problem also derives from shipment manipulation. Shipments that have been modified by shipping more or less goods have been detected, where the description is falsified or there is “mislabeling”. Similarly, there have been cases where the exporter ships more goods than declared and acquires high quality goods, mostly with illegally-obtained funds, and then describes and invoices them as if they were a smaller quantity.
Lastly, phantom shipments have been defined as those shipments in which there are no goods and the documents are completely false. In this way, the exporter simulates the sale of those goods, and the importer simulates the payment for them.
Consequently, supervised persons are advised to parameterize in their automated systems, warning scenarios that evaluate transactions of customers receiving and/or ordering wire transfers, whose payers/beneficiaries are one or many legal entities for considerable high amounts.
In addition, regarding the monitoring measures suggested to be implemented, there are: (i) performing periodic monitoring of related transactions through fund transfers; (ii) performing quantitative and risk analyses of the transactions carried out within a specific period; (iii) performing customer documentary reviews according to their risk degree; and (iv) verifying the physical and legal existence and business purpose of such transfers.
Finally, as part of the analysis processes, supervised persons are advised to consider the beneficiaries and payers of international fund transfers, the geographical areas where transfers are sent and received, the low permanence of the funds, and the economic activity declared by the beneficiaries.