Ethical Business: Luxury or Necessity? Companies and the anti-Money Laundering drive

Associations, Bribery and Corruption, Corruption, Legal, Maritime Fraud, Piracy and Terrorism, Safety and Security, Sanctions, Seizures — By on October 22, 2014 at 11:43 AM
Andy Gibson

Andy Gibson

Ethical Business: Luxury or Necessity? Companies and the anti-Money Laundering drive

The second article in this series of three focusing on the need for a more overtly ethical approach to international business examines the issues surrounding Anti- Money Laundering and Anti-Bribery and Corruption procedures and what impact this has on companies doing business or investing internationally.

By Andy Gibson*

What is money laundering? Money laundering is the art of exchanging money or assets that have been obtained by criminal activity for legally obtained or “clean” money or assets.  The term also covers all monies used to fund terrorism, however obtained.

Criminal activity raises high volumes of cash, and these days high-value cash transactions attract the attention of the banks and the authorities.  Techniques employed to avoid these high-visibility transactions include:

  • Under or over invoicing for goods or services to misrepresent the price and allow “skimming”
  • Short or over-shipping.  By misrepresenting the quantities, goods can be made to legitimise costs and hence money
  • Phantom shipping, where the documents are completely falsified, and no goods are actually shipped

How does this affect legitimate business transactions?

In the UK, above the £1, 000 transaction threshold there is a minimum requirement to identify and verify the name and identity of the payer and their bank account.  The Financial Conduct Authority and National Crime Agency both tend to focus their efforts on companies and organisations  providing financial and transactional services, as these are the organisations best placed to monitor and impose proper due diligence.

The proposed new EU directive, which in content is largely in line with UK legislation, will place an increasing emphasis on risk assessment and anti-money laundering procedures, especially due diligence.  It is important, therefore for all companies trading internationally to apply due diligence procedures to new clients or projects of any value.  This will also include the need to review sudden changes of buying pattern or product in, for instance letter of credit contracts.

So is the answer to assume that the banks or other money traders (e.g. currency traders) will undertake all the necessary know-your-client and due diligence activity, leaving internationally active businesses free to use a light touch?

Not if we read the findings of the 2013 Anti-Money Laundering Financial Conduct Authority report, where some criticism was levelled at financial institutions for failing to prioritise know-your-client and due diligence activity.  The responsibility may well then be shared between both the seller and their financial services provider.

Among the more contentious ideas in the report, it suggested that banks should be cognisant of the underlying contract for trade finance transactions such as letter of credit and bank guarantees.  Whilst we understand the need to identify suspicious transactions that deviate from current patterns, the requirement to examine the underlying transaction or contract is at odds with the codes of practice issued by International Chamber of Commerce for both kinds of instruments (UCP600 and URDG758), so there may well be some further discussion on this matter.

What is clear from the report is that focused specific training was needed for those associated with trade finance instruments across the board – front of house and back office, to allow them to red-flag suspicious transactions.  In our view this policy should also extend to international trading companies using trade finance instruments as a key part of their treasury management systems.

To access more detailed information on anti-money laundering, and specifically know-your-client and due diligence procedures, it is worth visiting both HM Revenue & Customs and Financial Conduct Authority web-sites, where guidance leaflets can be downloaded free of charge.  Your bank will also be happy to discuss the matter with you, and the Department for Business, Industry & Skills offers an excellent export checker tool kit.

*Andy Gibson is managing director of Segelocum Ltd, a trade services company.  His first article in the series is at


Tags: , , , ,

Leave a Reply

IMPORTANT! To be able to proceed, you need to solve the following simple math (so we know that you are a human) :-)

What is 4 + 12 ?
Please leave these two fields as-is:


Leave a Trackback