Singapore recently launched Trade Finance Compliance (TFC), a new government e-service to fight money laundering. As part of the Networked Trade Platform (NTP) a trade information ecosystem helmed by Singapore Customs, the e-service is expected to help the Singapore Government and the various associated banks in mitigating risks of trade-based money laundering.
While the current process for validating the underlying trade and conducting price checks for non-commodity goods is both manual and paper intensive, the TFC in an effort to improve efficiencies, will digitalise the processes.
In this regard, Sanjay Singh, SVP, business and financial services, Asia Pacific at consulting firm Frost & Sullivan told International Finance that with the digitalisation of the processes and shift from paper based systems, use of fintech, robotic process automation (RPA), blockchain and AI technologies can help assist both banks and regulators manage the risk of money laundering better. One instance where such new technologies could be used, Singh said was in the Know Your Customer (KYC) procedure as this would help banks better understand their clients’ business and trends, which would in turn help them flag out anomalies thereby helping mitigate trade based money laundering. Another area is the use of an AI based credit scoring system. This, he said, could help customers with better management of counterparty risks, which if executed properly could also benefit good corporate customers by helping them to win better working capital terms.
Meanwhile, United Overseas Bank (UOB), one of the many Singapore banks that are participating in the TFC initiative is already using such technologies to manage money laundering risks. Victor Ngo, head of group compliance at the Singaporean multinational banking, told International Finance that it already has in place a robust risk management framework, policies, procedures, programmes, and systems to both detect and prevent financial crime facilitated through trade transactions. Ngo added that as part of this, the bank uses machine learning and data analytics to swiftly identify more precise risk indicators and information and to detect unusual and suspicious activities.
As part of its initiative to fight money laundering, UOB has teamed up with Singapore based regtech company, Tookitaki Holding in August 2018. The collaboration has resulted in a machine learning solution that the bank has applied for two main processes, screening and transaction monitoring. While in the former, the solution helps the bank identify high risk individuals and entities based on internal and external watch lists, under transaction monitoring, the solution helps the bank in identifying and reporting of suspicious transactions for investigation. So, overall, this machine learning solution helps UOB to draw out faster and more precise information to prevent and to detect suspicious money laundering activities.
With regard to the technology and processes underlying TFC, a Singapore Customs spokesman told International Finance that the e-service initiative will digitise the existing process by leveraging the basic design and structure of NTP, which uses application program interface (APIs) to deliver the service. This fully automated service, he said, helps financial institutions to reference the information provided by the trade finance applicants against data derived from permits issued by Singapore Customs. This will help banks better assess if the trade price is in line with the general industry prices for similar products, check if they are consistent with the trader’s historical prices as well as if the applicant has an import or export permit from Singapore Customs for that particular trade finance application, thus helping them increase the efficiency and accuracy of their checks against trade finance fraud and trade based money laundering. So, overall, the TFC is a risk mitigation tool that will make trade finance more transparent.
When queried on how much laundered money could actually be unmasked through TFC every year, Frost’s Singh said it would be very difficult to put an exact number but a good illustration could be the swift action taken by Singapore government and regulators in shutting down BSI bank of Switzerland due to gross misconduct concerning 1MDB and also seizing about $180 million in assets in a money laundering investigation related to the same in 2015.
Meanwhile, the Singapore customs spokesman too did not give a number for the same. He however said that a greater usage and awareness of the TFC service could help to deter companies from engaging in illicit activity, reducing the risk of crimes such as trade finance fraud and trade based money laundering.