Estimated reading time: 4 minutes

The rapidly evolving global compliance regulations have rendered trade finance compliance one of the most critical operational challenges for financial institutions. 

With emerging regulatory frameworks and geopolitical tensions sparking unprecedented waves of sanctions laws and export controls, the ramifications of non-compliance transcend financial penalties, impacting reputations and access to global markets. 

Hence, staying abreast of the latest compliance requirements and enhancing collaboration with various stakeholders prove to be indispensable in unravelling the complexities of today’s trade finance compliance landscape.

In this episode of Trade Finance Talks, Alex Gray, Head of Trade and Transaction Banking at the London Institute of Banking and Finance (LIBF), and Noémi Klein, former Regional Head of Financial Crime Surveillance Operations at Standard Chartered Bank, share the main topics and insights covered at the LIBF Annual Trade Finance Compliance Conference 2023. Together, they shed light on the multifaceted issues faced by financial institutions and the recent developments in the intricate world of compliance in trade finance. 

Empowering risk management through collaboration: Breaking down silos

The conference’s central theme revolved around collaboration, with professionals from diverse industry segments sharing their unique experiences and insights on its paramount importance. A crucial focus resonated among attendees: the imperative to dismantle historic silos within organisations, particularly those engaged in combating financial crime. 

Klein highlighted the necessity of breaking down these barriers, stating, “There are too many siloed teams within the world of fighting financial crime, and it goes beyond just trade.” 

Moreover, enhancing seamless collaboration and promoting cross-department information sharing holds the key to significantly improving institutions’ risk assessment and management standards, allowing them to gain a comprehensive understanding of customer behaviour and relationships. 

Klein emphasised the value of considering the bigger picture when analysing customer profiles, cautioning that a lack of collaboration between teams may inadvertently lead to isolated perspectives. 

“When it comes to analysing trade transactions or examining trade documentation,” she pointed out, “different teams may not take into account the customer’s complete KYC profile or the customer of the client, which is undeniably crucial for understanding the entire relationship.” 

In addition, she supported the idea of celebrating employees who identify red flags and potential fraud, stating, “Sometimes people diminish their role in identifying emerging risks, which are obviously key for an organisation to learn about trends and build their controls that can save them from breaching laws or regulations unknowingly.”

In today’s interconnected world of global trade, the significance of information sharing extends far beyond the scope of financial institutions. Promoting collaboration and information sharing among a diverse range of entities is therefore essential to proactively stay ahead of financial criminals and protect the industry as a whole. 

Klien asserted, “This was also a recurring topic during the conference, and it goes beyond financial institutions. It goes to service providers, asset managers, legal firms, and auditors. All these service providers should be able to share information to create a cohesive and interconnected network.” 

The recognition that bad actors operate across multiple avenues, rather than being confined to a single institution or service, underscores the urgent need to encourage collaboration and information sharing among diverse entities. Gray echoed this view, affirming, “The more that can be shared, the better.”

Navigating the complexity of sanctions compliance

Amidst the current geopolitical tensions and the constantly developing regulatory frameworks, the Ukraine-Russia conflict was inevitably discussed during the conference. As the conflict continues, countries have periodically imposed new restrictions on Russian individuals, entities, and industries, and this is likely to persist as the conflict prolongs.

In response to these sanctions, global financial institutions have to ensure the implementation of robust compliance procedures to mitigate the risks associated with conducting business involving Russian assets. 

Klien underscored that while the methods used to address sanctions have remained relatively consistent, the level of interconnectivity among entities in the globalised economy has greatly intensified. She elaborated on this difference, saying, “What is different about it is that these sanctions surround entities that are deeply interconnected in the globalised economy, and this is what makes enforcing them so difficult.”

This complexity presents substantial obstacles in enforcing sanctions effectively, making it imperative for institutions to maintain constant vigilance and adaptability.

Furthermore, the ripple effects of sanctions extend past the primary target, profoundly affecting neighbouring countries with extensive trade ties to Russia. Klien highlighted the impact of these broader repercussions, stating, “There are many countries surrounding Russia that rely heavily on exports and imports with them, and these economies are being crippled by the sanctions.”

Additionally, enforcing sanctions becomes particularly challenging when certain countries do not explicitly endorse their implementation, as highlighted by Klien. 

A case in point is the diamond industry in Russia, where major players like China, India, and the UAE may not be fully on board with the sanctions measures, posing considerable hurdles to their effectiveness. 

Despite concerted efforts by the EU, the UK, and the US to clamp down on the industry, Klien pointed out the remarkable surge in Russian diamond money flowing into the UAE, stating, “The amount of Russian diamond money in the UAE increased sevenfold over just the last month.” 

This surge in Russian diamond money in the UAE exemplifies how the difference in supporting sanctions implementation between countries can impede the enforcement of sanctions and diminish their intended impact.