Trade finance is a service that both exporters and importers can use in many ways. Money launderers try to look at the movement of funds as little as possible. The risks of committing a financial crime related to trading are pretty high.
Documentary credit is mostly useful for moving money into and out of countries that have restrictions on exports and imports and need proof that the goods actually entered or left the country. Banks should handle these transactions according to a standard set of rules that includes making sure that the documents involved meet the terms of the letter of credit. Even though Documentary Collections don’t have to be checked by the bank, they will still need consistent documents as a cover for the ever-present Sanctions and increasing Anti-Money Laundering checks. The product that comes with the most risk is cash payments that support trading on an open account.
The Finance Corporation (FI) trade finance is the item with the second-highest risk rating. The FATF, Wolfsberg, and JMLSG have put the financial crime risks in trade finance into two main groups: money laundering/terrorist financing (including fraud) and sanctions/proliferation financing. Money Laundering and Terrorist Financing are important for criminal groups to get the most out of money they got illegally. Sanctions/Proliferation Financing could include the trade of drugs, the smuggling of weapons and other goods, fraud, kidnapping, and extortion.
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