Page 34 - Banking Finance June 2025

ARTICLE

issues around TBML. Some notable regulatory changes and structures that may be in offshore jurisdictions (Cayman
guidelines issued in recent times impacting TBML include: Islands, Panama, etc.).
The passing of the Undisclosed Foreign Income and As- Quality control and quality audits- The tests and as-
sets (Black Money) and Imposition of Tax Act, 2015 and
sessments conducted by quality control and auditors
Benami Transactions (Prohibition) Amendment Act,
2015. Clause 177 of the 2015 Finance Bill proposed to should be robust enough in assessing the weakness of
club all offenses under Section 132 of the Customs Act, current processes and the opportunities for control
such as false declarations, false documentation, etc., enhancement.
as offenses under the Prevention of Money Laundering
Act (PMLA), 2002. Conclusion:
Forming an elite panel to devise and solidify indicators If implemented effectively, these preventive measures will
(on classification of certain types of transactions), evalu- significantly contribute to the global fight against money
ate, and identify red flags, in the case of any misde- laundering through trade-based money laundering (TBML).
meanor. It is important to recognize that as economic growth accel-
The Indian financial intelligence unit rolled out a new erates, the significance of TBML escalates alongside the
process mandating all banking and financial institutions expansion of global trade. This has led to an increase in the
to file formatted cross-border wire transfer reports for volume of trade transactions processed by banks and finan-
amounts exceeding INR 5 lakh. cial institutions, presenting unique challenges in mitigating
the diversion of funds into TBML channels.
Some of the key challenges to counter TBML are mentioned
below: In India, banks are confronting similar issues related to
Ineffective implementation of KYC and CDD policy and TBML. A primary concern is the inadequate collection of
procedures Know Your Customer (KYC) information and due diligence
Non-identification of red flags and inadequate enhanced performed by operations staff at the time of account open-
due diligence ings, during the execution of import-export transactions,
and throughout ongoing monitoring processes. This gap in
Delay in regulatory reporting
the due diligence process underscores the need for strength-
Employees not adequately qualified or knowledgeable
ened internal controls and compliance measures to effec-
Ineffective internal controls framework tively identify and prevent TBML activities.

To safeguard themselves from these challenges, bankers Therefore, enhancing the Know Your Customer (KYC) and
need to consider the following key pillars of TBML preven- Customer Due Diligence (CDD) framework, with an emphasis
tive mechanisms: on the identification and verification of Ultimate Beneficial
Policies and procedures- AML and compliance policies Owners (UBOs), is crucial in combating money laundering
and procedures should contain a clear process for iden- through trade-based money laundering (TBML). Robust Anti-
tifying and verifying the ultimate beneficial owner Money Laundering (AML) programs and comprehensive
(UBO). All new and existing accounts are subject to knowledge are essential to navigate the complexities of multi-
verifying and identifying UBOs during account opening layered and opaque offshore entities that are designed to
or KYC update processes. obscure the identities of UBOs. The challenges include the
Identification of red flags- Bankers should timely iden- need for specialized knowledge, qualified personnel, and ro-
tify the red flags to ensure timely escalation and inves- bust compliance policies and procedures. Addressing these
tigation of the red flags identified. challenges both domestically and internationally is imperative

Qualified and trained staff- Employees that obtain for achieving meaningful progress against TBML activities.
identification and perform the verification of the UBO
should be qualified and understand how to deal with References:
legal entities and how to track the UBO in complex Various Sources.

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