Financial crime in trade finance-targeting the issues and suggesting solutions

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1 Financial crime in trade finance-targeting the issues and suggesting solutions Talk by Simon Cook, Partner Sullivan & Worcester UK LLP 14 November 2014

2 Overview of Presentation Brief background on the current position Accuity some issues and possible solutions Where does this leave us? Some final thoughts 2

3 A bit of background FATF (the Financial Action Task Force) Trade finance is inherently high risk FCA thematic review also saw trade finance as risky FCA Guidelines Did they listen to the banks Requirements on practice and procedures Risk based approach ironic? 3

trade finance as risky FCA Guidelines Did they listen to the

4 And in Practice? What actually needs to be done? There is a growing need to show compliance This includes: Sanctions Anti-money laundering Proceeds of financial crime Terrorism Dual use goods Anti-bribery Can you rely on your customer s due diligence? The issue of KYCC 4

Anti-money laundering Proceeds of financial crime Terrorism Dual

5 Where are we today? Many potentially good financings could be completed Reluctance to commit Back to basics How to unlock this ICC/other databases? Other technology based tools? 5

6 BREAK 6

7 The Outsourcing Option What can you achieve with tools like Accuity? Is outsourcing sufficient? What else still needs to be done Training Monitoring Analysis Financial checks 7

8 A Typical Tolling Structure raw material finished product Supplier Processor rail ship rail rail/ship ship loadport Arrival port Tolling Facility e.g.mill European port selected final customer B/L railwaybill railwaybill B/L transportation 7-10 days production 30 days export L/C sight total max. 120 days

9 Dealing with risks Due diligence Know your customer KYCC Other parties What about the underlying transaction? Is there anything unusual? What about the goods? Risk of double use Check unusual transactions Check unusual documents 9

Is there anything unusual? What about the goods?

10 How is regulation driving structuring Need better treatment so Need most helpful/different structures Need maximise added value The KYC/AML effect The sanctions effect Reputational risk Penalties Geographical issues 10

Need maximise added value The KYC/AML effect The

11 Some Consequences of Regulation OFAC and Europe Practical issues (eg energy supply) Legal issues (eg European legislation) Financial penalties Risk appetite Risk vs reward Yields/costs (competition?) The KYC/AML effect De-risking Eg correspondent banks Logical conclusion of approach? 11

penalties Risk appetite Risk vs reward Yields/costs (competition?

12 Can you take out the risk in trade? Trade finance is not risky BUT there are risks in trade These are the FCA s position about satisfying the Regulator on how risks are dealt with Mitigate by good practices and procedures Where are the risk areas? Breach of sanctions; money laundering; financial crime and now bribery (perhaps) You cannot remove the risk from trade but you can mitigate it better with a combination of tools 12

Regulator on how risks are dealt with Mitigate by good practices and procedures Where are the risk areas?

13 Drawing some conclusions Measured view on risk Systems to protect bank Structure to protect transaction Take on the transaction and then transfer it if required Work within existing regulations BUT try to influence regulators in future 13

transaction and then transfer it if required Work within

14 Simon Cook Partner Simon Cook is a partner in the Trade & Export Finance Group in the London office of Sullivan & Worcester UK LLP. He has experience in a wide variety of banking and finance transactions, including in particular in relation to structured trade finance, trade finance, project finance, invoice discounting facilities and borrowing-base facilities in Africa, the Middle East, Asia and the CIS. His work in the structured trade area covers a range of pre-export and prepayment financings acting for both lenders and borrowers notably in oil, telecoms, soft commodities and metals sectors with particular experience in Africa and the Middle East. Simon has worked and travelled extensively in Africa and the Middle East, having spent over three and a half years in Dubai. He has participated in a number of structured trade finance and project finance conferences and seminars throughout Europe, the Middle East and Africa, including speaking at conferences on PPP in South Africa; on project finance and structured trade finance at Afrexim's annual structured finance conferences in Cairo, Ghana and South Africa; and at structured trade finance seminars and general finance in London, Paris, Lisbon, Geneva, South Africa, Zambia, Uganda, Ghana and Dubai. Tower Old Broad Street London EC2N 1HQ T +44 (0) F +44 (0) scook@sandw.com 14

facilities and borrowing-base facilities in Africa, the Middle East, Asia and the CIS.

15 Sullivan & Worcester advise clients concerning their activities throughout the world, with a special emphasis on the emerging markets of Africa, Asia, the CIS countries and Latin America. Our practice is multi-disciplinary, involving attorneys and solicitors expert in trade, banking, securitization, securities law, project finance, insurance, tax, compliance issues and dispute resolution. In addition to trade and commodities finance, the firm intends to build up a London practice linked closely to our U.S. practice and the needs of our clients worldwide. The office will also benefit from our joint venture in Israel, ZAG-S&W, and significant client activity across Europe and Asia. We will broaden and enhance our existing practices in cross-border finance, mergers and acquisitions, tax, banking and international arbitration. OFFICES BOSTON One Post Office Square Boston, MA T F NEW YORK 1633 Broadway 32 nd Floor New York, NY T F WASHINGTON, DC 1666 K Street, NW Washington, DC T F LONDON Sullivan & Worcester UK LLP Tower Old Broad Street London, EC2N 1HQ T +44 (0) F +44 (0) Sullivan & Worcester Sullivan & Worcester is the collective trade name for an international legal practice. Sullivan & Worcester UK LLP is a limited liability partnership registered in England and Wales under number OC and is a practice of registered and foreign lawyers and English solicitors. Sullivan & Worcester UK LLP is authorised and regulated by the Solicitors Regulation Authority ( SRA ). The term partner is used to refer to a member of Sullivan & Worcester UK LLP. A list of the names of all the partners is available for inspection at our registered office, Tower 42, 25 Old Broad Street, London, EC2N 1HQ. Please see sandw.com for Legal Notices, including further information on our professional obligations. This presentation is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. We are providing information to you on the basis you agree to keep it confidential. If you give us confidential information but do not instruct or retain us, we may act for another client on any matter to which that confidential information may be relevant. 15

resolution. In addition to trade and commodities finance, the firm intends to build up a London practice linked closely to our U.S. practice and the needs of our clients worldwide.

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