Alexon Bell, Chief Product Officer at Quantexa
Criminals are increasingly taking advantage of cross-border trade in order to change the financial proceeds of their illegal activities into revenues that seem legitimate. This practise, known as trade-based money laundering (TBML), occurs in domestic as well as international trade. The international trade system offers more opportunity for money launderers due to the complexity and enormous volume of natural cross-border trade connections, allowing criminals to hide in plain sight.
Alongside this, criminals are become increasingly sophisticated and financially literate. They are now using multiple companies and foreign exchange transactions, mingling diverse trade financing agreements with normal transactions, and are even starting to mix legitimate and illicit funds. The limited resources of customs agencies makes it even harder to detect suspicious trade transactions.
As financial products, practices and technologies continue to evolve, so do the possible threats to the broader financial system, with TBML becoming increasingly sophisticated. Consequently, it is vital that financial institutions , regulators, governments and law enforcement work together to reduce the impact of TBML within the global markets.
How is TBML conducted?
TBML is about transferring value from one party to another and disguising this as a legitimate business-to-business transaction. Criminals use a variety of mechanisms to transfer money; for example, party A pays for 10 motor cycles and only 5 are shipped (partial shipment), or sometime none are shipped. Another method would be over or under invoicing, where for example, the motor cycles are worth £10,000 each but are only invoiced at £5,000 each. In many cases the banks are not even aware if the £50,000 payment is for motorcycles, mobile phones or carrots. Banks only see this information when they finance the trade, which only accounts for around 15% of all transactions.
Suspicious activity can also involve payments to a vendor by unrelated third parties, false reporting, repeated importation and exportation of the same high-value commodity (this is known as carousel transactions), commodities being traded that do not match the business involved, unusual shipping routes, inconsistent packaging and double-invoicing.
The growing threat
TBML is a primary vehicle for moving funds overseas and plays a major part in the layering and integration stages of money laundering. 80 per cent of illicit financial flows from developing countries are accomplished through TBML, and an estimated $2.3 trillion was moved out of the US from 2003 to 2014 as a result of deliberate pricing anomalies.
The scale of TBML is vast because of the amount of money that can be moved. If a business sends another business a payment, they are trading, buying goods or services, paying royalties or commissions and TBML covers all of this. Consequently, it’s much more complicated than detecting placement, since cash is not involved and it has already been placed into the banking system.
The rise in TBML has precipitated a recent increase in regulatory scrutiny, as well as new guidelines from global bodies including The Wolfsberg Group. New regulations aim to develop financial industry standards for anti-money laundering (AML), know your customer (KYC) and counter terrorist financing (CTF) policies. The Monetary Authority of Singapore (MAS) has also recently issued specific guidance on TBML.
Whose responsibility is it to tackle TBML?
Banks play a large role in tackling TBML as they process the payments, but to really combat TBML, we need cross-industry collaboration between banks, governments, shipping and logistics companies.
For example, banks have no way to know if a shipping container contains 40,000 shirts or 40,000 computer chips. This must be validated by the shipping company or port authority but it simply isn’t practical to open every single container; the busiest port in the UK handles over 3.5 million containers a year.
Alongside this, the banks often have no idea what is being shipped, as 85 per cent of all transactions are straight payments, with no documentation or financing involved. Take, for example, 10 companies in the UK importing T-shirts from the same manufacturer in Bangladesh. If each UK company banks with a different bank, each bank only has 1/10th of the data on the Bangladeshi T-shirt manufacturer. This is where shipping companies and logistics firms can help, as they have detailed knowledge of what they are transporting.
It is at this point that governments need to step in. The only point at which all imports are seen is the port and tax authority, although the cargo cannot be thoroughly checked. The government is the only entity that will see all the imports from the Bangladeshi T-shirt manufacturer, so it must act to pull this data together and share it.
An approach to tackle TBML needs to be agreed and this requires cooperation from across the finance industry, the governments and law enforcement. One effective method would be to remove the paper from the documentation process and better record who is shipping what to whom. Currently, banks are investing heavily in digitising paper documents into something a computer can use. This seems strange as the Bills of lading and invoices are no longer written by hand, but are instead created on a computer and printed. We should stop digitisation and start forcing businesses to upload their documents in a machine-readable format in order for them to gain access to finance and be able to import into a country.
One suggestion is that the G20 governments should mandate that all imports are registered electronically. A simple spreadsheet consisting of the sender and recipient details, the delivery location, a short breakdown of each item, quantity and price should be sufficient for banks to use this same information for financing and processing transactions. For emerging markets and developing nations, trading with each other paper will still be required but this would be a step in the right direction.
Meanwhile, banks should ensure they are conducting comprehensive risk assessments of their trade finance businesses, taking into account their customer base, geographical locations, products offered and any risks in order to determine the amount of financial crime risks they could be exposed to. Banks should also make use of advanced data analytics, network analytics and machine-learning technologies that are able to identify information, trends, connections and anomalies indicative of TBML schemes.
TBML may never be fully eradicated, but with the right technology and processes in place, and through collaboration and regulation, we can devote the required time and resources to create a robust AML program that can stand firm against financial crime.
FOUR WAYS OPEN BANKING AND AI WILL REVOLUTIONISE ACCOUNTANCY
Ed Molyneux, CEO and co-founder of cloud accounting software company, FreeAgent
It’s been just over two years since the term Open Banking became a tangible reality in the UK. Since then, the nine largest banks and building societies in Great Britain and Northern Ireland have signed up to take part in the initiative, meaning they must allow regulated businesses to access their customers’ financial data, as long as the customer has provided permission.
Open Banking was imposed by the Competition and Markets Authority to spur competition between banks and make customers’ banking information more accessible to third parties. And this phenomenon has already been transformative for accountancy, providing third-party financial service providers standard ways to access consumer banking transactions, and other data from financial institutions – a seamless alternative to the teetering piles of paperwork traditionally associated with accounting. Paired with other new innovative technologies, including artificial intelligence (AI), Open Banking has the power to change the day-to-day lives of accountants and more broadly, the world of finance.
This article examines the fundamental ways Open Banking and AI can and are already being utilised by accountants.
Real Time Insights
Through the use of Open Banking, accountants can have real-time access to their clients’ most up-to-date banking data every single day. This means no more chasing clients for the necessary information that you need to do your usual day-to-day work. This also benefits your clients, as they can continue with their daily workload knowing that their bank transactions are being shared with you directly, accurately and automatically. Suddenly their do-list looks a bit shorter!
Traditionally, accountants have had to deal with an enormous amount of paperwork, including invoices, expense receipts, bank statements and other important documents. Combined across the profession, this amounts to mountains of paper that have to be analysed and filed. One of the greatest benefits of technology and digital accounting is that it alleviates the stress of keeping important information in physical files. As well as less mess in the office, this means invoices, expenses, receipts can be kept in one place – online. This enables accountants to be more efficient on a day-to-day basis as they are able to easily find documentation by simply typing in what they are looking for to search for it.
Luckily for accountants, and also for the environment, Open Banking and cloud software platforms ensure that important data can transfer seamlessly and safely between your bank and your financial accounts. Already, cloud accounting software makes it possible to have one tidy dashboard that gives an overview of the business in its entirety. As well as being the guardian of files, using technology to set up a bank feed will allow accountants to track incomings and outgoings, link invoices and payments and view interactive charts of all their clients’ accounts.
Working from anywhere
The last five years have seen the progression to flexible working increase significantly. Millennials in particular have a desire to work out of the office. A survey conducted with over 19,000 working Millennials across 25 countries revealed their top five priorities when looking for a job, with 79% stating flexible working was a must. Further analysis from BBC 5 Live revealed a 74% jump in the number of people working from home between 2008 and 2018.
As well as the natural increase in the number of people working remotely, accountancy is one of the many professions being affected by the current turbulence being caused by the Covid-19 virus. This month, the government announced everyone should work from home if they can. Now, more than ever, people are away from the traditional office space and working instead from the confines of their own home, with technology acting as the glue that in many cases is keeping their business together. For accountants this means remote access to financial data is an absolute essential.
Add consultancy to the equation
With more efficient processes and easier methods of making and tracking transactions, technology and Open Banking will ultimately free up a whole lot of time for the accountants. Clearing up the calendar will make room for new kinds of work and enable accountants to spend more time on consultancy and value-added services, where previously these may have been perceived as a bonus service or from the client-side, a service at a much larger additional cost.
As well as consultancy, these technologies will have other, less direct impacts on the client-side. For example instead of needing a shoebox full of receipts, Open Banking and AI will lead to more confident and self-managed clients. If a client is keeping accurate books themselves, then the accountant no longer has to do all of the numerical admin. Rather, the value add lies in providing higher-level insights around the numbers and offering useful advice such as “it is time to put your prices up, as your profits are lower this year“.
Ultimately, AI and Open Banking are opening the gateway to a more efficient and effective accountancy industry. While benefiting the clients by making new space for consultancy and added value services, new technology ultimately streamlines an accountants’ entire job. Because they are constantly dealing with stacks of financial information, the consequences of misplacement of one document or inefficiently tracking systems hold higher stakes than usual. Luckily there is no need for accountants to grapple with old-school methodology anymore as AI and Open Banking are already readily available and at their fingertips.
LOW-CODE TECHNOLOGY BOOSTS THE GROWTH OF SPECIALIST BANK
Hampshire Trust Bank (HTB) is a digitally-focussed specialist bank staffed by experts that enable UK businesses to realise their ambitions. Primary operations include development finance, specialist mortgages and specialist business finance (including wholesale, block-discounting, structured asset finance and classic cars). HTB also provides award-winning savings accounts to individuals and businesses. With an ambitious growth target in mind, the bank targeted digital as key to its expansion.
A fresh approach to change
HTB was frustrated with relying on external resources for technical developments on tasks that they didn’t deem to be particularly challenging. Results were slower than expected, often failed to match business requirements, and the associated price tags were unreasonable. The team knew the job could be done better in house and began searching for a way to utilise the knowledge within the business without hiring an additional army of developers. Low-code clearly stood out as the solution.
That’s where Netcall’s Liberty Create came in. Create is a new breed of low-code software solution, built for both business users and professional developers. By using its drag-and-drop interface to configure, rather than code, it allows users to build a new app fast. And once the app exists, it can be tested, refined and improved on an ongoing basis.
The low-code platform has enabled HTB to form a small team that can now build the systems the bank needs and manage process improvements easily.
Modernising the front office to improve customer experiences
“Our journey with low-code development started because we needed to modernise the front-office application suite, across the business and across all of our products. We invested in Liberty Create initially for our specialist mortgage division, to replace manual processes, improve workflow to drive cost efficiencies, and increase consistency in process execution across the team,” explains David Patterson, Head of Solutions & Delivery at HTB.
The initial mortgage division project was successful and Liberty Create is now driving cost efficiencies and business improvements throughout the organisation. The platforms that have been built by using low-code have become core assets, assisting with vital areas such as linking the bank’s API infrastructure to data services, fraud prevention, credit risk, and Companies House data.
The use of Liberty Create has enabled HTB to focus on the time it takes to serve customers (and serve them well) and as a result, it has positioned the bank for exceptional growth.
HTB’s latest platform a property development finance system, has replaced a host of manual and spreadsheet-based processes that handle client customer and credit-rating data. Low-code lends itself to an agile improvement approach, so the system can be continually enhanced and added to.
“This project has come in at less than one-third of the anticipated cost. Plus, it will be delivered four months earlier than planned. These very short timeframes are enabling us to move towards weekly deliveries of capability enhancement, and with confidence in the quality of delivery,” adds Russ Fitzgerald, CIO at HTB.
Delivering – and delivering faster
The delivery model of Liberty Create matches HTB’s agile project approach. Without getting bogged down in the process, the development team utilises the elements of agile that work best in digital transformation in banking, especially for a small bank. Liberty Create lends itself perfectly to that capability.
During its low-code journey, HTB invested heavily in testing capabilities, providing value with an improved turnaround time for any defects. Previously, developers would publish a change, finishing in the evening, then the test team would arrive the next morning and start the test pack, which could run for 3-4 hours, ensuring everything worked correctly and highlighting any regressions. The developers wouldn’t get feedback until lunchtime, therefore losing half a day of development time.
Now, the developers publish an update and leave for the evening. Liberty Create takes 30 minutes to package the release and push it to the test environment, waking up the testing platform automatically once complete and running the series of tests. By 9 am, the test team starts the day with the results and the developers work on any fixes needed immediately. As a result, an extra half a day per developer is gained from every push. This acted as the first step for HTB on its journey to seamless integrated testing and DevOps.
Changing the relationship with off-the-shelf for good
Today, HTB’s confidence in front-end building capabilities now influences how the bank approaches new potential suppliers with a clear strategy that needs to work with low-code. By tailoring its own front-end capabilities and utilising API services, the bank can pick the best out of the industry suppliers and create USPs for its customers.
Low-code has also changed HTB’s attitude towards buying tech – with no more front-to-back services that are not delivering value, or slow releases and outdated legacy systems. The bank commoditises its back-end systems suppliers based on the ‘best-in-breed approach’ to build or buy. It has become the cornerstone of HBT’s technology strategy, increasing innovation, flexibility, and creativity.
Growing with a trusted vendor
With the introduction of low-code, HTB has moved from being a user of a legacy core banking platform into building out its own capabilities. It has honed its ability to develop systems efficiently, change direction when needed, and react to an industry position or an operational challenge quickly.
“We can definitely say we’ve seen time and cost savings by using low-code to solve business challenges,” says Russ Fitzgerald, CIO at HTB.
Today, the bank sees itself as a five-year start-up. With investment, a new leadership team and many specialist hires, it has experienced exceptional growth and developed thriving specialist lending propositions for SMEs.
“Initially, we worked alongside the Netcall team, which started our delivery and then worked extremely well with us to hand over to our small but very talented internal team. We’ve had very strong engagement with Netcall, from the CTO all the way down – we value this support and attention greatly. For us, it is amongst the highest criteria we look for in a supplier – and there are only a handful of suppliers where we genuinely feel we get that top level of support, plus the ability to feedback, request and input on product road mapping,” adds David Patterson, Head of Solutions & Delivery at HTB.
The HTB Development Team is now building a portfolio for the year ahead. Like any innovative business, the team has more ideas than resources. Reflecting their confidence in using low-code as a front-end tool, the team is considering using it for internet-facing services and a number of digital services to improve internal workflow and processes. “This will become the blueprint for how we do it going forward,” comments Mike Beveridge, Business Analyst at HTB. A number of ‘microservices’ are also on the agenda.
“We’re looking forward to growing our technology capabilities using Netcall’s low-code, adding to our current technology estate and allowing the bank to move towards the next generation of banking technology,” adds Faizal Danga, Project Manager at HTB.
The team aims to utilise the workflow insights provided by Liberty Create in a wider element across the bank to improve back-office efficiency, data governance, data quality, and control, while also improving the operational efficiency of the bank.
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