Tuesday, October 27, 2020

HSBC reveals its first money laundering detection system for trade finance

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HSBC has revealed a new anti-money laundering (AML) surveillance system and automated sanctions checking tool for its global trade and receivables finance (GTRF) business.

Developed with fintech firm Quantexa, the AML system leverages big data, advanced analytics and automated monitoring to detect and intercept financial crime in international trade, doing so by combining customer and counterparty trade information, transactional data and external insights, such as company ownership information.

At present, it is live in the UK and Hong Kong, and is being launched across HSBC’s wider network.

HSBC screens over 5.8 million trade transactions a year for financial crime, and it hopes that this new capability will enable it to more effectively reduce money laundering by flagging up criminal activity and networks that might not have been previously identified.

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HSBC says the system monitors all trade finance transactions against more than 50 different scenarios that indicate signs of money laundering, such as associated networks and payment patterns.

The solution uses “billions of data points” to enable entity resolution, which is the task of connecting disparate data sets to understand possible entity matches and non-obvious relationships by applying a probability-based scoring system. It also provides a network framework which references over 40 billion financial transactions, meaning trade activities can be continuously assessed and scored for risk.

The bank’s new AML system for trade finance means that if there are concerns about the activities of a counterparty or trade, a detailed picture of the links and transactions within a customer’s global network can be mapped out.

Automated sanctions checking launched as data is published

Coinciding with the new AML system launch, HSBC has automated first line sanctions checking using machine-learning technology. Automated sanctions checking is now live in India and will be deployed in 41 markets by the end of the year. By producing an instant response to an in­­put, the system removes the need for basic manual checks, reducing the processing time for each search and allowing investigators to focus on real risks.

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The solution couldn’t have come at a better timenew research by financial crime compliance software provider Accuity has shown a rise in the number of sanctions issued over the last year, triggering a more complex process for banks’ trade finance operations.

For financial institutions, transaction screening against sanctions lists extends farther than any official lists, this is because entities owned 50% or more by a sanctioned entity must also be blocked, according to US’ Office of Foreign Assets Control’s (OFAC) rules. Screening for sanctions is a tricky task, as entities such as subsidiaries, countries, cities, aliases, alternative addresses, bank branches and routing codes, are within the scope of the regulations, but are not necessarily captured in official lists.

OFAC-issued sanctions were significantly higher than those issued by other major sanctioning bodies this year. As of August 2019, the OFAC list included 8,755 sanctioned entities, while other bodies were 2,136 (EU), 2,123 (Her Majesty’s Treasury) and 1,057 (United Nations). Sanctions issued by OFAC this year have resulted in US$1.3bn-worth of fines handed out to companies and individuals – more than in any other year.

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