According to the US Government Accountability Office (GAO), the amount of illicit money being laundered through international trade is believed to be on the rise. While financial institutions have picked up their efforts to manage this risk, document verification is still a challenge. Identifying fictitious documents and false invoicing to facilitate trade-based money laundering (TBML) is a complex task to overcome. To complicate matters, global container trade is estimated to account for 60% of all seaborne trade, which was valued at around $14 trillion in 2019. Containers are both literally and figuratively black boxes. Screening, monitoring, and investigating the trade of goods sealed in millions of metal boxes pose a real challenge for stakeholders across the value chain. To put this into perspective, of the total US import, only 3% of ocean freight is physically inspected.
To stay ahead of TBML schemes, banks need to determine whether there is a reason to suspect the amount or the true origin or destination of the cargo. This requires identifying risky transshipments, tracking and location of the container vessel, and more. With Windward’s container insights, banks can accurately screen their trade finance transactions and monitor them in real-time.
Bill of lading verification is high-stakes
As a basic first step, banks first need to match the container information with the carrier’s data to ensure validity. This is critical to answering questions like: does the cargo exist in the correct quantity? Who is the shipper? Is this the UBO? But how do you do this across hundreds of containers? Manually checking bill of ladings (BOL) is not scalable. Even once the BOL is verified, banks then need to manage the risk exposure of each one. This is key as organized criminal groups are increasingly taking advantage of legitimate trade activity as a means of concealing illicit funds.
To safely manage risk, banks need two main things: behavior tracking and entity resolution. As long as cargo is at the port-to-port stage, it is critical to have contextual intelligence and anomaly detection that leverages data to automatically identify red flags like identity and location tampering, transhipments, voyage irregularities, dark operations, and more. In addition, financial institutions need a way to determine the legal entities connected to each vessel. At the end of the day, banks deal with entities, not vessels. Vessels come as a necessary factor to screen, but banking compliance experts are inherently not maritime experts – nor should they have to be. But a problem arises when banks don’t have the tools or the right data to evaluate maritime risk.
As part of BOL monitoring, banks check the entire shipment cycle – shipper, vessel, consignee. However screening vessels with list matching tools and static data is not enough. Deceptive shipping practices can be used to facilitate illicit trade, and as new risk typologies develop – the exposure to fraudulent events is bound to grow. For banks to avoid financing or supporting a transaction for a vessel that engaged in an illicit ship-to-ship (STS) transfer, identifying deceptive shipping practices is key.
Implementing maritime AI into trade screening solutions can provide more visibility into each deal by flagging fraudulent events across all vessels and entities involved. This requires shifting from a traditional check-the-box strategy towards a more proactive approach to identifying bad actors before they get designated. Ultimately, this will allow banks to prevent onboarding new business with exposure to maritime risk.
Bill of lading verification by Windward
Windward’s Predictive Intelligence platform now provides efficient screening and monitoring of each BOL, along with related entities (vessels and linked commercial entities). Information on the BOL is obtained from the carrier’s system. Details may include the port of loading, port of discharge, ETD, ETA, milestones and transshipments planned and logged from the get-go. Users will be able to screen BOL data and compare it to the vessel’s actual path and activities during the relevant voyage, to indicate the following:
- Confirm the existence of all entities (vessels and companies) mentioned in the shipping document
- Get immediate clearance recommendations on vessels and commercial entities associated with the shipment
- Monitor and identify risk indicators in real-time that may impact the bank’s overall assessment, for instance, deviation from the expected path of one of the related vessels
Beyond BOL verification, banks will be able to track suspicious activity and containers. As efforts increase to move dirty money through the global trade system, this will be as important as ever. With real-time risk indicators, banks can streamline operations and know when to ask for more information. If a bank will be financing several containers from the same company, they can seamlessly access the status and ETA of each shipment to know exactly when to expect payment. Coming up soon, Windward’s container insights will include notifications on voyage irregularities (like unplanned STS events or dark activity) and predicted vessel path.