https://www.gtreview.com/news/asia/asian-development-bank-eyes-global-rollout-of-tbml-pilot/

The Asian Development Bank is set to scale up a novel system for how banks report trade-based money laundering (TBML) globally, following a successful pilot in Pakistan, Bangladesh, Sri Lanka, Mongolia and Nepal.

Last week, the ADB revealed the outcomes of an 18-month UN-backed trial, which allowed banks in the five Asian countries to include trade-specific data elements when reporting suspected TBML to their financial intelligence units.

TBML is a significant concern for the global trade sector, with criminals able to exploit the complex and high-volume nature of the industry to disguise their illicit gains.

It typically involves misreporting the price, quantity or quality of goods being imported or exported. The amount laundered through international trade is estimated to total billions or even trillions of dollars per year.

As highlighted in the ADB report, law enforcement agencies have struggled to tackle the problem, and one key hurdle is the poor quality and low volume of suspicious transaction reports (STRs) issued by banks.

“Customs agencies and [financial intelligence units] have competing priorities and limited resources to spot suspicious trade transactions, making TBML difficult for financial institutions, law enforcement, and governments to address,” the bank report says.

During the pilot, which ran from January 2022 to June 2023, a select group of banks in the participating countries were able to submit granular reports via goAML, a platform provided by the United Nations Office on Drugs and Crime (UNODC).

Previously, banks had relied on STR formats designed for payment transactions, which contained only basic details such as the parties, amounts and currency involved, the report says.

During the trial, banks were able to draw on data from standard trade documents, such as letters of credit (LCs), KYC forms and commercial invoices, to provide FIUs with “higher quality, actionable information”. This included details on the descriptions of goods, the names of companies, vessels, ports and banks involved, as well as the specific reasons for raising suspicion.

Coupled with training from experts at the ADB, this contributed to “more and better” STRs in all of the five countries, although Sri Lanka was initially an “outlier” due to the economic crisis that reduced trade levels, the report says.

In Pakistan, the monthly volume of trade-related STRs surged by nearly 400% since the pilot concluded, the ADB says.

In the year up to June 2024, banks in Pakistan issued an average of 191 reports a month, up from just 38 before the pilot. The types of goods commonly linked to suspicious trade were solar panels, textiles, chemicals, rice and industry equipment.

Bangladesh, “one of the biggest issuers of letters of credit in the world”, according to the ADB, reported a 148% increase in TBML-related reports filed by banks.

Goods flagged as being high risks included capital machinery, high-tax products like large screen smart TVs, and wine, leather goods, IT equipment and agricultural products. Notable markets of concern included the British Virgin Islands, Hong Kong and China, India, Singapore, Thailand, the UAE and the US.

In Mongolia, banks reported 28 STRs between September 2022 and April 2024, compared to only three in the previous two-year period. The most commonly affected trade routes involved entities in China, Russia, Singapore, the UK and the US.

Before the pilot, none of Nepal’s 20 trade banks had filed STRs. Since the pilot, they have issued 14 reports.

Sri Lanka initially faced challenges, with the launch coinciding with a sovereign default and a slump in the country’s trade sector.

The country had also just adopted the UN’s goAML platform, which caused early implementation issues, says Steven Beck, director of ADB’s trade and supply chain division.

But following the pilot, with all of Sri Lanka’s banks signed up to the ADB’s system, results improved. Between January and July 2024, banks filed 24 STRs, indicating a 156% rise in the country’s annual average.

Scaling globally?

The ADB launched its pilot following lengthy consultations with the trade industry, which helped identify the types of trade-specific data to be captured and reported through the UNODC’s software platform.

Catherine Daza-Estrada, senior investment officer in ADB’s trade and supply chain division, tells GTR that all five countries have continued using the TBML reporting system and are now signing up additional lenders.

“It’s now been rolled out to 30-plus banks in Pakistan, and they want ADB to be part of the programme when they launch it. It will be continued in these countries, which will become ambassadors of sorts,” she says.

The ADB has also set its sights on expanding the pilot to include lenders outside of Asia, including those in Europe and Africa.

Beck says the “low-hanging fruit” for expansion would be the more than 60 countries already using the goAML system, and the ADB will present its findings to the EU and Financial Action Task Force (FATF) in the coming year. “We have had a lot of interest from developed and developing countries equally… this is a global issue,” he tells GTR.

The ADB also plans to conduct a future study– though no timeframe has been set – to assess whether the rise in STRs in the five pilot countries has resulted in discernible law enforcement action.

“If we have enhanced ability to identify suspicious transactions, but this does not translate to more prosecutions and confiscated assets, then it begs the question as to what’s the point?” Beck says.

Even with the increased volume of STRs from trade banks, there are still notable challenges for law enforcement.

“You’re dealing with very sensitive information and with parties that don’t traditionally, by their very nature, share information. By law, they’re not supposed to. Across borders, even within countries, we are finding ways to encourage better communications and sharing between customs, law enforcement, these FIs and central banks. That is definitely something that we need to do, and that’s part of the challenge.”