1. Regulation and fight against financial crime
9th March 2017
Regulation and fight against financial crime
David Heynes
Sales Director EMEA at Accuity

2. Agenda Examining trade-based money laundering in sub- Sahara Africa
Financial Crime Risks
Key challenges of Trade Compliance
The important role of corporates in meeting international compliance standards
Lufthansa Cargo case study

3. Financial Crime Risks
International trade and the processes and systems that support it, are vulnerable to abuse for the purpose of financial crime
Complex, paper-based nature of transactions provides a large amount of data on parties, goods and services and involves scrutiny of relevant documents
The overall process of reviewing trade documents by its nature cannot be successfully automated
A misrepresentation of value cannot easily be identified.
All stakeholders need to take ownership for combating money laundering and not just Financial Institutions

4. Key Challenges with Trade Compliance
Trade Finance departments are under competitive pressure due to delays resulting from compliance processes
FIs are expected to have procedures and processes in place which allow staff to record the basis of their decision that arise at any stage of a transaction. FIs are also expected to retain evidence of decision making processes for audit and regulatory purposes.
Trade Operations and Compliance depts lack the resource needed to meet new regulatory pressure and business expectations
There is a lack of clarity on what and how to sreen goods to meet NPWMD requirements.
. My TF department is no longer competitive due to slow and inefficient compliance processes
Lower trade volumes and low margins on Letters of Credit are squeezing trade departments
Need to be able to bid on trades or meet customer SLAs, AND complete all the compliance checks
4. I’m unable to prove to regulator/internal auditors that checks have been done
Lack of audit trail due to manual and decentralised document collection
Unable to prove compliant over lifecycle of trade
Trade ops is needed to provide the evidence when Compliance asks
5. There is personal liability related to a lack of standardised compliance process
Lack of visibility or standardised approach to trade finance for global organisations and even in small organisations/branches across departments

5. Lack of resource to meet new regulatory pressure, and having to do more with less
It takes a long time to go to multiple sources to do all the checks now required.
Doing repetitive, manual screening over lifecycle of trade (which can be months), or Not doing repeated screening due to lack of resource, opening up to risk
We’re trade finance experts, not compliance experts
Where are we today -
Manual based processes
Policy definition
Audit teams to check policy is being followed
Head count includes audit; change mgt teams as well as users

6. Meeting new regulatory pressure around dual-use goods is difficult
I’m struggling to understand dual-use goods regulations – “we’re not engineers or chemists!”
Titanium Alloy:
A lightweight alloy made up of Titanium and other chemical elements:
Corrosion resistant
Able to withstand extreme temperatures
Civilian Use:
Golf club heads
Medical devices including dental implants and bone replacements
Dual Use:
Armour plating
Military vehicles including naval ships, attack helicopters and ground assault vehicles
Missile casing
. I’m struggling to understand dual-use goods regulations – “we’re not engineers or chemists!”
Meeting new regulatory pressure around dual-use goods is difficult
Lack of transparency for auditors around dual-use goods checks (what is considered sufficient or best practice?), unlike name screening (name vs. name = match/no match)
Dual-use Goods
Identification of dual use goods in a trade transaction is challenging given their potential for being complex and of a technical nature.
Staff should be aware of dual use goods issues, as well as the common types of goods which have a dual use.
Dual-use goods definitions and list should ideally be capable of being integrated into electronic processing systems
Goods descriptions may appear in the documents using a wording which does not allow the identification of such goods as “dual use.”

7. Agenda Examining trade-based money laundering in sub-Sahara Africa
Wolfsberg, ICC & BAFT Trade Finance Principles Jan review
Key challenges of Trade Compliance
The important role of corporates in meeting international compliance standards
Lufthansa Cargo case study

8. Lufthansa Cargo Case Study
In 2011, Lufthansa Cargo became aware of emerging regulatory concerns around dual-use goods and sanctions compliance
The scale of the problem meant that solving it also had some business impacts
One plane could easily be carrying 150 shipments from 150 consignees and involve 150 types of goods—manually checking all this in a reasonable timeframe would be impossible
Lufthansa Cargo Implements Effective Trade Compliance Solution to Protect Customers and Mitigate Risk
Based at Frankfurt Airport, the seventh busiest freight hub in the world, Lufthansa Cargo is a wholly-owned freight subsidiary of German airline Lufthansa.
Lufthansa Cargo is one of the world’s leading airfreight carriers, transporting 1.6 million tonnes of freight a year to more than 300 destinations in over 100 countries. In addition to owning a fleet of freighters, it also manages freight on passenger aircraft operated by Lufthansa and Austrian Airlines. The company employs over 4,600 people worldwide with revenues in 2015 of EUR 2.35 billion.
Lufthansa Cargo offers tailored logistics solutions for challenging freight consignments, from shipping temperature-sensitive pharmaceuticals to show horses or several tons of heavy machinery parts.
Facing Financial Risk and Reputational Exposure
In 2011, Lufthansa Cargo became aware of emerging regulatory concerns around dual-use goods and sanctions compliance, which highlighted multiple risks to its business. Although the shipper has a legal responsibility to carry out these checks, Lufthansa Cargo realised it could not rely on this being done accurately. Lufthansa Cargo realised that it faced potential exposure to severe business and financial risk, as well as the loss of import and export rights, and considerable reputational damage—while its staff could also be held personally liable.
client success
‘Non-compliance with sanctions lists carries a risk of up to six months imprisonment. We also fly freight on Lufthansa passenger flights, so our parent company’s business could have also been affected.’
However, the scale of the problem meant that solving it also had some potential business impacts. Lufthansa is primarily a transit carrier and, as such, flies to more than 300 destinations. Unlike point-to-point carriers, it must adhere to EU and German law, as well as to the regulations of every country it flies through.
Not only does the company carry a huge volume of cargo, many of its shipments are consolidated, which means that capacity has been sold on to dozens of other consignees. For instance, one plane could easily be carrying 150 shipments from 150 consignees and involve 150 types of goods—manually checking all this in a reasonable timeframe would be impossible.
The company’s compliance unit looked into the scale of the problem using trial data sets of typical traffic and quickly realised that manual checking was not an option. Responses to customer requests that are expected in minutes could take hours to respond to, resulting in lost business. In fact, Lufthansa was forced to temporarily suspend consolidated shipments to countries such as Iran, where restrictions were high, until they resolved the issue.
Solution—An Automated Screening Solution
After discovering that there was no dedicated solution for the airline industry, Lufthansa Cargo turned to suppliers with compliance experience in the banking and financial services industry.
‘We liked the fact that Accuity understood us,’ said Pfeifer. ‘Accuity had never dealt with shipping before, but as soon as we explained, it was very quickly understood. Other companies never really got it.’
Lufthansa also provided Accuity with over 8,000 test data sets, and Accuity was the only supplier to correctly identify all the problem shipments.

9. Lufthansa Cargo Case Study
. By using Firco Trade Compliance, Lufthansa Cargo has been able to create an across-the-board trade compliance vetting capability very efficiently, using a team of just six people
The system is invisible to customers and shipping staff, but customers are learning to accept that when extra checks occur it is both necessary for Lufthansa and in their own interests.
In one year, Lufthansa Cargo has checked over 47 million records using Firco Trade Compliance, which would otherwise need to be manually verified—an impossible task.
Lufthansa Cargo is already seeing a return on its investment as it has been able to resume shipping to some destinations that it had ceased to do business with and has increased business volumes to other destinations.
‘By using Firco Trade Compliance we have definitely stopped shipments that could have ended very badly for us and our customers,’ says Pfeiffer. ‘

10. Thank you David Heynes Sales Director EMEA David.Heynes@accuity.com
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