The Risk Professional: why your international trade is about to get more complicated

About 20 years ago, the Treasury departments of the G7 decided they wanted to do something to combat tax evasion - and as tax evasion is both a form of and a precursor to money laundering, what better way to get support for their actions than to say that it was really all about combating drugs trafficking and other horrid offences and that preventing criminals getting access to their ill gotten gains would be an effective way of reducing those crimes.

There are no authoritative figures to tell whether that course of action has been successful. Certainly governments and financial institutions have spent vast sums on technology, people and training to try to detect and deter money laundering. And there have been some successes with confiscations running into the tens of millions each year - but nowhere near the amounts that have been spent.

Following the events of 11 September 2001, the focus shifted - temporarily - away from tax and onto terrorism. There is still a residual interest in terrorist financing and organised crime but, despite what governments say, they have fallen from the top of the agenda. After all, when dealing with the aftermath of extraordinary largess with tax revenues for the next several years, taking a few thousand dollars from a suspected terrorist is not quite as urgent as taking hundreds of millions from tax evaders. And so the focus has shifted back to tax.

But there also remains the question of foreign policy for the USA, the EU and some other countries. This foreign policy is often given effect not in the corridors of power, but in banking halls.

And this is where you and your international trade are about to find life getting tough.

Yesterday, the Financial Action Task Force published a list of jurisdictions criticising them, in varying degrees, for their failure to meet a set of principles that the FATF members have decided should be followed, although FATF members frequently fall short of meeting those principles themselves.

The reasoning behind the countries appearing on the list becomes irrelevant once the jurisdiction is on the list. Once a jurisdiction is on a list produced by the FATF, then regulators in many countries - not just those who are members of the FATF - require their banks to pay particular attention to all transactions involving customers, counterparties and financial institutions in the listed countries.

That means that if you are conducting business with Greece, for example, your transactions will be subject to additional scrutiny. They will not, automatically, be blocked - that's reserved for the higher levels of what the FATF calls "counter-measures." But they may be slowed and, if the scrutiny raises any cause for concern, they may be delayed pending official approval. In the UK, if your bank submits a suspicious transaction report, then the transaction is automatically frozen for a week - and if the relevant government department says it needs more time, the transaction can be frozen for an additional three weeks. The bank, however, will not be able to tell you why - if it did, it could be accused of "tipping off" - that's passing information that may prejudice an investigation.

So you could find yourself sitting waiting for a letter of credit that will be held up for a month and you will not know why.

What you also will not know is that the bank will almost certainly have been told by the government department - it's called the FIU or Financial Intelligence Unit - to monitor the transaction. And now you've come to the notice of the bank's money laundering risk department, your account may well be subject to close review.

That close review should make no difference to the daily conduct of your account. But it might increase the risk of further reports and therefore delay in other transactions. It will also mean that your trade finance documents will be subject to close scrutiny. Again, if you do nothing wrong, it should make no difference.

But for businesses that habitually trade with countries on the list, things might become more difficult than they should be.

There is also a list of countries that are regarded by the FATF as a more serious risk, but banks may consider that the two lists are of equal concern.

Who is on the lists?

Iran, Angola, Ecuador, Ethiopia, North Korea, Pakistan, Turkmenistan and Sao Time and Principe.

Antigua and Barbuda, Azerbaijan, Bolivia, Greece, Indonesia, Kenya, Morocco, Myanmar, Nepal, Nigeria, Paraguay, Qatar, Sri Lanka, Sudan, Syria, Trinidad and Tobago, Thailand, Turkey, Ukraine, Yemen.

Frankly, it's idiotic that Thailand is on this list and India and Bangladesh are not. The reason appears to be simple: Thailand did not jump to change their laws to deal with terrorist financing in the way the FATF wanted.

But bank MLROs / compliance officers do not often do their own country risk assessments: they are told to pay attention to lists and therefore they do, even though there may be a significantly greater risk of money laundering in dealings with other countries.

That means that there will be focus on the listed countries.

In the case of Iran, there are already widespread sanctions and all dealings with Iranian companies, including banks, are widely scrutinised.

In addition, financial regulators are rolling out new rules on wire transfers which will, again, require banks to look more closely at the amounts of money, the reason for the transactions, the banks involved and the ultimate beneficiaries. Much of this is automated and will not cause additional delay unless an exception report is produced. However, where one is, then transactions may be delayed - something you will not be aware of because international transfers live in their own elastic time-zone where three to five days can easily stretch to eight or nine for absolutely no reason anyone can explain. Therefore an additional few hours or even one or two days in the transfer of payments is unlikely to raise significant concern. But, again, if there is an automatic freeze because a report is made, that will again disrupt your business.