Description:

The lack of transparency in transaction records makes it difficult for regulators and financial institutions to detect and prevent illicit activities such as fraud and tax evasion.

Appears in:

• Cross Border Transfer via P2P Merchant
• Crypto Hawala
• Equities
• Hedge Fund Derivatives
• P2P Merchant Crypto Trading
• Traditional Hawala

Addressed by:

• Approval to Make 3rd Party Payment: Compliance approval is required for 3rd party payment and monitoring.
• Bank to Bank Transfers (Low Risk Jurisdictions): Payment can only be made via bank-to-bank transfers from countries with strong AML controls (typically low-risk jurisdictions).
• Book Entry or DVP: The product is not easily transferable, and payment flows are restricted due to book entry (recorded electronically) and Delivery vs. Payment (DVP), a settlement system that stipulates cash payment must be made prior to or simultaneously with the delivery of the security to a specified party.
• Documentary Evidence to Identity Parties and Details of Transaction: Agreement supported by underlying documentation (i.e., bills of lading, invoices, shipping documents, warehouse receipts, and warrants) that contains details of all parties to the transaction, currency, value, all countries involved, and the purpose of the transaction.
• Documentary Evidence to Support Conditions of Agreement Met: Agreement supported by underlying documentation (bills of lading, invoices, shipping documents, warehouse receipts, and warrants) containing details of all parties involved in the transaction, currency, value, all countries involved, the purpose of the transaction, and allowing payment only when all conditions outlined in the terms of the instrument have been met.
• No Transactions Prior to CDD or EDD: Entering into a transaction before completing CDD (Customer Due Diligence) or EDD (Enhanced Due Diligence), as appropriate, is not allowed.
• Originator and Beneficiary Information: Require that originator and beneficiary information be included in the payment.
• Payment Terms Defined in Agreement or Contract: A product or service requires entering into a legally binding agreement or contract between specified parties that outlines the drawdown and repayment terms.
• Restricted to Regulated Firm: Restrictions on the types of customers (regulated Financial Institutions) to whom the product can be offered.
• SWIFT Confirmation: Requires confirmation via SWIFT that payment will be used solely for agreed purposes pre-release and post-payment
• Transactional Due Diligence (TDD): Conducts a detailed examination of specific transactions identified as being higher risk.
• Transparent Flow of Funds: Maintains a transparent flow of funds.