Counteract financial crimes in international trade finance suggestion for vietnamese commercial banks

BANKING ACADEMY OF VIETNAM FACULTY OF INTERNATIONAL BUSINESS -🙚🙘🕮🙚🙘 - GRADUATION THESIS TOPIC: COUNTERACT FINANCIAL CRIMES IN INTERNATIONAL TRADE FINANCE: SUGGESTION FOR VIETNAMESE COMMERCIAL BANKS Student : Nguyễn Minh Hiếu Class : K21KDQTE School year : 2018-2022 Student ID : 21A4050161 Lecturer : Dr Nguyen Thi Hong Hai Hanoi - 2022 Tai ngay!!! Ban co the xoa dong chu nay!!! 17014126013971000000 BANKING ACADEMY OF VIETNAM FACULTY OF INTERNATIONAL BUSINESS -🙚🙘🕮🙚🙘 - GRADUATION THESIS TOPIC: COUNTERACT FINANCIAL CRIMES IN INTERNATIONAL TRADE FINANCE: SUGGESTION FOR VIETNAMESE COMMERCIAL BANKS Student : Nguyễn Minh Hiếu Class : K21KDQTE School year : 2018-2022 Student ID : 21A4050161 Lecturer : Dr Nguyen Thi Hong Hai Hanoi - 2022 DECLARATION OF AUTHORSHIP I hereby commit that the thesis "Counteract financial crimes in international trade finance: suggestion for Vietnamese commercial banks" is my own research work and completed under the enthusiastic guidance of Dr Nguyen Thi Hong Hai - Lecturer at Faculty of International Business, Banking Academy of Vietnam Research content is based on information and data that ensure authenticity and cite clear, complete and upto-date sources Hanoi, May 22nd, 2022 Nguyen Minh Hieu ACKNOWLEDGMENTS To complete the thesis topic and finish the course, I would like to express my deep gratitude to Banking Academy for creating conditions for me to have a good study environment during my study and research at the university I would like to thank Dr Nguyen Thi Hong Hai for helping me throughout the research process and directly guiding me to complete this thesis Moreover, I would like to express my thanks to the teachers in the Faculty of International Business and friends for helping and creating conditions for me during my study and completion of this graduation thesis Due to the limited theoretical level as well as practical experience, the thesis cannot avoid shortcomings I look forward to receiving your comments to supplement and complete the thesis better Best regards, Dr Nguyen Thi Hong Hai and all lecturers of the Faculty of International Business, Banking Academy have good health and success in their careers as well as in life! Thank you sincerely! Hanoi, May 22nd, 2022 Nguyen Minh Hieu TABLE OF CONTEXTS DECLARATION OF AUTHORSHIP.…………………………………… iii ACKNOWLEDGMENTS………………………………………………… iv LIST OF ABBREVIATIONS……………………………………………… vii LIST OF TABLES…………………………………………………………… ix LIST OF FIGURES………………………………………………………… ix INTRODUCTION…………………………………………………………… 1 Rationale of the study………………………………………………… Literature Review…………………………………………………… Objectives of the study……………………………………………… 4 Subject and scope of the study……………………………………… 5 Research methods…………………………………………………… Thesis structure……………………………………………………… CHAPTER 1: THEORETICAL OF FINANCIAL CRIMES AND PRODUCTS PROVIDING BY BANKS IN INTERNATIONAL TRADE FINANCE…………………………………………………………………… 1.1 Theory about trade-based financial crimes………………………… 1.1.1 Definition of financial crimes in international trade finance…… 1.1.2 Appropriate access of financial crimes to international market… 1.1.3 Illegal techniques to develop crimes…………………………… 10 1.1.4 Analyzing risk indicators of financial crimes in international finance trade…………………………………………………………… 13 1.2 Theoretical of products providing by banks in international trade finance…………………………………………………………………… 16 1.2.1 Definitions of trade financing………………………………… 16 1.2.2 Roles of banks in countering financial crimes in international trade finance…………………………………………………………… 22 1.2.3 Limitations of banks in countering financial crimes in international trade finance…………………………………………… 24 1.3 Case studies of successful countries in preventing financial crimes in international trade finance…………………………………………… 26 1.3.1 Australia………………………………………………………… 26 1.3.2 Bangladesh……………………………………………………… 28 1.3.3 Singapore……………………………………………………… 31 SUMMARY OF CHAPTER 1……………………………………………… 35 CHAPTER 2: REAL SITUATION OF COUNTERING FINANCIAL CRIMES IN VIETNAMESE COMMERCIAL BANKS………………… 36 2.1 Overview of international trade finance of Vietnamese commercial banks……………………………………………………………………… 36 2.1.1 Vietnam's commercial industry overview……………………… 36 2.1.2 Overview of international trade finance of Vietnamese commercial banks……………………………………………………… 37 2.2 Real situation of countering financial crimes in international trade finance in Vietnamese commercial banks……………………………… 39 2.2.1 Impact of trade based financial crimes………………………… 39 2.2.2 Current applied policies………………………………………… 42 2.3 SWOT analyzing on Vietnamese commercial banks in countering financial crimes in international trade finance………………………… 50 2.3.1 Strengths………………………………………………………… 50 2.3.2 Weaknesses…………………………………………………… 50 2.3.3 Opportunities…………………………………………………… 52 2.3.4 Threats………………………………………………………… 53 SUMMARY OF CHAPTER 2……………………………………………… 54 CHAPTER 3: WORLDWIDE SUGGESTION METHODS FOR BANKS AND RECOMMENDATIONS FOR VIETNAMESE COMMERCIAL BANKS IN COUNTERING FINANCIAL CRIMES IN INTERNATIONAL TRADE FINANCE……………………… 55 3.1 Worldwide suggestion methods for banks in countering TBML and other financial crimes in international trade finance……………… 55 3.1.1 Administration and management oversight…………………… 55 3.1.2 Customer Due Diligence……………………………………… 59 3.1.3 Transaction Surveillance……………………………………… 65 3.1.4 Suspicious Transaction Reporting……………………………… 70 3.1.5 Record Keeping………………………………………………… 70 3.2 Recommendations for Vietnamese commercial banks in countering financial crimes in international trade finance…………… 71 3.2.1 Providing training and awareness sessions for staff in international trade finance sector……………………………………… 71 3.2.2 Strengthen cooperation between authorities and institutions that monitor criminal activity in trade finance……………………………… 72 3.2.3 Strictly implementing international standards on combating financial crimes in international trade………………………………… 74 3.2.4 Technological Development…………………………………… 76 SUMMARY OF CHAPTER 3……………………………………………… 79 CONCLUSION……………………………………………………………… 80 REFERENCES……………………………………………………………… 81 Formal documents…………………………………………………… 81 Articles………………………………………………………………… 82 Laws…………………………………………………………………… 82 LIST OF ABBREVIATIONS ACRONYMS ORIGINAL MEANING AML Anti-Money Laundering APG Asia-Pacific Group on Anti-Money Laundering AUSTRAC Australian Transaction Reports and Analysis Center CDD Customer Due Diligence CFT Counter Financing Terrorist DC Documentary Collection FATF Financial Action Task Force FTA Free Trade Agreement GFI Global Financial Integrity KYC Know Your Customer L/C Letter of Credit PF Proliferation Financing RBA Risk-Based Approach SBLC Standby Letter of Credit SBV State Bank of Vietnam STR Suspicious Transaction Report TBML Trade-Based Money Laundering TF Terrorist Financing UPAS Usance L/C payable at sight LIST OF TABLES Tables Page number 1.2 Three lines of defense 22 1.4 Bangladesh’s Anti-Money Laundering Ranking 29 1.5 COSMIC process 34 2.2 Ms Dinh Thi Thai – Deputy General Director spoke at the 46 conference 2.3 VietinBank was honored as the best trade finance bank in 2021 by 48 World Economic Magazine LIST OF FIGURES Figure Page number 1.1 UNCTAD Global trade in goods 08 1.3 Australia’s Trade in Goods and Services 26 2.1 Vietnam’s number of transactions through banks 36 3.1 Due Diligence process in Documentary Credit 60 3.2 Due Diligence process in Documentary Collection 62 3.3.Due Diligence process in Receivables Purchase - Open Account 64 3.4 Levels of investment in compliance technology by banks by 77 country INTRODUCTION Rationale of the study While the world is in the 4.0 technology revolution, the speed of technology development as well as the relationship between countries in the world is developing rapidly which means an increase in financial crimes through various ways Violated activities affecting the economic system badly are becoming a struggling problem for countries all over the world, especially in developing countries such as Vietnam These activities not only have an impact on economic aspects but also the social life, politics and military As our country is in the world integration period, it is easily exploited by international financial crimes with sophisticated and unpredictable tricks According to the United Nations Office on Drugs and Crime – UNODC, the amount of money considered “money laundering” globally is estimated at an average of US$2.4 trillion a year and the actual amount discovered is less than 1% The growth rate of financial crimes worldwide is still very fast and unpredictable Enrique Peña Nieto, President of Mexico had a saying: “Money laundering is giving oxygen to organized crime.” So, our mission is to suffocate this type of crime in order to create a clean and legal worldwide economic system With cash-based money laundering now effectively prevented with multiple layers of protection making it difficult for criminals to access, trade -based money laundering becomes a fertile ground for them to exploit The lack of information sharing between parties in commercial transactions is one of the reasons why this type of crime can develop significantly, while banks play a huge role in crime investigation and detection progress “I would say it's not exaggerated, Vietnam is a money laundering paradise” is the statement of Vietnam National Assembly member Duong Trung Quoc, who has raised the importance of preventing financial crimes that can cause harm to our Vietnamese economy According to estimates from Global Financial Integrity, the 2015 value of both illicit inflows into Vietnam and outflows from Vietnam was over USD billion (inflows 9.7 billion and outflows 9.1 billion) Financial Action Task Force (FATF) blacklisted three ASEAN Members – Indonesia, Myanmar, Thailand, gray-listed four ASEAN Members– Brunei, Cambodia,