Financial crime and secrecy deeply undermine Africa, with the continent losing an estimated $90bn annually in illicit financial flows, according to the United Nations. For trade across the continent, malign actors exploit the sector for illegal activities.

Trade-based money laundering (TBML) is a serious problem for Africa, as was heard during a virtual panel session hosted by the Compliance Society of Kenya, the London Institute of Banking and Finance, and TradeSun earlier this month. With Kenya acting as the gateway to East Africa, it is vulnerable to TBML.

Action is being taken, with the panel of compliance and banking experts outlining the issues facing the country and sector, and the trends emerging across the compliance landscape to combat them.

The expert panel – watch the session on-demand via Zoom here.

Here are a few key takeaways from the webinar:

1) Limited data exchange hampers compliance

The panel discussed how limited information exchange across trade, between reporting entities and the various regulatory authorities for example, has made rooting out malign actors from the financial system more difficult. Meanwhile Kenya’s Data Protection Act, passed into law in 2019 to rightly protect the processing of people’s data, has further complicated data exchange protocols.

In recent months, there have been calls for increased information sharing in global trade. In July, the Financial Action Task Force, an influential standards-setting body, urged for better data sharing in trade and beyond to counter illicit activities.

Additionally, the complexity of trade finance products – letters of credit and guarantees, as examples – that can include many, many parties and intermediaries, as well as large volumes of paper have further weighed on compliance and operational teams tasked with scrutinizing all of this information.

2) Understanding risk exposure in trade

Around the world, the perpetrators of financial crime are using more sophisticated techniques, creating complex shell companies and exploiting vulnerabilities in global trade. At the same time, organizations have been slow to adopt the tools necessary to effectively reduce crime risks. This may be because trade finance, as established, is highly complex, which brings challenges in its transformation.

There should be an understanding of risk exposure across trade-based activities in Kenya to better root out crime, the panel discussed. Clear understanding of the sources of risk at a sectoral and national level would enable the creation and deployment of solutions that support better risk management.

Because of its geographic position, Kenya may be attractive to those engaging in the smuggling of goods, for example wildlife and precious metals, out of Africa’s East – the port of Mombasa is one of the largest ports across Africa. One way Kenya has sought to cut off money laundering and increase transparency is through its beneficial ownership register, which requires companies incorporated or registered in Kenya to maintain a list of their beneficial owners and to share this information with the Registrar of Companies.

3) Technology is transforming global trade

Technology provides a way to effectively reduce risk for banks operating in trade, with financial institutions in Kenya taking the pioneering step of using automation for their compliance processes, such as sanctions screening, TBML checks, and document examination.

As heard during the session, documentation risk is one of the major risks facing trade finance and is a challenging one to automate. That is because documents can vary in quality and type, and typically are in a non-standard format. Intelligent AI-powered technology can ‘read’ these documents, extracting the data and standardizing it for automated compliance screening, with a team member making the ultimate decision over a transaction. Using technology improves efficiency, is cost-effective, and significantly reduces risk.

As Manoj Saxena, TradeSun Chief Product Officer, said during the webinar: “Technology is here to solve some of the challenges we face – sanctions evasion, TBML risks, price verification, dual-use goods, and maritime tracking. It is an aid and enabler [to trade].”