Taiwan needs FinTech and trade-based money laundering solutions

TAIPEI (Taiwan News) — Taiwan's banks have overseas entities in Asia Pacific, Europe, the United States, and Africa with some 632 overseas branches, subsidiaries, and representative offices, according to data from Taiwan’s Financial Supervisory Commission (FSC).

These overseas branches, subsidiaries and representative offices come from a core of the 38 Taiwanese major banks.

These branches, subsidiaries and representative offices are not created to service the offshore Taiwanese retail market. They exist to service export/import trade finance related activities that exist between Taiwan and its trading partners.

Where there is trade finance, there is lucrative criminal trade-based money laundering (TBML) activity. At the same time, banks have sophisticated monitoring and tracking systems for AML and sanctions-related activities that help track, trace, and report suspicious or financial crime-related transactions.

Though TBML related monitoring and tracking systems have improved in recent years and can leverage off some of the traditional monitoring systems, it is still burdened with huge amounts of hard copy-based documents, from simple invoices, shipping contracts, letters of credit and other related documentation for just one trade. This is the burden of TBML, and it is this burden that makes it an ideal breeding ground for financial crimes.  

Despite the existence of highly automated solutions to TBML, it does seem the current solution adopted by Taiwan banks is simply hiring more people to tackle the documentation burden. They remain reliant on highly trained, dedicated staff who know how to work through each transaction to catch the criminals.

It is common practice when working on TBML issues to adopt a four-eyes system and this keeps banks reliant on operational professionals who evaluate the transaction and present their findings to a manager, a compliance professional or even the Money Laundering Reporting Officer for approval, rejection, or the need for further investigation. It is tedious.

Nevertheless, combating TBML is vitally important if Taiwan is to continue the fight against financial crime.

The industry and its current people-centric approach is facing some very real challenges:

• Paper Documents: The sheer volume of documents that relate to a single transaction is overwhelming. For example, letters of credit, bills of lading, vessel tracking, dual-use goods.
• Increasing regulation: Governments, regulators and law enforcement agencies are fully aware of TBML risks. We can expect to see more stringent regulations as well as increasing fines and sanctions for breaches resulting from TBML.
• Operational Resourcing: There is an overreliance on large numbers of bank staff to review transactions and evidence is emerging that those diligent staff are starting to age and progressing toward retirement.
• Fresh evidence shows new graduates who want a career in banking don’t want to be involved in the paper mill of TBML. It’s not cutting edge, it’s not exciting. Resources are finite and the competition is fierce.

What we need to see adopted in Taiwan is the adoption of advances in FinTech with automated solutions for TBML. These FinTech solutions aim and claim to solve the following TBML compliance issues by automating:

• Sanctions screening: Making sure no “bad names,” individuals, entities or sanctioned countries are involved in a transaction.
• Dual Use Goods screening: Identifying goods, software and technology that can be used for both civilian and military applications.
• Fair Price Checks: Making sure that what is being traded is not over or under-valued.
• Vessel Tracking.
• Red Flags: Flagging unexpected customer behavior, large cash payments, unexplained payments from a third party, or use of multiple or foreign accounts.

These FinTech systems facilitate rapid document examination to meet global standards and even consistency checks within documents or from document to document.

FinTech solutions will not see banks able to eliminate staff entirely as they do not magically automate the TBML manual systems. These solutions rely on digitalization in the form of manual or automated uploads of PDFs or document images.

As with all systems these solutions rely on parameters set by the banks in the form of auto-classification of documents and the resulting auto-extraction of key data depending on the document type.

These systems are available, and they work. They make claims of +90% accuracy with document classification, +85% accuracy with data extraction and reduced document processing time from three to five hours, to 15 to 20 minutes.

Those are impressive numbers, but the challenge is to tap into Taiwan’s “untapped” market for automated FinTech TBML systems. Taiwan is not an easy market, especially for foreign FinTech solution providers.

Hopefully, change is on the horizon. FinTech solutions are clearly supported by the Taiwan government, the FSC, and organizations such as the Taiwan financial services roundtable, and the Taiwan Academy of Banking and Finance.

The work of Taiwan’s FinTech Hub, FinTechSpace, a tech-based environment whose mandate is to stimulate and accelerate Taiwan’s FinTech innovation and ecosystem is vital to the success of FinTech in Taiwan.

The clock is ticking on the need to adopt FinTech within TBML solutions and Taiwan’s banks must either develop their own bespoke proprietary system, work with FinTechSpace, or actively seek out foreign TBML FinTech solution providers and get ahead of the crowd.

Do not wait for the alarm bells to start ringing.

Our member, Paul Shelton has a 30-year history in banking, working as head of Legal & Compliance and MLRO for the Asia Pacific branches of major international financial institutions in Japan, Singapore, Australia, and Hong Kong. He is also experienced at working with financial regulators across the Asia Pacific and provides consultancy services to Taiwanese financial and non-financial industry associations in all aspects of Compliance, AML/Sanctions, and Governance. He resides in Taipei.