Taiwan Needs FinTech and Trade-Based Money Laundering Solutions | News from Taiwan

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

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

These branches, subsidiaries and representative offices are not established to serve the offshore Taiwanese retail market. They exist to service the 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). 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.

Although TBML-related monitoring and tracking systems have improved in recent years and can leverage some of the traditional monitoring systems, it is still burdened with huge amounts of paper-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 crime.

Despite the existence of highly automated solutions for TBML, the current solution adopted by Taiwan banks seems to simply employ more people to cope with the documentation burden. They still rely on highly trained, dedicated staff who know how to work through each transaction to catch the criminals.

It is common practice when dealing with TBML issues to adopt a four-eye system, and this keeps banks dependent on operational professionals who evaluate the transaction and present their findings to a manager, a compliance expert or even an anti-money laundering reporting officer for approval, rejection, or the need for further investigations. It’s boring.

Nevertheless, combating TBML is vital if Taiwan is to continue its fight against economic crime.

The industry and its current people-centred approach faces some real challenges:

• Paper documents: The sheer volume of documents related to a single transaction is overwhelming. For example letters of credit, bills of lading, vessel tracking, goods with dual use.
• Increasing regulation: Governments, regulators and law enforcement agencies are fully aware of TBML risks. We can expect to see stricter regulations as well as increasing fines and sanctions for violations as a result of the TBML.
• Operational resources: There is an over-reliance on large numbers of bank employees to review transactions, and evidence is emerging that the diligent employees are aging and heading toward retirement.
• New evidence shows that graduates who want a career in banking do not want to be involved in the paper mill of TBML. It’s not innovative, it’s not exciting. Resources are limited and 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 Control: Ensure that no “bad names”, individuals, entities or sanctioned countries are involved in a transaction.
• Dual Use Goods screening: Identify goods, software and technology that can be used for both civilian and military applications.
• Fair price checks: Ensure 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 the use of multiple or foreign accounts.

These FinTech systems enable 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 since they do not magically automate the manual TBML systems. These solutions rely on digitization 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 automatic classification of documents and the resulting automatic extraction of key data depending on the type of document.

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

Those are impressive numbers, but the challenge is tapping 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 Taiwanese 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 technology-based environment mandated to stimulate and accelerate Taiwan’s FinTech innovation and ecosystem, is critical 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 tailored proprietary system, work with FinTechSpace, or actively seek out foreign TBML FinTech solution providers and get ahead of the crowd.

Don’t wait for the alarm bells to start ringing.

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 also has experience working with financial regulators across the Asia Pacific and provides consulting services to Taiwanese financial and non-financial industry associations in all aspects of compliance, AML/sanctions and governance. He lives in Taipei.