TFG Spoke to Stacey Facter, BAFT’s Senior Vice President of Trade Products, during BAFT’s Global Annual Meeting, held in Frankfurt from January 13-15, 2020. We discussed some of the key themes around AML, sanctions and embargoes. How will these be tackled moving forward, and what can be expected in 2020?

Featuring: Stacey Facter, SVP, Trade Products, BAFT

Host: Deepesh Patel, Editor, Trade Finance Global

Deepesh Patel: Stacey, thank you very much for joining us. Great to have you here. Here we are, live in Frankfurt, at BAFT’s 2020 Global Annual Meeting. So to start off with, could you give me a quick introduction? Who are you, for those of us who don’t know you, where are you from? What do you do?

Stacey Facter: Absolutely. I work for BAFT as the Senior Vice President, specialising in the trade finance world and trade finance business. I see myself as an ambassador for trade, and my background is actually in banking. I have been at BAFT for almost seven years now. I’ve come a long way! It’s a big transition when you leave a bank and you go to a trade association. My whole thought process in doing it was to go to an organisation that supports the industry and not just one financial institution. It was very exciting for me to get that opportunity. I’ve been able to do some great things since I’ve been here developing guidance documents, whitepapers, doing education and training, participating in conferences and workshops, etc. It’s a good gig!

DP: Absolutely!

SF: But I did want to mention that I worked 20+ years at JPMorgan Chase, and I was in sales and product. I set up their risk distribution business and the last job I had was as an operating risk manager.

DP: Great. So a huge wealth of experience across the trade finance industry, which is incredibly useful for your current role at BAFT. So let’s take a look at 2019 – quite the year for trade. We interviewed 20 experts from trade, receivables, supply chain finance, giving us their highs and lows of 2019. And actually, this video interview is going to be about trade finance compliance, and compliance and regulatory themes were extremely pertinent in 2019. Could you give a rundown of the top trends and themes that you saw in 2019?

SF: I think the most significant and important compliance-related issue is that the banks, organizations, and regulators – everybody’s always raising the bar. Every single day, for anybody who’s sitting in trade finance, there could be a surprise. Our in that situation is to try to find the bad guys; it’s a very difficult thing to do, and we are getting guidance from different global associations, global organisations, global regulators, but there isn’t always a consistent approach. I’d say the number one issue is the fact that the bar gets raised in terms of what a financial institution needs to do. In many cases, it’s identifying issues that aren’t even in the purview of a financial institution. We spend a lot of time talking to the regulators about that, about issues related to KYC (know your customer), money laundering, and talking to not just one regulator, but the regulators around the globe and trying to develop a consistent approach. I would say that is the number one theme. There’s a lot of sub-issues in there, but I would say that’s the most important one.

DP: Yes, I think that is a really key theme. And actually, when we spoke to Steven Beck at the Asian Development Bank, I recall him quoting ‘navigating uncertainty was his biggest theme for 2019’. So, this uncertainty, has this had an impact on trade finance compliance, whether it be sanctions, tariffs, etc.?

SF: The answer is absolutely yes, regarding uncertainty. I was referring to it before because it really is what is expected of a financial institution, even in the sanctions space. What responsibility does the financial institution (FI) have to identify the bad guys or to make sure we’re not doing business with sanctioned entities or sanctioned countries?

An example would be that there would be a publication that came out from OFAC in the last 24 hours, and it talks about the ship-to-ship transfer of certain types of products that aren’t supposed to move from one country to the other, and we’re not supposed to support them.

That has happened in Korea in particular, and there was an advisory alert that came out – it was about five pages long and the banks got very concerned because it was very hard to understand what their role was in identifying these issues. Given that they deal in documents and they don’t really see the ships – are they really supposed to track the ships? Some people are pushing the envelope and the answer is yes: however, our role at BAFT is to contact OFAC and find out why they do things like this. What are the expectations from the FI?

The bottom line was, which was very interesting, was that they wrote it for the corporates, they didn’t write it for the FIs, because this is a good way to advise the players who actually are in the water dealing with the issue. It’s helpful that the banks knew about it, but it wasn’t an additional requirement put on their backs. That’s one thing I would mention.

Navigating Uncertainty through the Trade Finance Compliance

DP: Thank you, Stacey. I think that just goes to show the importance of BAFT when it comes to representing the banks and FIs to large bodies such as OFAC. I think, and I recall, Steven Beck held an excellent round table last year, can you explain a bit more?

SF: Sure, I’m more than happy to do that. Last May or April, he brought together multiple stakeholders who are involved in identifying financial crime and compliance issues. He invited the regulators, banks, some corporates, trade associations like BAFT – Tod Burwell, our president and CEO, was there. The idea was to bring everyone together to discuss the global consistency issue around AML. Particularly money laundering, anti-money laundering – you have to be careful the way you approach it! They identified at least five different themes, and I can remember some of those themes that were quite important. Following that they had some follow up takeaways, that the industry has actually focused on in the latter part of 2019.

You know that banks have to file SARs (Yes) Suspicious Activity Reports. Right now, if you file one for a trade transaction, it’s very difficult to put down the information that will really be helpful to law enforcement, because it’s not detailed enough related to trade. One of the initiatives was to actually rewrite the SARs form for trade. And that is underway! Another thing that was focused on was the legal entity identifier (LEI), because of the issues around sharing data, and the fact that data is not consistent across organisations; sharing information, privacy issues, confidentiality issues… So there’s a group that’s promoting the LEI. Then there’s another group that was looking at the trade finance compliance requirements and we pushed out our trade finance principles paper that we wrote a number of years ago -I say we, it was Wolfsberg, ICC and BAFT, and that was meant to be for practitioners. So what level of due diligence do you need to do on your customers? What level of due diligence do you need to do on your non-customers? Or do you? And who is your customer, as well as at the transaction level? We looked at traditional trade products and subsequently, this past year, we looked at supply chain products, which were then added to the paper. It’s available globally to anyone who’s interested in reading it. This year, we pushed it out to regulators globally. We’re hoping to have some interesting conversations with them, once they receive it and digest it!

The Digitization of Financial Compliance

DP: I think that’s the key there. So I guess moving forward, now into 2020 and perhaps pulling on some of the trade finance compliance themes from that roundtable; in your opinion, what are the most pressing issues that banks will be focusing on when it comes to finance compliance?

SF: I personally think that the most significant issue today is around identifying the compliance issues through technology and financial technology and specifically around digitization. There’s a lot going on in this space! The banks are challenged today – they are doing processes in a paper-based fashion – and when they do an analysis looking for a sanction or an AML issue, it’s generally done on paper – and that paper becomes extremely cumbersome. It’s also challenging because there are so many false positives that come out. A lot of the banks have identified some fintechs and also developed some programmes with the fintechs to do optical character recognition (OCR), as well as identifying more broadly, the sanctions names. The whole idea is to reduce the false positives, because there are millions of transactions that pass through these organisations every day and all of the global banks have focused on this, and I think there will be a point in time where the regional banks will start looking at it as well.

The Unintended Consequences of Compliance for the End Consumer

DP: Thank you, Stacey. And I think it’s very important – the potential for fintech-fintech and bank-fintech collaboration within financial crime, trade finance, etc. I guess my next question is around the end customer – so whether that be the corporate, the suppliers to the corporate etc. And we do seem to be in a bit of an arms race between the regulators, the rules, the compliance checks and the sanctions requirements, etc. and the bank’s complying with those and the fintechs and technology companies running to keep up with that. Is that at the impediment or loss or are there unintended consequences, on the end customer?

SF: The answer is yes, but I’m not going to say it’s a silver bullet. I think one thing that we need to focus on better as an industry is identifying all of the stakeholders that can play a role in identifying financial crime issues. One of the papers that BAFT published, ‘Combating Trade-Based Money Laundering – Rethinking the Approach,’ is suggesting that there becomes a better partnership between the public sector and the private sector – bringing in other entities like customs or shipping to identify and help the financial industry identify compliance issues. FIs see only one part of the transaction if they get paper, so it’s very challenging if they’re only doing open account – they’re not seeing any paper. But even if they’re not doing open account and doing traditional trade, they’re only seeing the transaction – they see the flow of the funds – but they don’t actually see the movement of the goods. It’s hard to ask them to follow a ship from its beginning to end and to make sure it doesn’t go through a sanctioned region, into waters that they’re not supposed to go in and you have to not make a payment or not do a trade deal if there’s any nexus to a sanctioned entity. It’s challenging, we need the help, we need a global approach – it takes a village, that’s what I would say!

DP: So 2020, let’s build a village?!

SF: I think so. I think one of my most important objectives, and it will continue, is to take the conversation around trade-based money laundering around the globe to the regulators. One place we’re going to start first is in the U.S., the intention is to try and bring all of the regulatory bodies together to sensitise them even further on the issue, and help them to develop this public-private sector partnership. We have relationships with the FIs, they have the relationships probably with customs and the shippers etc., so together we can build that village!

DP: Stacey it’s been an absolute pleasure having you on Trade Finance Talks TV, here at BAFTs Global Annual Meeting in Frankfurt. Thank you very much, and I look forward to catching you soon and keeping updated and what’s going on.

Stacey Facter
This has been my pleasure! I love to talk about this industry. Thank you for the invitation and I look forward to the next!