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VAT: Let’s Show the Way to Get Prepared..!
Kreston Menon
The prospects of a federal corporate tax and value added tax (‘VAT’) regime is gaining momentum in UAE. The launch of the new VAT system will not only just affect consumers, but also will have a wider impact on businesses. While it’s still early for companies to make major alterations to their business structures and operating manner, there are manifold matters that need to be considered for settling and amending to make an effective transition from a tax-free environment into the new tax environment.
Primarily, what is the rate of VAT in UAE and how will it affect consumers..?
The Government has decided to charge 5% VAT in UAE, while exempting basic food items and certain services (medical and education etc.). VAT is supposed to be borne by the customers but the businesses are responsible for charging and collecting it. It’s fortunate that the incidence of tax is very minimal as compared to all the other countries. Further, companies need to evaluate the price elasticity for their products for example, in case of luxury items (watches or cars etc.) and need to adjust their margins accordingly. The economist forecast a one-time increase in the inflation rate of 1% to 2% for the region.
Certain Things to be Considered by Business…
Business should scrutinize various aspects covering the financial structure and systems to estimate their overall tax readiness. Besides, they should ensure to review the overall structure of organization to enact cross-charges, appraise contracts to review its present tax clauses, and ultimately reviewing the affect that tax will have on their operations and supply chain. It is recommended that Business should keep themselves updated on tax developments and incorporate VAT in their business plans accordingly. Special care should be given for carrying out effective internal communication and attentiveness with regards to the newer trends in tax, as the introduction of VAT will also influence all areas of the company such as its legal, finance, IT departments and as well as the business strategies.
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How Should Businesses Prepare for VAT Implementation?
There are several measures that companies must address and evaluate in order to make a smooth transition to the tax environment, which is discussed below.
1. Identifying Personnel
- Creating awareness among senior people from the head office, representatives from tax, logistics, accounts and IT and forming an implementation team within the organization.
- Carry out training for staff members for VAT (Using experienced consultants etc.)
- Restructure your business to involve new talent who has the ability to multi-task.
- Hire professional CA firms who could do the groundwork for your business for effective implementation.
2. Impact Analysis
- Identify the effect of tax on profits, supply chain, Information technology, legal and other areas.
- Assess pricing of the products/ quote for contracts, top line, and bottom-line impact
- Derive specific business aspects and business plan.
- Review all legal agreements/ contracts related to supplies of goods and services, and include clauses to accommodate VAT.
- Reach specific implementation plan.
3.Identifying critical issues
- Identify critical issues for prioritization.
- Identify contracts that need a VAT action.
- Identify inter-company transactions and implications of VAT.
4. Implementation
- Businesses will now need to develop more efficient processes.
- Make the needed changes to IT systems.
- Implement pricing changes and also evaluating the cost of products/ services correctly.
- Negotiations with new and existing vendors for reduced prices.
- Communicate efficiently with existing vendors and customers.
- Get professional help for right ways to implement systems perfectly.
- Incorporate a robust accounting system that has VAT module.
Also Read : VAT DESIGN AND ROLLOUT – Series 2
5. Trainings
Take initiative to provide training for operational Staff.
6.Post Implementation
- Maintain accurate financial records in an orderly manner.
- VAT registrations in UAE
- collection, payments and returns need to be performed without lag.
- Resolve transition related issues.
VAT can add an extra cost to businesses if a business is not prepared. Moreover, non-compliance with the tax laws may attract severe penalties. With no doubt, we can say that the implementation of VAT would require a total revamp of all the present practices and would assert a higher degree of financial transparency as well as accounting discipline.
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Administrative and Procedural Aspects of VAT
Kreston Menon
In the last couple of artilcle, I had covered about VAT rollout, the structure of VAT, VAT thresholds, likely impact of VAT on intra-GCC trade, exports to non-GCC countries and on inflation.
In this and subsequent issues,I plan to write about the administrative aspects of VAT in UAE, importance of documentation for VAT compliance, training for employees handling VAT within organization, structuring companies under VAT regime, refund of VAT to temporary visitors to GCC and the impact of VAT on gold and silver trade in GCC countries.
Administrative aspects of VAT
At this stage it is too early to predict what would be the administrative structure that would be rolled out by the GCC countries for VAT. Just to give a fair idea to the readers, I would outline the administrative procedure to be followed by a company seeking for VAT registration in the United Kingdom
In the UK, a business entity has to be first registered for charging VAT unless their annual turnover falls below the VAT exemption threshold. Once they register for VAT they must charge VAT on their goods and services and may reclaim VAT they have paid on business-related goods and services. In the UK one needs to file VAT return once every three months.
VAT has to be accounted on full value even if the entity receives goods or services instead of money or has not charged any VAT to the customer. In such case, the selling price is treated as including VAT. If the entity has charged more VAT than what it has paid, then it has to pay the difference to the government. If the entity has paid more VAT than what it has charged subsequently then it can reclaim the difference from the government.
VAT rates, record keeping and invoices
In the GCC member countries, we are still not sure about VAT rates that would be implemented. However, we can be certain of zero VAT rate for certain essential goods and services.
In the UK there are three rates for VAT, the standard rate, reduced rate and zero VAT rate. Most of the goods and services fall in standard VAT rate category in the UK. Reduced rates at 5% are typically applicable for people over sixty or people with special needs for certain mobility aids. Reduced VAT rate is also applicable for domestic power and fuel. Zero VAT rate items include books and newspaper, safety helmets and few more items for children. One should note that Zero VAT rate also needs to be charged and accounted in quarterly filing of return.
In the UK business must keep VAT records for at least six years. VAT records can be on paper, electronically or as part of a software program. I shall be covering on records that need to be kept for VAT compliance in detail in subsequent issues of article.
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Only VAT-registered businesses can issue VAT invoices and must issue and keep valid invoices which can be in paper or electronic form. It is important to keep copies of all the sales invoices issued even if it is cancelled or produced one by mistake besides keeping all purchase invoices for items that are bought.
In the UK full VAT invoice is required for most transactions. One can also generate a modified invoice for retail supplies over £250 or a simplified invoice for retails supplies under £250. Usually VAT invoices must be issued within 30 days of the date of supply or the date of payment.
International trade
In case of international trade, there is no need to show all amounts on invoices in sterling. If VAT invoice is issued in a foreign currency or language, then total VAT payable in sterling has to be shown on VAT invoice if the supply takes place in the UK.
There are certain exceptions to issuing of VAT invoice. One need not issue a VAT invoice if invoice is only for exempt or zero-rated sales within the UK or giving goods as a gift or selling goods under a VAT second-hand margin scheme.
VAT refund to visitors visiting GCC member countries
Dubai has lots of visitors coming in from non GCC countries for shopping and leisure. When they shop in Dubai these visitors would end up paying applicable VAT on purchase of goods. We can expect GCC countries to provide relief on VAT payment to such tourist who shops in in one of the GCC countries.
If we look at VAT charged on goods and services in EU, VAT at the appropriate rate is included in the price one pays for the goods purchased. As a visitor to the EU who is returning home or going on to another non-EU country, one may be eligible to buy goods free of VAT in special shops.
In EU, a ‘visitor’ is any person who permanently or habitually lives in a country outside the EU and address as shown in passport is taken as the place of permanent or habitual residence.
In some EU countries, one may also qualify as a ‘visitor’ if you are living in an EU country for a defined period of time for a specific purpose, but your permanent home is outside the EU and you are not intending to return to the EU in the immediate future. EU citizens permanently living in non-EU countries are also eligible for the VAT refund.
VAT-free shopping involves lot of documentation and it can be taxing for a tourist to claim refund on VAT paid. As a visitor to GCC country, it may not be a simple process to do VAT-free shopping. If one looks at procedure followed by EU member states, one cannot just do VAT-free shopping. One must pay the full, VAT-inclusive price for the goods in the shop and get the VAT refunded at the airport before departure, provided one has complied with the formalities and can show the proof of export. Also in EU the goods will be eligible for VAT refund for eligible visitors only if the goods are taken out within three months of the purchase.
Also Read: VAT DESIGN AND ROLLOUT – Series 2
In the EU, one can buy VAT-free goods even if one is going to be visiting other EU countries before finally returning home, as long as one actually leaves the EU with the goods within the time limit of three months. One needs to get documents stamped by a customs officer at the point of exit of the EU–not necessary in the same EU country where the goods are bought.
In EU member states in the great majority of cases, there is an administrative charge for the service provided at the airport to get applicable VAT refund and one can get the exact amount that will be charged from the shop where the purchase is carried out.
To avoid administrative hassles over small-value items, there is a minimum value of €175 for the total purchase. The threshold applies to the total amount of goods bought in a certain shop. Normally, one cannot cumulatively add purchases in different shops to reach the threshold.
To conclude, we can expect the administrative aspects of the VAT to be established in the UAE to adopt best practices from VAT implemented elsewhere. Impact of VAT on tourists spending in the UAE and GCC countries would depend upon the ease of refund on VAT paid by such tourists. Business entities will need to have team in place that is well trained on intricacies of applicable VAT rate, zero VAT and exemptions of VAT for product and services, documentation, invoicing and regulatory filings. The existing accounting packages would require modification to take VAT into account. For companies with adequate training, processes and automation in place, I would not expect compliance to VAT would be a challenge.
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M&A Transaction in Retail and Consumer Sector
Kreston Menon
This review covers the mergers and acquisitions made between 1-Jul to 30-Sep-2016 in the global retail and consumer goods sector for transactions, for which the deal value has been disclosed. The M&A data have been collated from company press releases and regulatory filings. Only those transactions with deal value more than US$100 million are considered for the analysis.
Analysis of M&A transactions
In Q3-2016, there were 22 M&A transactions spread across 13 categories. The total value of the transactions was about US$36.41 billion. Of the 22 transactions, about 70% of the total transactions by value were from four categories – food & beverages, furniture & home decor, consulting & software and fuel retail. Food & beverages with aggregate deal value of $11.93 billion from four transactions topped the list. Food & beverage category accounted for one-third of the total deal value. In food & beverages category, Danone buying WhiteWave Goods topped the list with deal value of $10.4 billion which was about 29% of the total M&A transaction in Q3-2016.
M&A transactions
Food & Beverages
In the food and beverages category there were four M&A transactions totaling about $11.93 billion. The average deal size was $2.9 billion boosted by a single transaction of WhiteWave foods being acquired by France-based Danone for $10.4 billion. Through the acquisition of WhiteWave, Danone added to its portfolio, U.S. soy milk brand Silk and expanded its presence in the organic food category. The next large deal was the acquisition by Coca-Cola Femsa, Latin America’s largest Coke bottler. Coca-Cola’s Brazilian subsidiary Spal acquired Brazil-based Vonpar for $1.09 billion. Vonpar has three bottling facilities and five distribution centers in Brazil. In the semi-processed food category, Indonesia-based instant noodle maker Indofood divested its entire 83% stake in vegetable processor China Minzhong Food to Marvelous Glory Holdings for $484 million. In the beverages category, Toronto-based Cott Beverages acquired Florida-based S&D Coffee for $355 million. The acquisition of S&D was in line with Cott’s strategy of focusing on businesses with higher growth while continuing beverage diversification outside of carbonated soft drinks, shelf stable juices and large format retail.
Furniture and home decor
In the furniture and home décor category South Africa-based Steinhoff International Holding acquiring Mattress Firm was significant transaction. Steinhoff acquired Texas-based Mattress Firm for about $3.8 billion. This deal was besides Steinhoff acquiring UK-based discount chain Poundland Group for $787 million. Steinhoff with the acquisition intends to create a large mattress retail distribution network and facilitate its entry into the U.S. market. Home-improvement retailer, Home Depot acquired a direct marketer of repair products, Interline Brands for $1.63 billion, its biggest acquisition in nearly a decade. Interline sells maintenance and repair products to customers like property managers of housing complexes, and government and educational institutions. Home Depot with the acquisition aims to serve professional contractors.
Consulting & software
In the retail consulting and software space there were five M&A transactions totaling about $4.40 billion. Honeywell acquired Intelligrated which designs, manufactures, integrates and installs complete warehouse automation solutions and software. Honeywell paid $1.5 billion for Intelligrated which it bought from a company backed by Permira funds. The next deal was of Thoma Bravo acquiring automotive marketplace and software solutions provider Trader Corporation from Apax Partners for $1.22 billion. Trader Corporation offers digital advertising tools and marketing software solutions to automotive dealers. Mastercard increased its footprint in UK through acquisition of controlling stake in VocaLink Holdings, the payments processor that handles most payroll and household bill processing in the U.K. Mastercard paid $920 million for a 92.4% stake in VocaLink.
Also Read : Summary of M&A in Healthcare and Pharma Sector
Blackstone and New Mountain Capital (NMC) invested $570 million equity investment in JDA Software. The equity investment by Blackstone and JDA carried no interest costs for JDA and was used to retire existing debt by JDA. Voice and language solutions provider Nuance Communications acquired California-based TouchCommerce for $215 million in cash and stock.
Fuel retail
Alimentation Couche-Tard has been on acquisition spree in 2016. In 3rd Quarter Couche-Tard acquired gas-station chain CST Brands at a premium of 42% paying $4.4 billion. The acquisition expands Couche-Tard’s presence in Texas and eastern Canada. The earlier acquisition of Couche-Tard in 2016 included the purchase of Ireland-based Topaz Energy Group the biggest convenience and fuel retailer of Ireland and buying of A/S Dansk Shell’s downstream retail business in Denmark.
e-Commerce
Wal-Mart Stores bought e-Commerce startup Jet.com for about $3.3 billion. Walmart’s acquisition is one of the largest ever purchase of an e-commerce startup in the U.S. Walmart intends to narrow the gap with e-commerce player Amazon through the acquisition.
Fashion and lifestyle
French cosmetics firm L’Oreal acquired New Jersey-based IT Cosmetics for $1.2 billion. The acquisition was largest by L’Oreal in eight years and brings more than 300 skin-care and makeup products to its portfolio. IT Cosmetics was co-founded in 2008 by a former TV news anchor and a beauty-pageant winner. U.S.-based G-III Apparel Group acquired Donna Karan International for $650 million from LVMH the French luxury-goods maker and retailer. The sale possibly reflected LVMH’s inability to generate profitable growth from the fashion brand Donna Karan.
Hypermarket
In the Hypermarket section Britain’s second largest grocer, Sainsbury’s completed the takeover of Home Retail Group, the owner of Argos and Habitat brands for about $1.8 billion. The deal was announced after the South Africa-based Steinhoff withdrew from pitching for Home Retail Group.
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Apparel & foot ware
Shanghai-listed fashion retailer, V-Grass Fashion acquired the Chinese business of E-Land Group’s Teenie Weenie for about $900 million. For V-Grass, the acquisition possibly will help to support its falling sales. As part of restructuring its business V-Grass plans to focus on Chinese middle-class customers who are willing to pay more for premium products. The Korean brand Teenie Weenie, known for casual-wear items has about 1,400 stores in China, compared with about 215 of V-Grass.
Discount Stores
South Africa-based Steinhoff International Holdings acquired British discount chain Poundland for $787 million. Poundland operates more than 900 stores across U.K., Ireland and Spain. Steinhoff expects to strengthen its foothold in Europe with acquisition of Pounland. For Poundland, the Steinhoff offer came at a time when business was on a downward slope due to surge in online shopping and a price war among the U.K.’s largest supermarket chains.
Restaurants
Primavera Capital and Ant Financial an affiliate of Alibaba Group Holding bought a stake in Yum China for $460 million. Primavera invested $410 million and Ant Financial invested $50 million. Yum which owns KFC and Pizza Hut plans listing in the New York Stock Exchange.
Logistics
Logistics provider C.H. Robinson acquired APC Logistics for $225 million. APC provides freight forwarding and customs brokerage services in Australia and New Zealand. APC will be integrated to Navisphere, C.H. Robinson’s Global Forwarding division and single global technology platform. The acquisition may enable C.H. Robinson to capture some shipments moving from Europe and Asia to Australia.
Consumer electronics and computers
Mill Road Capital Management acquired headphones maker Skullcandy for $197 million paying 43% premium. The agreement came after a two-month public takeover battle between Mill Road and Incipio, a maker of consumer-technology products. Skullcandy had to pay a termination fee to Incipio for exiting from the merger agreement it had signed.
Pets
In the Pets category, rural lifestyle retail store chain Tractor Supply Company (TSCO) acquired pet specialty retailer Petsense for $116 million. M&A activities so far in 2016 have been quite active in the global retail and consumer goods sector specially in the U.S., Europe and Asia region. One can expect more consolidation happening in the food and beverages sector and in the e-commerce space. One can also expect consolidation happening amongst IT consulting and product players providing niche products and services in the retail sector and e-commerce startups getting acquired at much lower valuation.
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Trade Financing GAP for Small-Mid Enterprises
Kreston Menon
As governments around the world look to small and mid-size enterprises as engines of growth, trade and job creation, a significant challenge stands in the way: hundreds of billions of dollars of pent-up demand for trade finance. This financing can be used as export working capital that enables a company to purchase labor and inputs to fulfill a specific export order. Or it can be used as supply chain financing that helps the company get paid faster for its export shipment than its foreign buyer wants to pay, and thus get cash flow needed to process the next order.
International trade has been more or less sluggish since the global economic slowdown hit in 2008. World trade grew an average of 3 percent between 2010 and 2015, after 6 percent annual growth between 1983 and 2008. Demand for trade finance is growing fast. According to the International Chamber of Commerce, 63 percent of banks around the world said trade finance activity is growing, 61 percent increased their capacities to meet customer demand for trade finance and 72 percent experienced an increase in trade finance fee income. Requests most frequently came from SMEs, which are both more numerous and cash-strapped than large companies; however, banks rejected about half of all SME requests, as opposed to 21 percent for large corporations.
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These findings are indicative of a global trade finance gap, now estimated at $1.4 trillion, $693 billion of which is in developing Asia, including India and China. The gap exists also in advanced economies: In surveys in the U.S., Europe and the OECD region, SMEs unfailingly see a lack of finance as the top obstacle for them to trade across borders.
A story recently in Reuters talked about how the biggest trading houses are filling the traditional banks (and mostly European banks role) of funding traders. Banks such as BNP Paribas and Societe Generale have cut funding of small and mid-sized companies with low credit ratings because of growing regulatory and political pressure, risk aversion and weaker profits. But banks still feel comfortable in providing large trading houses with billions of dollars in credit lines and then often watch this money being re-lent at higher rates to those they chose not to deal with directly.
The 2030 Agenda and Improving Access to Trade Finance – The Role of the WTO and other International Institutions
The availability of trade finance is a significant problem in emerging markets and developing economies. Surveys show that this is especially the case in Africa and Asia. The lack of development of the financial sector means simple, low-cost financing is often not easily available to small companies, which can pose a significant hurdle to developing economies integrating into the global trade system more effectively and taking advantage of the potential benefits of trade for employment and growth.
Also Read: VAT: Let’s Show the Way to Get Prepared..!
Trade finance can facilitate SMEs’ integration into global value chains in several specific ways. One promising tool is Supply Chain Finance (SCF). SCF can simplify the manner in which receivables and liabilities are handled, processed and subject to interim financing between suppliers, producers and buyers along a global value chain. Since SCF is based on the binding commitment by the buyer to purchase the primary and intermediary products, the financing conditions are related to the credit rating of the buyer, usually a larger company, which means they can be more beneficial for the supplier than if the supplier requests financing outside this fixed value chain context.
In developing economies, local financial markets are often not in the position to offer such SCF arrangements, making access to factoring and other financial instruments particularly challenging for small-mid enterprises. International institutions like Multilateral Development Banks (MDBs) are putting new programmes in place that can close these gaps. For example, the International Finance Corporation (IFC) has launched a Global Trade Supplier Finance Program to facilitate the integration of smaller manufacturing companies into international value chains. The programme brings together suppliers, buyers and banks, making it feasible for banks to offer pre-payment on claims from suppliers from emerging markets and developing economies through relevant refinancing or acceptance of guarantees. The suppliers, in turn, have to pre-finance less working capital and provide fewer liquid assets, making it easier for them to plan accordingly. It appears that the private sector has also discovered this business model as a promising growth market. According to a survey from the International Chamber of Commerce (ICC), two-thirds of the banks surveyed stated that the importance of SCF is growing and that growth rates in this business line in recent years are above 10%.
International institutions, in particular the WTO, also have a role in supporting trade finance effectively. The WTO is regarded as the initiator of international cooperation in the field of trade finance and serves as a discussion forum for relevant players. Since 2008, the Working Group on Trade, Debt and Finance has been the hub for WTO initiatives in support of trade finance, particularly in developing countries. In this role, the group continuously interacts with the regional development banks, the International Finance Corporation (IFC) and the national export credit agencies.
The WTO and other institutions could do several things to address the difficulties associated with trade finance in developing countries more effectively, including:
Putting a greater focus on trade finance for developing countries and for the integration of SMEs into value chains: IFC and MDB programmes focusing on SMEs could be further strengthened. The WTO’s working group on trade finance could support and evaluate efforts by MDBs in tackling the structural trade finance gap in developing countries.
Improved synergies in cooperation between the actors involved in trade finance: More intensive cooperation between the relevant institutions and actors could help to increase the availability of trade financing. MDBs and their programmes play a leading role here, but increased cooperation between MDBs and export credit agencies, the WTO, the Bank of International Settlements (BIS) and the private sector could improve the effectiveness of trade financing initiatives, for example by institutionalising cooperation between the WTO and BIS and ensuring developing country governments and stakeholders are sufficiently involved in decision-making. A good example is the Trade Finance Institute currently being created by the ICC, which is drawing on existing WTO and MDB e-learning materials.
Keeping trade finance on the public agenda: The WTO Working Group on Trade, Debt and Finance is in a good position to raise international awareness about financing gaps, to discuss whether proposals from stakeholders and institutions live up the demands of trade bankers and trade rules and, when needed, to convene debate among a range of relevant actors, including the G20 and the wider WTO membership.
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Combating Trade Based Money Laundering
Kreston Menon
The FATF has defined “Money Laundering” as the processing of criminal proceeds to disguise their origin in order to legitimize the illegally-gained proceeds; and “Trade Based Money Laundering” (TBML)as the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimize their illicit origins.
In recent years, global and regional regulators have implemented stringent measures pertaining to Anti-Money Laundering & Terrorist Financing, which has made it difficult to launder money through the traditional channels. Due to the same, the Money Launderers are using more sophisticated methods like TBML especially since it is very difficult to set red flags for detection of illicit funds. This can be supported by a report from International Narcotics Control Strategy Report (INCSR) of 2003 which states that hundreds of billions of dollars are laundered annually by way of Trade-Based Money Laundering (TBML).
How does TBML works
FATF, in its report on TBML in 2006, states that the international trade system is subject to a wide range of risks and vulnerabilities that can be exploited by criminal organizations and terrorist financiers. Some of the examples for carrying out TBML includes misrepresentation of price, quantity or quality of imports or exports or through fictitious trade activities or front companies etc. It also stated that the various techniques used for executing TBML are complex in nature and can be frequently used in parallel with other money laundering techniques. Some of the basic techniques have been highlighted below:
- Over- and under-invoicing of goods and services;
- Multiple invoicing of goods and services;
- Over- and under-shipments of goods and services; and
- Falsely described goods and services.
Steps to identify Trade Based Money Laundering
As highlighted above, TBML is one of the most supplicated tools which is difficult to identify due to complexity and possible layering of the transaction, hence it is important to highlight some of the key steps for identifying TBML related transactions, including but not limited to:
- Screen the parties – Banks and Finance Houses should check on true identity and beneficial ownership of customers, customer’s customer, suppliers, agents counter partiesrties.
- Review bill of lading, invoices, certificate of origin, packing list and such other documents to check on any mismatch in details.
- Examine cargo movements by checking bill of lading details in Shipping company tracker or raising for International Maritime Bureau reports.
- Compare export information with tax declarations to detect discrepancies.
- Pay particular attention to trade transactions that display known red flag indicators of TBML activity.
- Sanctions check on parties to the transaction.
- Conduct EDD for High Risk Clients at various intervals.
- Take appropriate follow-up action when anomalies and discrepancies in trade and financial transactions are identified.
TBML Process – Case in Point
Case study from APG Typology Report on Trade Based Money Laundering – 20th July 2012
ROUND TRIPPING OF FUND TRANSFERRED THROUGH HAWALA BY RECEIVING THE FUND BACK AS EXPORT EARNINGS.
Red flags
- Advance received for export without justifiable reason
- Diversion from existing line of business.
- Sudden increase in volume by new exporter.
- Export of goods without any corresponding purchase of raw materials or finished goods.
- Acceptance of trade related documents by Bank, which are not duly authenticated by export regulatory agencies.
Integrated Approach for Combating TBML
For combating the risk of TBML, we propose the FIs/Banks to focus on the following three area of priorities
Policy and Control Framework
As part of our integrated approach, the first step is to develop a robust risk and control framework for identification and monitoring of TBML related issued. Banks/FIs should focus on developing/updating the following areas to strengthen its policies against TBML:
Master Data Base
The second step of our solution focuses on creating an internal Master Data Base for all the clients based on Rule/Client/Hybrid approach. This process enables the Bank/FIs to facilitate quick turnaround on review and trade execution. The importance of this approach is that it enables the Banks to maintain the transaction history of the client, which can enable them to enhance the profiling of the customers at the time of renewal and also focuses on the trend analysis of the customer’s transaction.
Governance & Escalation
The last step entails to put governance and escalation matrix in place for ensuring compliance with the industry norms, regulatory requirements and internal policy. Periodic review of the process ensures that the control framework implemented is effective. As part of the third step, the key focus areas include:
- Map the Key requirements of the product requirements as per Industry norms, regulatory requirements and internal policies of the Bank/FIs
- Identify the key responsibilities of stakeholders within each of these process and bring transparency and accountability
- Formulate the approval authority matrix including limit setting
- Implement an exception, variances reporting including SAR to compliance team of the Bank/FIs
- Periodically assess the adequacy of the controls implemented
There are other controls like Monitoring Dual Usage Goods and Transaction Screening processes, which can be implemented at any stage during the review process.
Also Read : Trade Financing GAP for Small-Mid Enterprises
Conclusion
FATF stated that “Any strategy to prevent and combat TBML needs to be based on dismantling TBMLstructures, while allowing genuine trade to occur unfettered”. In this regards, we encourage organization to take a holistic view of setting up policy & framework while aligning the same with the existing CDD/ EDD process for client onboarding/ renewal. The focus for Banks/Fis should be to enhance the robustness of its control framework and monitor the red flags on an ongoing basis. This approach also enables the bank to enhance the profiling of the customers and ensure a robust approach is adopted for combating TBML.
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#BeBoldforChanges – International Women’s Day
Kreston Menon
On March 8th we celebrate International Women’s Day. It’s a celebration of the social, economic, cultural and political achievements of women. The day also marks a call to action for fast-tracking gender equality – and this is according to the organization that actually conducts the event across the world. There have been many women who have broken barriers and dared to walk where others did not, or who espoused women’s causes passionately – like Florence Nightingale, Emilia Earhart, Billie Jean King, Diana Princess of Wales, Marie Stopes, Marie curie, Helena Rubenstein, George Sand, Emmeline Pankhurst, Indira Gandhi – to name but a handful .Today we will take inspiration from some of the highest achieving women in recent times, and hope, that more girls and young women are spurred to great heights. The theme for this year’s campaign, is Be Bold For Change.
Sunita Williams: This US Navy officer and astronaut holds the record for most total spacewalks by a woman (7) and the most spacewalk time for a woman (50 hours, 40 minutes). She spent several months at the International Space Station, travelling there on the Discovery Shuttle first, in December 2006 on space expeditions no 14 and 15. She became the first human being to run a marathon in Space – the Boston Marathon to be specific. A trend setter, she has truly reached into the sky and touched the stars.
Aung – San SuuKyi This Nobel laureate from Myanmar has been a relentless champion of democracy and peace in her country, which has seen years of military rule and suppressed freedom for common citizens. She remained in exile and then under house arrest for 15 years, but never gave up the fight for her people to have a more normal life. Her courage in the face of personal tragedies and discomfort is highly inspirational – yes, a woman can lead a nation against dictatorship.
Christine Amanpour: The Chief Consultant of CNN International is a daring investigative journalist and TV host who minces no words in her reporting. She fled her native country Iran as a little girl, and lives in England now. She reported on the Bosnian war, and has interviewed several world leaders, and hosts many talk shows, some of them controversial because of the topics. For her bold and courageous reporting, she has been the recipient of several honorary doctorates and awards for excellence in journalism.
Indira Nooyi : Smart, dynamic and electric; this is how most people would describe the current Chairperson and CEO of Pepsico. She has been ranked in the list of the World’s most Powerful Women for several years consecutively. She broke many barriers to head one of the world’s biggest food and beverage businesses – a seat considered to be male preserve. After joining the company in 1994, she was made the CFO in 2001 and then President and CEO in 2006. She has been at the helm of the company’s global strategy for over a decade, and was instrumental in several major happenings like takeover of Tropicana, divestiture into Tricon, merger with Quaker Oats and so on. Certainly a personality to be emulated!
Christine Lagarde : She is the current (and the first woman) head of the International Monetary Fund, a position she has held since July 2011. She was previously appointed as Minister for various departments in the French Government including Economic Affairs, Finance and Employment, Agriculture and Fishing,and Trade. A successful anti-trust and labour lawyer, Lagarde was the first female chairperson of the international law firm Baker &McKenzie between 1999 and 2004. She was ranked the best Minister of Finance in the Eurozone on 16 November 2009 by the Financial Times.
J.K. Rowling : Who doesn’t love Harry Potter? But not many know that the author, J. K Rowling, was on the verge of poverty when she wrote the first book. Harry Potter and the Philosopher’s Stone – a book rejected by 12 publishers before it was finally published. And the rest is history. She was going through the roughest patch in her life: she had just got divorced, her mother had passed away, and she had a little child to raise. But she did not stop believing in herself. She pulled herself out of the depths of despair to become an international sensation. From school kids to grandmas, from the UK to India and South America, Harry Potter gained immense popularity, making her one of the richest women in the UK.
This is hardly a comprehensive list – there are so many. I have tried to give examples of bold, successful women from varying professions, to highlight the fact that virtually nothing is impossible for us women today. When we see so many exemplary women who have already made a path for the rest of us, can we not follow in their footsteps – if we cannot carve new paths ourselves?
Go out there, and make your mark on the world. Be Bold. Be decisive. Don’t wait for the world to change – make the change yourself. A Very Happy International Women’s Day to my sisters all over the world!
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