BNP Paribas fine a wakeup call to Vendors, Supplier Networks offering finance David Gustin - July 8, 2014 1:54 AM | Categories: Legal & Regulatory, Risk Management | Tags: AML, BNP Paribas, KYC The recent $8.9 billion dollar fine assessed on BNP for funneling money into Sudan, Iran, etc. for many years has implications for supplier networks, einvoicing providers, B2B exchanges and the non banks interested in funding. Why? As more supplier networks become involved in providing third party financing, cash control may now move out of the domain of a buyer – supplier relationship to other third parties involved. First, why was BNP Paribas fined so high? According to the Wall Street Journal, BNP Paribas provided more than $190 billion of dollar clearing services for Sudanese, Iranian and Cuban parties. The U.S. imposed sanctions on Sudan in 1997 on the grounds that it was supporting international terrorism and committing human rights abuses. From 2002 until 2007, however, BNP provided letters of credit and financing for Sudan and its financial institutions and processed more than $6 billion in transactions on behalf of Sudan's government and banks through a series of illegal means. Whether the amount of the fine fit the crime can be debated (I personally believe criminal prosecutions are in order and all we are doing is penalizing shareholders, but isn’t that usually the case – Enron, BP, etc.) The takeaway here is that most procurement, AP, and treasury practitioners have no clue what KYC procedures are at banks or non banks. KYC has always been a must for banks, but the US Patriot Act made the due diligence of getting relevant customer information when on-boarding paramount. In Europe, the Third Anti-Money Laundering Directive has been in effect since 2005. In essence, with these requirements, you have verification procedures upon establishing a relationship and then you have transaction verification whenever there is a trade (for example, knowing trade counterparts under the Dodd-Frank Act). In fining BNP $9 billion, the U.S. Govt did not pick a figure out from the sky. It was based on the amount of money funneled by BNP (and the profits made from doing so) plus a punitive component. In speaking with a number of vendors to get a sense on their AML/KYC compliance, I find many are naive about the current tightening of legislation globally. While supplier payments are low risk (ie, it’s hard to make a terrorist case paying someone on a discounted invoice when a buyer has already onboarded the supplier), understanding how cash flows in various structures and who has what responsibilities is important. What are the funders responsibilities associated with KYC? The network may provide data, but this is where cash comes in, settlement has to happen, someone must pay the supplier from an account, and wherever that account is held, that bank will want to know who holds that account and if they are not terrorists. As more third parties get involved and this gets bigger, it’s important. These are exciting times for alternative models of lending, but let’s not forget we also live in a new world, one where compliance is not an afterthought. P.s. I would like to invite you to receive our Trade Financing Matters Weekly Digest by signing up here Related Articles Chart of Week – Size of Shadow Banking Market grows… P2P lending platform fills gap for Small Business Installment loans Discuss this: Cancel reply Your email address will not be published. Required fields are marked *Comment Name * Email * Website Notify me of new posts by email.