Trade Confessional. Sunder Subramanian Head of Trade Client Operations and CCB O&T EMEA. Syed Abdul Hakeem, Senior Operations Manager

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1 Trade Confessional Sunder Subramanian Head of Trade Client Operations and CCB O&T EMEA Syed Abdul Hakeem, Senior Operations Manager

2 Speaker Information Sunder Subramanian EMEA Head of Trade Operations Citi Treasury and Trade Solutions Sunder is a senior operations executive with Citibank and has international leadership experience across regions. His knowledge of Trade and Transaction Banking is complemented by in-depth understanding of risk management and controls, cost efficiency, process optimization, training and development. Sunder is currently the Regional Trade Operations Head for EMEA. He is widely recognised for his expertise in regulatory compliance and has been leading several strategic regional and global programs on AML and Sanctions for Citi. Sunder holds an engineering degree and a postgraduate diploma in Business Administration. Syed Abdul Hakeem Senior Operations Manager Citi Treasury and Trade Solutions 2 Hakeem is a Senior Operations Manager with 22 years of experience. He joined Citi in Pakistan and worked in Cash and Trade operations, customer service and relationship roles. He moved to London in 2008 and currently leading the Europe Trade Operations team. In addition, he is working with regional and global partners on various strategic ops initiatives, governance and oversight of services providers, customer services and process optimisation.

3 Citi s Core Value Proposition Trade Global Reach Solutions 3 People Operations Efficiency & Controls

4 Citi s Trade Network & Infrastructure Citi maintains the largest Trade Services network in the world, spanning 124 cities in 71 countries, with six regional processing Centers of Excellence that support around-the-clock operations 4 North America Canada Mexico United States Argentina Brazil Colombia Costa Rica Dominican Republic Ecuador El Salvador Guatemala Haiti Latin America Honduras Jamaica Panama Paraguay Peru Puerto Rico Trinidad Uruguay Venezuela Tampa, USA London, UK Western Europe Ireland United Kingdom Indian Sub-continent Bangladesh India Sri Lanka Mumbai & Chennai, India Dalian, PRC Penang, Malaysia Middle East & Africa Algeria Lebanon Bahrain Morocco Cameroon Nigeria Congo Pakistan Cote d Ivoire Qatar Egypt Senegal Gabon South Africa Israel Tanzania Jordan Tunisia Kenya Uganda Kuwait United Arab Emirates Zambia Central & Eastern Europe Bulgaria Czech Republic Hungary Kazakhstan Poland Romania Russia Slovakia Turkey Ukraine Asia Pacific Australia/New Zealand China Hong Kong Indonesia Japan Korea Malaysia Philippines Singapore Taiwan Thailand Vietnam

5 Our people: Trade Advisory and Trade Service Professionals Citi has the largest and most experienced technical trade experts in the world they are available to assist our correspondents Citi s Global Trade Advisory Team is located in the US, UK, Malaysia, India, Mexico, Russia, and Turkey Over 30 Professionals These individuals have several years of experience in Letters of Credit (both commercial and standby), Collections, and Reimbursements. They train clients and represent Citi in various technical forums. USA UK Nigeria India Mexico Russia Singapore Citi s Trade Service Professionals are located in all key locations and service all clients globally Over 200 Professionals This highly experienced multilingual service will act as your entry point, provide solutions, resolve queries and assist you navigate the Citi Network About 400 of our Trade Operations staff globally are CDCS qualified 5

6 Global turn around time for Trade Services transactions Product % of Transactions processed within 48 Hrs Aspirational Target 2018 Up to 1 Day 1 to 2 Days More than 2 Days % % % Export LC (A + B + C) 93% 83% 10% 7% Advising (A) 93% 80% 13% 7% Amendments (B) 95% 90% 5% 5% Confirmations (C) 90% 70% 20% 10% Export bills negotiation 90% 80% 10% 10% Highlights Annual volume: ~9 million transactions Achieve turn around time within 48 hours : o Export LCs - 93% o Export bill negotiations - 90% o Reimbursements - 99% Currently, turn around times are impacted due to the following: o o Compliance Reviews Workability Issues Reimbursement and IRU 99% 96% 3% 1% Guarantee/Standby LC Issuance 90% 75% 15% 10% 6

7 Citi s Operations Flow of a Trade transaction Receipt Authentication checks KYC Check Flow of a transaction Workability checks Local regulations Boycott language ICC Checks Credit checks Processing on Systems Comments Compliance reviews now account for a large share of the processing times. These reviews also could take longer to resolve internally due to escalation and investigation requirements. The controls required for compliance are increasingly becoming more stringent. AML red flags Compliance related checks Sanctions screening Client related Release Disposition of compliance escalations + Banks must have a clear process and structure for escalation of compliance related matters. Processing staff Compliance - I Compliance - II Level 1 (87%) Level 2 (12%) Level 3 (1%) 7 + Represents directional trends

8 Common issues in transactions impacting turn around time Goods Description Red Flags LC has unclear description of the goods, services or technology being furnished i.e. goods description being too generic (e.g. spare parts, chemicals etc.) Standby LC fails to reference underlying project or contract (i.e. purpose of the instrument) Unit price and quantity do not tally / inconsistent with LC value Workability Issues Incomplete payment/reimbursement details Cash Collateral not placed with Citi Incomplete payment / reimbursement instructions Missing reimbursing bank LC not subject to URR though Reimbursing Bank is nominated Clause on charges unclear Line of Business Trade transaction may be unusual in light of the exporter s normal business activities Unavailability of information for LC Applicant / Beneficiary in public domain / internet Incomplete details of beneficiary (e.g. incorrect bene name, address) LC terms inconsistent with relevant UCP articles For confirmed transactions LC availability/ Drawee details not correctly mentioned i.e. not restricted with Citi Exclusion of article 37(C) i.e. non-recourse to Issuing Bank if we are unable to recover fees Inconsistencies among Latest Date of Shipment, Expiry date and Period of Presentation Please refer to our Workability Guide for further details KYC requirements for Export Advising (current) Citi can normally advise/confirm LCs where KYC exists for LC Issuing Bank. Citi can consider advise/confirm LCs where KYC exists for the H.O. of LC Issuing Bank under certain circumstances. In absence of KYC on any party to the transaction, Citi will usually decline participation in the transaction. 8

9 Examples of Red Flags Customer Inconsistent business dealings Address Inconsistencies Pre-accepted discrepancies Excessive/aggressive/pressured contact Reluctance in providing clear answers Diversified business (trading in fruits and also computer chips?) Unusual transaction size for the customer? Document Shipment inconsistent with L/C terms Applicant-Issued documents Unauthorized alterations Refusal to provide proof of shipment Switch bill of lading Containerized goods without container numbers Future dated bills of lading Immediate replacement of discrepant documents? Continuous container numbers on bills of lading (generally random)? Transaction Offshore shipment Shell company Unnecessarily complex Unusual Intermediaries and too many parties Non-standard clauses/phrases Significant amendments Approach from previously unknown party Shipment of crude oil to an oil rich country? First beneficiary having extraordinary profit margin in a master L/C value? Payment Unexplained changes Request to pay third party Payment from third party Changing place of payment Unusually favourable payment terms Unusual trigger point Change in payee name Assignment of proceeds under L/C to a 3rd party in safe haven country? L/C covering goods shipment however not calling for transport documents? Shipment Quantity of goods exceeds the known capacity of the shipping containers Abnormal weights for goods The shipment not making economic sense Weights and measures inconsistent with goods Container weighing 200 tons? Shipment of a perishable goods from one part of the world to another? 9 Excerpts from Banks Control of Financial Crime Risks in Trade Finance July 2013, Page 19

10 July 2013 Banks Control of Financial Crime Risks in Trade Finance Dual-Use Goods May 2014 Amendment Most banks did not have systems and controls in place to identify and escalate transactions involving dual-use goods. We were often told that identifying dual-use goods was beyond the capability of most bank staff. However, while we recognise that this is a complex area, it is poor practice for banks not to consider measures to identify transactions involving dual use goods Examples of Good Practice Examples of Poor Practice Attempting to identify dual use goods in transactions wherever possible Ensuring staff are aware of dual use goods issues, as well as common types of goods which have a dual use Confirming with the exporter in higher risk situations whether a government licence is required for the transaction and seeking a copy of the licence where required Failing to attempt to identify dual use goods in transactions Focusing purely on military or lethal end use goods Not having a clear dual use goods policy Failing to undertake further research where goods descriptions are unclear or vague Not making use of third-party data sources where possible to undertake checks on dual use goods Ensuring staff are aware of dual-use goods issues, common types of goods that have a dual use, and are capable of identifying red flags that suggest that dual-use goods risk being supplied for illicit purposes Confirming with the exporter in higher risk situations whether a government license is required for the transaction and seeking a copy of the license where required No clear dual-use goods policy Failure to undertake further research where goods descriptions are unclear or vague Third-party data sources are not used where possible to undertake checks on dual-use goods 10 Excerpt from Banks Control of Financial Crime risks in Trade Finance July 2013, Sec 3.7.5, Page 39

11 Citi s Control Ecosystem Summarizing Best Practices Policies and Procedures Policies and procedures which are clear and unambiguous, specifying the checks required in various circumstances Identification and escalation of financial crime risk transactions should not be solely on the number of red flags identified Regular review based on changing regulatory requirements and/or the market environment Knowledgeable Staff Review of transactions in entirety by staff with sound understanding of trade-based money laundering risks Specific trainings on identifying and handling of financial crime red flags are important Staff handling the transaction should be empowered and encouraged to escalate transactions with red flags Transaction Handling and Management Action Satisfactory investigation of potentially suspicious transactions without succumbing to time constraints or commercial pressures Effective use of relationship managers knowledge to identify potentially suspicious transactions Record the rationale for decisions, and retain the information for audit purposes Feedback Loop Regular testing of the effectiveness of the process and controls Ensure that process and controls are relevant to the current risks Specific MIS on financial crime to be generated and reviewed to understand the risks 11

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