The Financial Action Task Force's October 2024 updated guidance on trade-based money laundering (TBML) — formally titled "Trade Finance and Correspondent Banking" — has materially increased the documentation burden on commodity trading firms operating cross-border LC and open-account structures. While the guidance is non-binding at the FATF level, it has already been incorporated into supervisory frameworks by the Dutch National Bank (DNB) and the UK Financial Conduct Authority (FCA), with US FinCEN expected to publish conforming guidance in Q3 2025.
KEY CHANGES IN TBML RISK ASSESSMENT REQUIREMENTS
The 2024 guidance introduces a formal risk-scoring requirement for commodity trading intermediaries acting as "orchestrators" in trade finance structures — a category that explicitly captures commodity procurement firms that arrange LCs between producers and end-buyers without taking title. Under the new framework, orchestrators must maintain beneficial ownership records for all counterparties to at least two tiers of the corporate ownership chain, not merely the contractual counterparty. This represents a significant expansion from current practice, where most commodity firms conduct KYC only on the immediate LC applicant or beneficiary.
LC STRUCTURING UNDER THE NEW FRAMEWORK
| LC Feature | Old Practice | FATF 2024 Requirement |
|---|---|---|
| Beneficial Ownership | Immediate counterparty only | Two-tier corporate chain minimum |
| Vessel Vetting | SIRE + P&I Club verification | SIRE + sanctions screening + MMSI/IMO cross-check |
| Trade Document Review | Presentation documents only | Underlying commercial invoice + packing list |
| Over/Under-Invoicing Check | Not required | Benchmark price comparison mandatory |
| Country Risk Refresh Rate | Annual | Quarterly minimum |
VESSEL VETTING AND SANCTIONS SCREENING
The guidance specifically calls out vessel-based evasion as a primary TBML vector following the 2022–2024 shadow fleet expansion in Russian crude trade. Commodity firms are now expected to cross-reference vessel IMO numbers against OFAC's List of Specially Designated Nationals and Blocked Persons (SDN List) at each port call — not just at initial fixture — and to document AIS (Automatic Identification System) consistency checks for vessels with a history of transponder gaps. XRT's trade compliance team has integrated KPLER vessel tracking with OFAC SDN alerts as part of our ARP transaction monitoring workflow.
PRACTICAL IMPACT ON XRT COUNTERPARTY ONBOARDING
Effective March 2025, XRT's counterparty onboarding timeline has extended from an average of 5 business days to 9 business days to accommodate two-tier beneficial ownership verification for entities incorporated in FATF high-risk jurisdictions (currently including UAE, South Africa, and several APAC jurisdictions under enhanced monitoring). Clients should factor this timeline into their procurement scheduling and avoid submitting RFQs that require LC issuance within 5 business days of counterparty introduction. Pre-clearance of repeat counterparties is available under XRT's Verified Supplier Registry framework, reducing subsequent transaction onboarding to 48 hours.