Currency Sanctions

  The President of the United States has the ability to impose economic sanctions, including currency trading, against foreign governments, companies and individuals. This authority is held under two statutes:

• The Trading with the Enemy Act
• The International Emergency Economic Powers Act

Failure to follow these scanctions can be severe, including imprisonment.

When the President imposes these sanctions, Federal law prohibits any US company from performing services for the benefit of the sanctioned person. In most cases the law also requires the blocking of assets, which means, you cannot release or return any assets to a sanctioned entity until you have received specific instruction to do so.

Sanctioned Countries include: Cuba, Iran, Iraq, Libya, North Korea, Burma, Cote d’Ivoire, Sudan, Liberia, Zimbabwe, Sierre Leone, Unita in Angola, and Syria.

There are also over 3500 names of companies and individuals on the OFAC (Office of Foreign Assets Control). These are sanctioned due to a number of reasons from drug trafficking, to terrorism, to weapons of mass destruction.

Who is sanctioned?

The governments of a sanctioned country including all aspects, agencies and political subdivisions, wherever they are located in the world. The individual citizens of the sanctioned country, wherever they are located in the world. Any entity resident in or incorporated in a sanctioned country, wherever they are in the world. Any individual or entity located in a sanctioned country, regardless of their county of origin or citizenship.

Every reputable currency exchange bureau has a list of sanctions they must follow by law. Another category list the High Risk Country group. I will save my discussion for this on another article.

Currency Trading and Money Laundering

Money Laundering is a big topic these days in Foreign Exchange circles. The criminal or terrorist element is almost certainly participating in that high tech world. You have probably heard or read of somebody being arrested for this recently.

Money laundering is the process a criminal uses to distance themselves from the proceeds of their crime, yet maintain access to the funds. Most basically, a criminal attempts to take enough steps with the money that it is untraceable to the crime.

Laundering generally takes three distinct stages:

• Placement: Smurfers are used to introduce the dirty money into the system, these smurfers change the form of the money numerous times until the launderer feels the original funds cannot be traced back to them.
• Layering: Layering involves the changing of cash into drafts, money orders, traveler’s checks etc. Launderers ensure each transaction is under reporting laws; so many smaller transactions are made instead of fewer large transactions. This way each transaction looks legitimate and no paper trail is created.
• Integration: Once the money has changed form several times, the launderer has buried the trail of its origination. At this point it is impossible to trace the funds back to the original crime. The launderer is now able to introduce the funds back into use, often through a front company.

Reputable currency traders are concerned about money laundering. Being non-bank Financial Services Companies, makes currency traders susceptible to money launderers. Involvement in money laundering can result in fines, criminal charges, loss of reputation and loss of business to the currency trader. In some cases where the money laundering is for terrorism purposes, the results can be catastrophic.

How do currency traders prevent money laundering? Without going into too much detail, reputable currency traders will get to know you very well before proceding to set up an account or allowing any transactions to take place. Traders will also get to know your beneficiaries very well. The whole process is designed to eliminate any doubt about who is involved in any transactions and what they are transacting.

The good news is that much of what currency traders will ask you is designed to protect your interest as well. If you are doing business with someone in a foreign country, you want to make sure you are going to get paid for your goods or services. You also want to make sure that the foreign business actually exists as claimed. And you also want to make sure the foreign business has a bank account in good standing. These are all things the currency trader will guarantee for you.

Certain countries are negligent in their money laundering laws or prosecution. I will talk about this in an upcoming article.

On-line Currency Systems

Like everything else these days, the currency trading world has arrived on your desktop. If you aren’t aware of this yet, just ask your local currency trader or bank to fill you in. The degree to which these systems have developed reflects the complex needs of most foreign-involved businesses.

On-line currency trading systems are mainly a convenience feature whose benefit is to save you time and money.

They should:

• include dependable 128 Bit encryption security.
• access real time exchange rates.
• upload and download data to your accounting system and order fulfillment system reducing data input time.
• customize approval processes to enhance security.
• order foreign currency drafts and wires.
• pool payments to maximize volume.
• send payments to multiple beneficiaries.
• generate reports and notifications.

Of course the most important feature of your on-line currency system is the company supporting it. Find a currency trader or a bank who is willing to spend the time to understand and analyze your needs, so you can ensure the proper fit. They should be willing to demonstrate their system to you before you commit. And when you do commit, they should be capable of providing ongoing support and service to you. Just because you have an automated system for currency trading doesn’t mean you won’t need the occasional bit of advice from a warm human voice.

Currency Speculation vs. Currency Risk Management

Let me be clear. When I am speaking about currency trading, I am talking about professionally managed currency trades with the purpose of trading a good or service. However some people out there will choose to speculate or even gamble on the future position of some currencies. Some of those people claim to make a good living from such speculation. I say that you will never get a straight story from any such person. You will likely only ever hear about the rare wins and not hear about the frequent losses they incurr.

Professionally managed currency trades involve a systematic, non-emotional approach which combines market knowledge and the willingness to hedge your resources in a safe manner. If your business is dependent on profiting from the value of the dollar and not from your good or service, what are you doing in business?

Many business owners frequently do business in the currency spot market. This may be occurring because they don’t know where to turn. But many business owners think they know more than the market does. When I come across owners who do this, my first question is: And how is that going? Invariably, they respond with some story about losing thousands or even millions of dollars.

Why take a chance when there are so many tools available to you to help mitigate the currency risk? You have currency options, currency swaps, and the Big Kahuna: The forward currency contract.

The forward currency contract is a way of guaranteeing that you can buy or sell currency at a contracted rate in some time in the future. With a “forward”, you base that future price on market conditions, usually tied to interest rates. Interest rates are much less volatile than basing on the Spot market which is up and down and very hard to predict. When you have a forward currency contract, you have an agreement between you and your currency trader or bank that guarantees you will be paid the price contracted to. This takes all the guesswork out of foreign trading. Now you can concentrate on buying or selling your goods or services because you have predictability in future currency value.

It is true that your obligation is to honor your side of the contract by buying or selling at the specified time. Most traders will allow short time extensions under some conditions. You can also set up a swap for another contract. And you can sell the first contract and buy another one if you wish. There are a number of different kinds of forward currency contracts as well. So the negatives that people use when referring to “forwards” are not really good reasons to avoid them. They are more often than not emotional excuses to avoid something they are afraid of. Professional currency trading is about removing the emotion from the transaction.

Forward Currency Contracts are the smart play for those business owners who know how to manage currency risk.

Methods of Currency Payments

There are a number of payment methods in dealing with currency exchanges. Transactions can still be done in the old check payment method. The only problem with checks is: how do you deal with people you don’t know that well? And for many transactions, blind business is the major part of the currency world.

Working through a currency trader or a bank will help to mitigate any settlement risk involved. Currency traders and banks will ensure that the person on the other end of your transaction is who they say they are and that there actually is a bank account at the other end.

Methods of Payments have been around for some time. Such methods as Wire Transfers, Currency Drafts, and Checks have been used for years now. But did you know that you can now perform all these transactions from the convenience of your own computer desktop?

The method of payment you choose is dependent on the relationship you may have with your beneficiary. If you have a good reliable relationship and they are looking to get paid quickly, you may choose Wire Transfer as a means of payment. If you don’t have as reliable a relationship, you may choose to go with a Currency Draft, which is similar to a check. If you want to bypass formalities and go directly to the beneficiary, you can choose to pay by check as well. That can have its own inherent risks. If you send checks through a Currency Trader or a Bank, they will help to ensure the beneficiary at the other end is legitimate.

All of these payment methods are available to you through your very own personal computer. The convenience factor involved is incredible. The original setup can be challenging or simple depending on how your business is set up.

I will be talking about online solutions in a later article.

The Role of Currency Exchange Providers

I recently talked to a business owner about handling his foreign exchange business. One of his comments was that he prefers to do business with his bank because he trusts them rather than a currency exchange service provider. I asked him why is that? He said that he had heard of an incident in the last two years where another company had lost quite a bit of money through a Money Service Bureau. He feels he is protected through the bank much better.

Let me just say that if the transaction goes south, a bank will provide no more protection for currency exchange than a good foreign exchange bureau does. The maximum protection offered by a bank for currency exchange is $10,000 CAD. Also, since the bank will have obtained a letter of credit from your company, you may be on the hook for more or your credit may be affected.

Admittedly there are currency exchange bureaus out there who operate like fly by night businesses. If they don’t have the proper controls in place, your transaction may fail. This is where reputation and capability come into play. Currency exchange bureaus must take precautions because they act as an impartial referee for two parties. If the currency exchange bureau can’t ensure that both parties live up to the transaction, somebody is going to get hurt.

How do you find a good, reputable currency exchange bureau? Just like everything else, you shop around, ask questions, ask for references.

A good currency exchange bureau will save you time, money and make life a lot more convenient. Banks serve their purpose but would rather not offer some of the fast customized service you get at a good currency exchange bureau. And to top it off, a good currency exchange will likely get you a better rate.

Welcome to CurrencyMan!

  With international travel and trade, the world is now a Global Village. We need a way of transacting business with each other that doesn’t interfere with that mindset. I will inform you of the happenings of currency exchange so you can truly feel part of this Global Village we live in. If you do business internationally or if you are travelling to other parts of the world, you can login to this blog on a regular basis and see the latest developments in the world of currency exchange.

I will be talking about the Currency trading world as it mostly relates to business. The business currency trading I will talk about will deal only with issues that touch on actual tangible trades and not currency speculation. If you want to be a day trader, there are plenty of ways to get information for that. Or better still, go to your local casino or race track.