ISLAMABAD: International trade networks can attract criminals and terrorists financiers who exploit the interconnected supply chains to launder the proceeds of crime or finance terrorism. Recognising trade-based money laundering is difficult, particularly when there is a lack of understanding of this technique.
A new FATF-Egmont Group report launched on Wednesday aims to help public and private sector with the challenges of detecting trade-based money laundering. Using numerous case studies from around the FATF’s Global Network, it explains the ways in which criminals exploit trade transactions to move money, rather than goods.
The report states that trade can be inherently complex and complicated, reflecting the nature of interconnected supply chains stretching around the world. These are exploited by Organised Criminal Groups (OCGs), Professional Money Launderers (PMLs), and terrorist financing (TF) networks, to facilitate myriad types of financial flows, including the laundering of proceeds of crime, such as from drug trafficking; the financing of terrorism; and the evasion of sanctions.
Report contributors noted the continued exploitation of trade based money laundering (TBML) techniques first identified in the 2006 FATF study. These continue to be used for ML purposes as they are highly flexible and adaptable, despite changes in global trading patterns and the growth of new markets. These techniques are particularly effective when there is a complicit relationship between the importer and exporter, who are actively misrepresenting an aspect of the trade or the associated invoice settlement process.
The report takes stock of current TBML risks, including the exploitation of new or existing methods of introducing illicit cash into the financial system. Despite the growth in technology-enabled payment methods, case studies highlight the reliance on black market peso exchange (BMPE).The report also notes other forms of illicit cash integration, such as the exploitation of surrogate shopping or the infiltration of legitimate supply chains.
Relevant trade data is held across multiple stakeholders with restrictions about the extent to which this data is shared, both operationally and in bulk. Newer challenges highlighted include the growth in online businesses, restricting scope for proactive compliance activity, and new technologies and the digitalisation of trade processes, increasing the speed of trade operations.
It highlights recommendations to address the trade-based money laundering risks. Countries should use national risk assessments and other risk-focused material to raise awareness with the public and private sector entities involved in international trade. These include financial intelligence units, customs agencies, law enforcement, financial institutions, transport companies, importers and exporters, accountants and auditors.
The report also recommends improving information-sharing of financial and trade data, and improving co-operation between authorities and private sector, including through public-private partnerships.
Given the diversity of tradable goods, the involvement of multiple parties, and the speed of trade transactions, trade-based money laundering remains a significant risk. This report aims to help public and private sector understand these risks so that they can take action when it occurs.
The FATF and the Egmont Group will continue to work together to develop risk indicators which will make it easier to recognise use of trade mechanisms for money laundering.
As we all know, money laundering goes hand-in-hand with organised crime. It allows criminals to make illicit cash appear legitimate. So money from drug trafficking or people trafficking, for example, can be laundered into the global financial system.
Historically, there have been three main ways of doing it: One is to transfer dirty money through banks or other financial institutions. The second one is, to move illicit funds physically via cash couriers. And the third one is to use international trade to move and disguise the proceeds of crime.
And this is what it is about today. The third one – trade-based money laundering, or TBML for short.
Trade-based money laundering exploits the international trade system. It allows criminals to disguise their illicit proceeds alongside legitimate international trade and move it between countries. This makes it extremely hard for authorities to detect. On the launching of report, the FATF president said that he wants to give an example scenario. Foodstuffs are highly perishable goods. They are ripe for multiple invoicing.
Say a professional money-laundering network uses food import/export companies to clean a drug cartel’s dirty money. There are various methods, but for example: the money launderers could ship fewer goods than stated in a contract. They could price the goods above their market value. They could even not send the goods at all, but supply invoices. Any of these methods would allow them to launder money.
For example, in the case of overpaying massively for a product – they could have falsified invoices. This can make it appear like a proper and fair business transaction – even though it is not. A concrete example referenced in our report suggests that one criminal network – just one! – using TBML and other techniques, was able to move 400 million US dollars over several years. It gives you an idea of the scale of the issue.
Today’s report builds on earlier work and outlines ways to identify and tackle trade-based money laundering. This includes the use of better and closer public-private sector partnerships; detailed money laundering risk assessments; and the use of advanced IT systems to detect suspicious activity.
By taking these actions, countries can disrupt the underlying criminal business models that enable crime and terrorism. Countries need to recognise the importance of this issue. This is about taking away the economic motives for serious crime, drugs and arms trafficking, environmental crime and much more. If countries take action, we can make money laundering through trade too risky, too complicated, and in the end unprofitable.
