The exchange of goods (tangibles) and services (intangibles) between two parties (buyer/importer and seller/exporter) in different jurisdictions
Intermediaries are sometimes used to connect buyers and sellers in return for a fee or commission
The volume of international trade has risen dramatically during the latter part of the 20th century, creating a truly global market for consumer goods and industrial outputs
A vast array of products are traded every day across international borders by air, land and sea
Variable physical goods – manipulation of the characteristics of the goods in a shipment
Variable pricing of goods – altering the price of a shipment
How is it done?
Variable volumes
Ghost shipments
Mislabelled goods
In order to justify payment for an alleged international trade transaction, money launderers can create all the necessary documentation for shipments that will never occur.
To transmit value overseas, money launderers can increase the volume of goods in the shipment above the figure quoted on the documentation. If they wish to receive value from overseas, they can decrease the volume of actual goods in the shipment below the figure quoted on the documentation.
A money launderer will ensure that the documentation surrounding the transaction describes goods lower in value than the actual goods being shipped. As a result of this re-classification, the goods sold in the importer’s domestic market can be sold at a considerable profit, as they were purchased far below market price by the importer.
Why use international trade to launder money?
What is TBML?
An enormous volume of trade flows - 500 million containers move around the world annually.
TBML techniques vary in complexity and are frequently used in combination with other money laundering techniques to further obscure the money trail
Over-invoicing
Under-invoicing
Zero-invoicing
Despite the increasing use of 'open account' transactions, trade finance can still be a very paper-based process with a variety of manifests, bills of lading and invoices being used, providing opportunity for criminals to manipulate or forge paperwork for their own advantage
The money launderer charges the importer more than the true value of the shipment in order to transmit funds overseas.
The ultimate form of under-invoicing is zero-invoicing, whereby the exporter charges the importer nothing for a shipment of goods.
The money launderer charges the importer less than the true value of the shipment in order to transmit funds overseas. The recipient of the goods will then sell them onwards in the domestic marketplace to convert into cash or negotiable assets.
Exploitation of the international trade system by criminal organisations
Complex multiple foreign exchange transactions and diverse trade financing arrangements may mask suspicious transactions
TBML represents an important channel of criminal activity and, given the growth of world trade, an increasingly important vulnerability to money laundering and terrorist financing
Limited resources of customs agencies - only 2% of cargo containers are subjected to a physical check by customs officers
The process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimise their illicit origins
- Deviation from usual activity
- Applicant over-keen to waive a discrepancy
- Excessive/aggressive/pressured contact by the client
- Customer reluctant to provide clear answers to routine questions
Customer red flags
What are some of the indicators of TBML?
What is international trade?
Document red flags
- Shipment locations inconsistent with the Letter of Credit
- Unauthorised alterations to the documents
- Beneficiary or applicant refuses to provide documents to prove shipment of goods
- Re-presentation of an official document immediately after a turn-down for discrepancy
Payment red flags
Shipment red flags
- Unexplained changes to payment instructions
- Request to pay a third party
- Unusually favourable payment terms
- An unusual trigger point for payment (i.e. before goods are shipped)
- Transactions where the quantity of goods exceeds the known capacity of the container/s
- The shipment does not make economic sense, e.g. the use of a forty-foot container to transport a small amount of relatively low-value goods
- Shipping documents show weights and measures inconsistent with the goods shipped or method of shipment.
Establish clearly documented roles and responsibilities for managing financial crime risks in trade finance
Screen all relevant parties to a transaction
Ensure due diligence procedures are clear about the checks to be made
What can financial institutions do to counter TBML?
Provide tailored training to raise staff awareness and understanding of TBML
Ensure red flags and typology information are regularly updated
TRADE-BASED MONEY LAUNDERING
The Bank’s Problem?