Money laundering is no new term, especially in the world of fraud. Yearly, agencies are consistently updating their methods of prevention when it comes to money laundering schemes. Money is moved by criminal organizations and terrorist financiers to hide its source and integrate it into the formal economy through three main methods. The first includes using the financial system; the second involves moving money physically; and the third involves moving products physically through the trading system. The Financial Action Task Force (FATF) has considerably placed its focus on two of these methods with less focus on the third- laundering through trade which has made it increasingly popular among the schemes and led to a wide abuse of the international trade system.
Some numerous dangers and vulnerabilities might be exploited in the system of international trade. The complexity of using multiple foreign exchange transactions and various trade financing arrangements, the mixing of legal and illegal funds, the enormous volume of trade flows that obscures individual transactions, the commingling of legitimate and illicit funds, and the sparse resources that the majority of customs agencies have available to detect suspicious trade transactions are some of the causes of these.
Trade-based money laundering (TBML) is the process of hiding the proceeds of crime and transferring value using trade transactions to cover up their illegal origins. In actuality, this is accomplished by lying about the cost, volume, or caliber of imports or exports. Its methods also come in a variety of levels of sophistication and are commonly combined with other methods to further obfuscate the money trail.
COMMON TECHNIQUES USED IN TRADE-BASED MONEY LAUNDERING (TBML)
- False reporting on invoices or supporting documents, such as incorrectly classifying a commodity, overvaluing, or undervaluing it.
- Carousel trades- indicate the repeated import and export of a single highly valuable good.
- Commodities exchanged that are not appropriate for the business line.
- Phantom shipments- the under-shipment or over-shipment of goods or services.
- The use of Shell firms or offshore front firms.
- Facilitating invoice settling through third-party brokers.
- The use of Illegal cash in authentic financial transactions.
- Sanction Evasion- The misuse of the current trade network to finance terrorism (sanction evasion).
PREVENTIVE TECHNIQUES IN TRADE-BASED MONEY LAUNDERING (TBML)
- Know Your Business (KYB)- As a part of KYC, it is Germaine we understand the nature of the client’s business activities. Third-party due diligence policies need to be in place to ensure you understand whom the client is doing business with and the kind of risk they pose to TBML. Enhanced Due Diligence (EDD) is usually required in industries associated with higher risks such as merchandise, arts, and fashion industries. Regular visitations to the site of business can help shed more light on the activities of the clients and to know if they are involved in TBML.
- Evaluations need to take place with consideration of the bank’s size, complexity, location, and types of client contacts, to know if its system for reporting and keeping an eye on trade finance transactions for suspicious activity is adequate.
- Sample testing trade finance accounts to confirm that the bank is upholding its obligations in terms of customer due diligence, record keeping, monitoring, and reporting.
- Educating the people in the global trade services departments of banking and finance institutions about AML.
DETECTIVE TECHNIQUES IN TRADE-BASED MONEY LAUNDERING (TBML)
Financial institutions have the right to maintain a complete record of all of their transactions and to use that as evidence in support of regulatory TBML enquiries. To determine whether a customer’s KYC (Know Your Customer) dossier is valid and up-to-date, they must conduct risk-focused quality checks. They are required to implement rigorous control measures that guarantee the appropriate operation of their internal validation processes and the seamless operation of their warning systems for identifying any suspicious activity.
Data and Text Mining are important in detecting TBML. They utilize natural language processing (NLP) and machine learning (MI) to convert text data into a more organized model. Big data, which consists of data that is large in volume, speed, and diversity, are frequently challenging to interpret. The use of this technique in analysis enables some form of flexibility in how this data is read, processed, and used.
It is essential to have access to libraries on this subject, such as those for industries, high-risk nations, dual-use products, channels, etc., to detect TBML operations. Therefore, it is crucial to improve reference databases for the FIs to increase the availability of their data. Some of the more recent analytical methods utilized in TBML detection procedures include predictive analytics for anticipating potential hazards, web analytics for gathering and downloading pertinent web data, and image analytics for converting hardcopies into a more useful format.
CONCLUSION
Trade-based money laundering (TBML) represents a significant criminal activity route and a serious money laundering and terrorist financing vulnerability given the expansion of global trade. To effectively tackle money laundering, which is so pervasive, sophisticated, and cross-border, coordinated international actions from multiple agencies, authorities, and Financial Institutions will be necessary. With the development of new technologies like distributed ledger technology, it is becoming easier to keep track of complicated, multi-part transactions. The epidemic of TBML will likely be significantly lessened if authorities from various countries can come to agreements for enhanced information sharing and improved harmonization of cross-border data.
Written by: Elegbede Aisha, CFE