Trade Based Money Laundering
The money launders have been moving physical cash as well as using the financial systems to move money for years and years. And while the “Black Market Peso Exchange” has been known to be operating between the US and Columbia and the rest of Latin America for 20 or more years – this scheme is being found in may more places in the world and in many more forms. The new formal name is “Trade Based Money Laundering” (TBML).
Clues that trade based money laundering might be going on are similar to any fraud.
• Payments to vendor made by unrelated third parties.
• False reporting: such as misclassification, goods over-valuation or under-valued.
• The repeated importation and exportation of the same high-value commodity “carousel”.
• Commodities being traded that do not match the business involved.
• Unusual shipping routes or transshipment points.
• Packaging does not match commodity or shipping method.
• Double-invoicing is as good as always.
It is an old process of using well understood means or managing tax obligations to move money to other jurisdictions. A car window is sold to a Cook Island Company for €1.00 and the Cook Islands company sells the car window to a European Manufacturer for €3.00 thus capturing a €2.00 profit in a jurisdiction with low or no tax. The same can be done by the criminals. The criminals can afford to lose money on transactions as this loss is part of the cost of laundering their funds. Buying a car for cash in one country and selling the car for less to a company in another country who may retail the car or yet sell it someone else in the chain of TBML.
A common hallmark of TBML is payment by a third party. An example we ran across was watercress being shipped from Canada to the US but being paid for with cash in Canada. The ultimate buyers of the watercress in the US wrote checks to a company in the US for their goods. The grower in Canada did not care that they were getting paid in cash, they reported it all and put the cash in the bank. The grower was so happy with a buyer paying fast and in currency he inquired if there was anything else he could sell to the buyer’s clients in the US – and by the way, the buyer found more goods the grower could source and supply. The grower was operating perfectly legally, but was being used. (Underlying crime was the smuggling of cigarettes to Canada
The criminals were able to launder millions by paying the grower in Canada in cash and getting their funds legitimized by the buyer’s checks being deposited in their accounts in the US.
We have also seen things such as paying 4 or 5 times the going market rate for foodstuffs, art, mechanical items etc.. While TBML is not a big deal for enforcement yet, we will see more cases being brought by the regulatory authorities in the coming years as they gather more useful information on trade. The other reason is that most of the developed nations have been hiring more investigators and prosecutors to combat both TBML and tax evasion.
TBML – something old is new again.