There are three main methods that terrorist financers use to transform the financial proceeds of crime into legitimate funds:
using the financial system
physical movement of money
using the trade system
Trade Based Money Laundering
The third method – known as trade-based money laundering (TBML) – is one of the most prevalent global money laundering strategies. As part of this, criminals take advantage of the size and complexity of trade systems, to transfer money between parties and evade authorities.
This is particularly prevalent in international contexts, where the involvement of multiple parties and jurisdictions makes AML checks and CDD more difficult. And, the global Covid-19 pandemic has only added to the opportunities for money launderers.
Four Principle Forms
Over time, the methods that criminals have used for TBML have become increasingly sophisticated – and this will only continue. Today, TBML is said to take four principle forms:
over and under-invoicing of goods (misrepresenting prices on invoices to transfer value)
over and under-shipment of goods (including ‘phantom shipments’, where nothing moves at all)
multiple invoicing for the same goods (reusing trade documents)
falsely described goods (deceiving importers about the quality of shipped goods).
Collaboration is Critical
Given that TBML is often hidden amongst legitimate trade activities and stretched across different jurisdictions and organisations, it can be extremely difficult to detect.
As financial crime becomes more complex across the globe, it is the duty of businesses to be vigilant. However, beyond this, collaboration is critical, in helping to overcome these difficulties and combat criminal exploitation of our interconnected trade, financial systems, and global communities.
Today, firms must look beyond their own AML provisions, and seek coordination with other agencies and authorities – pooling relevant expertise in areas such as trade, customs and finance, and communicating effectively via technologies that provide connectivity and inter-operability. Where possible, TBML discoveries and analyses should be shared across institutions, to better enable the identification of global criminal infrastructure.
This is exactly why partnerships such as Australia’s Fintel Alliance have been launched.