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Trade Based ML

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14 views3 pages

Trade Based ML

Uploaded by

aryan Dhiman
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Trade-Based Money Laundering: An Overview of Risk

Indicators
Money laundering, the process of making illicitly obtained funds appear legitimate, poses a significant
challenge for global financial systems. TBML involves exploiting international trade transactions to
disguise the origins of illegal proceeds. In this blog, we will explore the concept of trade-based money
laundering and highlight key risk indicators that can help identify and combat this illicit activity.

Economic sectors and products vulnerable to TBML activity :


Various economic sectors are susceptible to trade-based money laundering (TBML), including sectors
with high-value but low-volume goods (like precious metals) and sectors with low-value but high-volume
goods (like second-hand textiles). Criminals exploit these sectors to launder illicit proceeds.

Few common themes that facilitate TBML exploitation have been identified:

1. Goods with significant price differentials.

2. Goods with long trade cycles involving multiple jurisdictions.

3. Goods that are challenging for customs authorities to inspect.

Common Sector for TBML


Gold, precious metals, and Fine Arts (DNFBP)

Gold, precious metals, and Arts are frequently exploited in TBML schemes. These are not only utilized as
commodities to move value but also serve as alternative forms of value in money laundering processes.
In some cases, gold acts as a proxy for cash.

Auto parts and vehicles

TBML schemes often involve the exploitation of auto parts and vehicles, including the trade of second-
hand or luxury cars. One scheme involved transporting damaged cars to another jurisdiction, where they
would be repaired and sold in a legitimate market.

Portable electronics (mobile phones, laptops, etc.)

Portable or handheld electronics are highly appealing in TBML schemes due to their potential for
deliberate misrepresentation and incorrect valuation. This creates opportunities for significant
movement of criminal proceeds.

Some Business indicators of TBML:


 Rapid growth of newly formed companies into existing markets;
 Evidence of consistent and significant cash payments, including those directed towards
previously unknown third-parties. These businesses may also receive unexplained third-party
payments;
 Unnecessarily complicated and complex supply chains, involving multiple trans shipments;
 Previously established companies specializing in one sector that unexpectedly pivot into an
entirely unrelated sector. One example provided noted an IT company quickly established a
foothold in the acquisition and distribution of bulk pharmaceuticals;
 Companies simultaneously involved in more than one unrelated sector

Common trade-based money laundering techniques

 Over- and under- invoicing of goods and services: The key of this technique involves
manipulating the price of goods or services to facilitate the transfer of value with the importer
and exporter play a complicit role in misrepresenting the price.
 Over- and under- shipment of goods and services: As above, this involves the misrepresentation
of the quantity of goods or services, including ‘phantom shipments’ where no product is moved
at all. Again, it relies on collusion between the importer and exporter.
 Multiple invoicing of goods and services: Instead of misrepresenting prices, criminals exploit the
reuse of existing documentation to justify multiple payments for the same shipment of goods or
services. They exploit this by reusing these documents across multiple financial institutions,
making it challenging for any one institution to detect.
 Falsely described goods and services: This involves the misrepresentation of the quality or type
of a good or service, such as the shipment of a relatively inexpensive good, which is described as
a more expensive item, or an entirely different item, to justify value movement.
 Shell and front companies: OCGs, PMLs, and terrorist financiers utilize shell companies in their
TBML schemes to anonymize the ultimate beneficial owner. Front companies enable the
integration of physical cash into a business, leveraging their banking relationships to facilitate
cross-jurisdictional movement of cash.
 Black Market Peso Exchange: The Black-Market Peso Exchange refers to an illicit system used to
launder money by converting it from U.S. dollars to local currencies through trade transactions.
Criminal organizations leverage the discrepancy in exchange rates between the two currencies to
launder their illicit funds. This method enables them to integrate illegal proceeds into the
legitimate economy while disguising the original source of the funds.

Measures and best practices to counter trade-based money laundering


 Adapting technology-based solution over manual risk assessment methodology.
 Periodic training of the staff to make them aware of current trends & regulation
 Financial intuitions need to apply effective CDD solution such as Effiya CDD solution to verifying
the background and demographics before onboarding a potential customer and carry ongoing
CDD on regular interval. Effiya solution streamline risk assessment task by automated risk card
and generating a case for high-risk customer for ECDD.
 Transaction monitoring to prevent & detect potential ML. Proactively monitoring trade patterns,
by using intelligent solution can help in detecting and preventing the TBML. Effiya offer Ai
powered Solution to smartly detect such patterns and block real-time suspicious transactions.
 Sanction screening is crucial process for both transaction monitoring & CDD but it is time
consuming process as 95% of the alert generated by any intelligent solution are false positive.
 Reporting Trade-Based Money Laundering
Financial institutions play a crucial role in detecting and reporting instances of trade-based
money laundering (TBML). By sharing information, collaborating with relevant stakeholders, and
following due process, financial institutions can support global efforts to curb TBML.

Conclusion

It's important to combat Trade-Based Money Laundering (TBML) as it has a significant impact on global
trade, leading to currency fluctuations, increased prices and even funding for violent crimes and
terrorism. The collaboration across borders is crucial in identifying and preventing TBML. We need a risk-
based approach, conduct background checks, integrate technology for monitoring trade, and provide
training to employees. These steps can be fine-tuned further by Using Effiya Financial crime suite leading
to30 % reduction in Compliance cost

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