FATF report on Trade Based Money Laundering ; A Summary
Criminals are very creative with the different methods they adopt for laundering money. FAFT recently launched a report, which was published on December 9, on Trade based money laundering (TBML). What is TBML? This form of money laundering makes use of the trade systems prevalent and their intricacies. This occurs more commonly in a global trade environment where multiple jurisdictions where due diligence checks seems a bit more complicated than usual.
TBML deals with misusing different kinds of international trade finance processes and the import and export of goods in question. Usually these methods involve misappropriation of invoices, quality of the product and shipment quantities. The Black market peso exchange is a traditional form of TBML drug cartels in South America have used to launder their illicit proceeds in the United States of America. The report included a detailed case study on this form of laundering to explain it better.
The FATF in its report, states that global trade networks “can attract criminals… who exploit the interconnected supply chains” for moving these illicit proceeds using a legitimate financial system, a practice known as trade-based money laundering (TBML). The report also throws light on the different kinds of risks this method of laundering money poses as almost every jurisdiction in the world is involved in trade and misappropriation of funds using trade finance instruments is very convenient for most criminals and also talks about adopting a risk-based approach in order to curb this problem.
Some of the risks stated are illegal smuggling of restricted products, deals of arms or tobacco, exploiting the supply chain to launder money, third party involvement, newly formed businesses with rapid growth etc. By adopting this approach one could identify, analyse and map out the risks TBML could impose before there are measures adopted to mitigate such risks such as stronger restrictions imposed on cross-country payments, or including thresholds for payments and due diligence for the same especially when it comes to unexplained cash payments.
Organisations should also consider collaborating with other regulators and authorities, even in different jurisdictions and look beyond their AML regulations. A global AML regime can help identify risks involved while using international trading and financial instruments by criminals. The Task force urges better co-operation and co-ordination among global and local regulatory bodies in order to achieve this goal and eliminate any risks by stating, “Domestic co-ordination and co-operation is one of the fundamental pillars of an effective AML/CFT regime.”
The FATF has also provided a list of examples of TBML, case studies and potential risks and red flags that should be considered while conducting KYC and due diligence processes. The report also proposes that banks and regulators should ensure that their staff get internal training on TBML to understand the situation better while conducting their compliance functions and making compliance risk policies. Have a look at the latest FATF report here.
Please note that all opinions made on this blog should be treated as a guide and not legal advice.