Brandi Reynolds, CAMS-Audit
Maybe you have heard the term, “Trade-Based Money Laundering” or TBML in the news recently. So, what is it and what is all the hype about? The Financial Action Task Force (FATF) defines TBML as the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimize their illicit origins.
The Financial Action Task Force or FATF has declared that some conditions must be present before a transaction can be considered as TBML. Those conditions include:
- Criminal value and profits should be involved;
- There must be a restructuring of the transaction for the trade of products or services;
- Price, quantity or quality of the products or services may be misrepresented;
- Illicit financing may be obscured through layers of legal financing; or
- That rearrangement must lead to the recognition of a changed legal form. The criminal money must obtain an allegedly ‘clean’ status.
Up until now, there has been no clear agreement about the meaning and the scope of TBML. In fact, there are some arguments that TBML exists only in international trade and not in domestic transactions. What seems to be agreed upon is the fact that trade-based money laundering takes advantage of complexity of the trade system by exploiting the system for illegal activity.
There are numerous types of trade-based money laundering. Some examples may include:
- Over-shipping and under-shipping;
- Phantom shipping (invoices delivered but there is nothing really being shipped);
- Over-invoicing and under-invoicing;
- Multiple invoicing; or
- Inappropriate description of products or services.
Unfortunately, TBML can easily go undetected. Financial institutions generally do not thoroughly review documentation such as invoices, bills of lading, or customs declarations in open-account transactions. This risk exposure is where criminals take advantage of unsuspecting financial institutions.
So, what is being done to combat this problem? The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued advisories and geographic targeting orders in an attempt to prevent TBML.
FATF is also addressing methods of best practices to combat TBML in periodic reports and mutual evaluations of its members. There are also numerous third-party vendors that provide transaction monitoring support including the establishment of rules and alerts that will assist in identifying transaction-based money laundering. Bates Group partners with a great network of industry strategic partners that can assist. Reach out and, we will make an introduction!
