International Trade System Exploited through Trade-Based Money Laundering: A Growing Criminal Concern

Subtitle

A new study by the Financial Action Task Force (FATF) illuminates the risks of money laundering and terrorist financing through the exploitation of the international trade system.

The international trade system has emerged as an alluring vehicle for money laundering and terrorist financing activities. According to the FATF’s latest study, this trend is on the rise, with criminal organizations exploiting the system to launder illicit proceeds and finance terrorism.

The Growing Concern of Trade-Based Money Laundering (TBML)

The FATF report reveals compelling evidence and case studies that showcase how the trade system has been manipulated:

1. Expansion of Opportunities

   • The growth of global trade provides criminals with increased opportunities to launder money and finance terrorism activities.

2. Methods and Techniques

   • Over- or under-invoicing: Providing false invoices for imported or exported goods to conceal the true value of transactions.
   • Letters of credit manipulation: Criminals exploit letters of credit to transfer funds, manipulating the transfer process to launder funds.
   • No delivery: Criminals receive payment in cash and then disappear without fulfilling the contract.
   • Trade mispricing: Shifting profit among entities, which can also serve as a cover for money laundering.

3. Findings from the Research

   • The FATF conducted extensive research in over thirty countries through a comprehensive questionnaire, revealing alarming concerns regarding TBML.

Common Techniques in Detail

The FATF report details several methods criminals use for money laundering through trade channels:

Over- or Under-Invoicing

Criminal organizations provide false or manipulated invoices for imported or exported goods to conceal the true value of the transactions and launder significant amounts of money without suspicion.

Letters of Credit Manipulation

Criminals exploit the letters of credit system to launder funds by manipulating the transfer of funds between accounts, or by performing no actual delivery of the goods and receiving payment in cash.

Trade Mispricing

While often used to shift profits among entities in industrialized countries to pay less taxes, the practice can also be used as a cover for money laundering.

The Need for Action

Given the increasing interconnectedness of the global economy, it is crucial to address vulnerabilities within the international trade system before they are exploited further. The FATF study offers recommendations for governments and law enforcement agencies to strengthen their approach to dealing with TBML, emphasizing the importance of international cooperation to tackle this intricate issue.

Conclusion

The FATF’s “Methods and Trends: Trade-Based Money Laundering” report brings attention to the growing risks of money laundering and terrorist financing through the international trade system. By remaining vigilant and implementing effective strategies, we can deter criminal organizations and safeguard the integrity of our global economy.

For more information, please refer to the FATF website for the complete report.