CATF Reports Dec. 4, 2015, 2:04pm


Law enforcement experts who specialize in money laundering are continually surprised by the robust imagination of drug traffickers and terrorist financiers. They keep finding ways to cause established laundering techniques to mutate into new schemes. Prominent examples that determined investigators serious detection delays include black market peso exchanges and commodities markets. Regarding the latter, commodity sales and investments have come to represent a broad economic expanse of laundering opportunities that arrived on the scene about the time cartel leaders and terrorists were seeking new techniques to throw off law enforcement.

In a telling historical example, even experienced investigators had initial difficulty convincing themselves that shipment of a harmless commodity - e.g. stuffed animals - could be a new means for converting drug profits into bank deposits. Customs investigators were not sure they unraveled a scheme in which Colombian cartel launderers used drug profits sitting in the U.S. to purchase large quantities of stuffed animals from a Los Angeles manufacturer. The animals were then exported to Colombia, confirming the launderers were able to send illicitly earned proceeds home, quickly and easily. There, the dollars received as payment for the shipment were instantly converted to pesos and deposited safely in the Colombian banking system.

Other schemes do not rely on the existence of the commodities, instead drawing up phony invoices for nonexistent shipments coupled with trumped up payment receipts - often bearing counterfeit customs stamps - that together give the appearance of shipped and paid for commodities.  The eventual deposit of a hefty sum in the recipient's bank account that just happens to match the invoice amount, persuades auditors and investigators that, indeed, real commodities must have been shipped and appropriately paid for.  

The relatively recent phenomenon of trade based money laundering (TBML) has been defined by a leading financial institution as:

"[T]he process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimize their illicit origins. In practice, this can be achieved through the misrepresentation of the price, quantity or quality of imports or exports.... [T]rade-based money laundering represents an important channel of criminal activity and, given the growth in world trade, an increasingly important money laundering and terrorist financing vulnerability."    

To help banks and other financial institutions determine whether payments for transactions might be for trade based laundering, the Financial Crimes Enforcement Network (FinCEN) issued the following list of trade based laundering indicators: 1) Third party payments for goods or services made by an intermediary (either an individual or an entity) apparently unrelated to the seller or purchaser of goods - this may be done to obscure the true origin of the funds; 2) Amended letters of credit without reasonable justification; 3) A customer’s inability to produce appropriate documentation (i.e., invoices) to support a requested transaction; 4) Significant discrepancies between the descriptions of the goods on the transport document (i.e., bill of lading), the invoice, or other documents (i.e., certificate of origin, packing list, etc.).

There are clear reasons why TBML became so popular as a terrorism finance option so quickly - but on the other hand, has remained relatively obscure. According to a major study of the phenomenon by the Financial Action Task Force, TBML is poorly understood because of the "enormous volume of trade flows, which obscure individual transactions; the complexities associated with the use of multiple foreign exchange transactions and diverse trade financing arrangements; the commingling of legitimate and illicit funds; and the limited resources that most customs agencies have available to detect suspicious trade transactions." 

To combat the growing TMBL problem, a number of U.S. agencies are stepping up their detection and investigative efforts. The foundation program continues to be the Suspicious Activity Reporting (SAR) initiative of FinCEN, which is augmented by a lengthy and detailed guidance list of telling indicators. However, the flagship U.S. agency - Immigration and Customs Enforcement - initiated a Trade Transparency program to combat commodities based laundering and is the bureaucratic leader in the U.S. policy arsenal.

However robust government initiatives have become, the core problem posed by TBML remains: illicit transactions mimic legitimate ones so closely that terrorists and other criminals continue to hide practically in plain sight.

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