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Trade-based money laundering 

The Financial Action Task Force (FATF) has joined forces with the Egmont Group to release a report highlighting some of the key risk indicators around money laundering and terrorist financing in trade-based industry.

The report aims to help organisations in the public and private sectors understand how criminals exploit trade transactions with the primary aim of moving money, rather than goods. This latest report from the FATF follows previous reports it has published on trade-based money laundering in 2006, 2008 and 2021.

Trade brings buyers and sellers, producers and consumers together around the world, generating a significant proportion of most countries’ GDPs. In the UK, for example, exports account for around 30% of GDP (worth $490bn annually), while imports are valued at around $673bn (equivalent to around 32% of GDP). The scale of the global trade economy is truly vast. But this vital arena of human activity creates opportunities for bad actors as well as good.

High-risk factors in the trade industry 

Organised crime groups are known to engage in TBML to disguise illicit movements of money around the world and to finance terrorism. Professional money launderers have a truly global reach, exploiting the intricate complexity of contemporary trading networks and trade finance instruments to mask their activities. Organisations involved in TBML transactions are often completely unaware they are being used to facilitate what is classified as ‘predicate offences.’

Trade activities that lend themselves to TBML include:

• Transactions that take place rapidly
• Processes involving a manual component, which are therefore susceptible to manipulation
• Areas of trade activity where large movements of funds are unlikely to be seen as suspicious
• Trade activities are, to a significant extent, unregulated, meaning that only banks and payment service providers are required to carry out AML procedures.

Agencies with an AML brief take account of red flag indicators to identify where investigations may be required. These interventions can have huge ramifications for multiple industries and individuals who find themselves caught up in a trade chain that is implicated in TBML activity.

The involvement of supervisory agencies does not absolve individual firms of their duty to carry out the appropriate amount of due diligence.

What can you do?

It is essential that you know the businesses you are dealing with. Whether or not you are specifically required to carry out customer due diligence (for example, by the Money Laundering Regulations), all firms should undertake additional checks.

As outlined in the report, it is important that regulated firms not only request due diligence information from their customers but also undertake considerable know your customer tests on that information provided by the firm. These details should then be used to monitor the customer. For example, a customer has provided documentation evidencing they are selling bicycles wholesale in the UK, imported from India. It is the regulated entities responsibility to undertake open-source checks on the customer; is there a recently updated website, can you find the location of the premises on Google Maps, are there any reviews of the business, can you identify and verify the identity of the customers’ customers?

The FATF's TBML report provides valuable guidance for firms and individuals on the types of additional checks that can be carried out in order to better understand exactly who the end customers are.

For example, does your customer have:

• A complicated corporate structure, possibly including shell companies, or does it have companies registered in jurisdictions with less rigorous ML/TF controls
• Residential status, rather than a local corporate location, for no apparent reason
• No online presence
• Negative news coverage relating to senior management or owners
• Staffing levels inconsistent with the volume of trade transactions carried out
• Trade deals involving multiple third-party intermediaries in unrelated lines of business
• Goods that are low in value but high in volume, for example, clothing, foodstuffs, second-hand goods, medications etc?

These are just a handful of the indicators highlighted in the report. There are many other risk factors your firm should look out for when completing KYC checks.

Conclusion

Unfortunately, criminal activities are deeply embedded in global trading networks and organised crime groups are adept at keeping several steps ahead of the law. That leaves you with the responsibility of protecting your own business at the same time as playing your part in the global fight against TBML.

How can we help you?

If you’d like to know more about how we can help you ensure your business adopts a consistent risk-based approach to the threat of TBML and adheres to all the relevant requirements around financial crime, our expert team is here to help.

Contact us today on 0207 436 0630 or email info@thistleinitiatives.co.uk.