trade-based money laundering · in the case of customs and excise, ... paper on combating...
TRANSCRIPT
TRADE-BASED MONEY LAUNDERING
21 June 2016
Ray Todd
Customs and Excise Division
TRADE-BASED MONEY LAUNDERING
Why talk about it now?
What is it?
What has been done here about it?
Have we had experience of it?
How can one detect it?
Who should be told?
Recent developments?
Questions?
TRADE-BASED MONEY LAUNDERING
WHY TALK ABOUT IT NOW?
Moneyval and the NRA Highlighted areas where the Island might have gaps in controls. The results of the NRA reveal a need for further action
Recent reports PWC; FATF; BBA; FCA Thematic Review
Terrorism risks It’s not just “normal” crooks
TRADE-BASED MONEY LAUNDERING
“TBML is no longer an area that can be ignored.
Criminals, terrorists, proliferators and now regulators
have identified this as the soft underbelly of money
laundering”
“Trading Flaws: Combatting trade-based money
laundering” (PWC, January 2015)
http://www.pwc.co.uk/industries/financial-
services/regulation/trading-flaw-combatting-trade-
based-money-laundering.html
TRADE-BASED MONEY LAUNDERING
NOT JUST “NORMAL” CRIMINALS
And it does not just destroy
antiquities, it also trades in them
And it won’t be just ISIL…
TRADE-BASED MONEY LAUNDERING
RECENT US ACTIONS USING GTO
In 2015, FinCEN issued a Geographic Targeting Order against some 700 electronics & mobile phone businesses
in the Miami area suspected of involvement in trade-
based infrastructure used to illegally launder monies on
behalf of drug cartels.
In 2014, it issued a GTO targeting businesses in Los Angeles including, notably, stores with “Import” or “Export”
in their name; but chiefly those involved in the fashion
trade “to identify and pursue cases against persons and
businesses engaged in money laundering that benefits
international drug cartels”
TRADE-BASED MONEY LAUNDERING
“Emerging Terrorist Financing Risks” (FATF, Oct 2015) http://www.fatf-gafi.org/media/fatf/documents/reports/Emerging-Terrorist-Financing-Risks.pdf
TRADE-BASED MONEY LAUNDERING
WHAT IS IT?
FATF describes it as one of the 3 main ways to move illicit value around.
It disguises the value and allows movement under cover of real or fictitious trading.
Can include misrepresenting prices, values, quantities.
In some ways it is too narrow a term; perhaps should be called “trade-based financial crime”; and the BBA in
2015 said it was looking for a better description.
TRADE-BASED MONEY LAUNDERING
THE 4 “TRADITIONAL” MEANS OF TBML
TRADE-BASED MONEY LAUNDERING
Who might use it…
Drug traffickers, fraudsters and other criminals, embezzling politicians and other PEP, smugglers, bootleggers, arms dealers, terrorists and their
supporters, tax evaders (and avoiders…?), those involved in customs, excise or VAT fraud, or capital
flight, dodging exchange controls, sanctions-busters, those aiding proliferators of WMD and delivery
systems……..
And remember that a “barter” can involve a transfer of “value” – and suspicions should be reported
TRADE-BASED MONEY LAUNDERING
The classic “Black Market Peso Exchange” used to move Colombian drugs money – for Colombia, now also
read Venezuela, Mexico…
TRADE-BASED MONEY LAUNDERING
WHAT HAS BEEN DONE HERE?
Within Government Awareness-raising, with the NRA and Moneyval work bringing it to attention
Public information Notice 1000 MAN in 2015, and updated with new typologies and cases
NRA follow-up In the targets and action plans of Government bodies, on the agenda of AML/CFT Strategic Group (JAMLAG) etc
TRADE-BASED MONEY LAUNDERING
HAVE WE HAD EXPERIENCE OF IT?
In the case of Customs and Excise, MTIC or “carousel” fraud is a form of trade-based financial crime we have
had most involvement with.
In some ways, MTIC fraud serves as both a caution and a learning tool.
In can (and does/did) happen, and both real and fictitious trading can provide cover for it; and may appear legitimate – until the missing trader goes
missing!
TRADE-BASED MONEY LAUNDERING
HOW CAN ONE DETECT IT?
In theory Check everyone and everything to the nth degree…
In practice Ensure your KYC and CDD is robust & kept updated; not just the immediate client or customer may need checking but associates, third parties…
Be alert Watch for anomalies, oddities; always try to establish the true rationale or commercial purpose
TRADE-BASED MONEY LAUNDERING
HOW CAN ONE DETECT IT?
“Red flags” Provided by FATF, US ICE, and in Notice 1000 MAN
Best practice Guidance provided by FATF, FCA and others
Case studies As in Notice 1000 MAN
Don’t just rely on documentation provided – when testing or sampling, try to find and use independent
sources to check weights, routing, markets etc.
TRADE-BASED MONEY LAUNDERING
Paragraph 8 deals with “Red Flags” and paragraph 9 with
selected case studies
TRADE-BASED MONEY LAUNDERING
In the US, Immigration and Customs Enforcement has suggested the following “Red Flags”
Payments to a vendor by unrelated third parties;
False reporting (such as misclassification of commodities, or
under- or over-valuation);
Repeated importation and exportation of the same high-value
goods (the carousel fraud, surely obvious???);
Commodities being traded that do not match the business or
businesses involved;
Unusual shipping or transhipment routes;
Packaging which is inconsistent with the commodity or shipping
method (e.g. goods that require specialised transportation, such
as refrigeration, lacking such requirements); and
Double-invoicing (obvious?)
EXAMPLES “RED FLAGS” – ACTUAL CASES
• No Web presence of a party or parties
• Commodities whose values can be manipulated (e.g. used cars), or difficult to confirm (precious gems, art)
• Payments received from third party jurisdictions
• Export of completed goods without adequate evidence raw material, import, production or assembly of them
• Sudden increase in turnover of a new trader
• Unwarranted advanced payments
• Exports documents not properly authenticated but accepted by party/parties or bank
• Payments received through multiple accounts (funnel accounts, smurfing)
TRADE-BASED MONEY LAUNDERING
WHO SHOULD BE TOLD?
The “new” FIU is intended to be a “one-stop shop” for reporting suspicions of financial crime – including
trade-based money laundering.
Customs and Excise remains happy to help where it can, and we will keep Notice 1000 MAN updated. It would also be the lead investigating agency locally,
and for liaison with overseas customs services.
As yet another compliance issue, your MLRO or Compliance Officer should be involved.
TRADE-BASED MONEY LAUNDERING
RECENT DEVELOPMENTS?
One useful aid is a good book on the subject by a US expert in AML/CFT published by Wiley.
ICA offers a certificate in the subject, offered in conjunction with the University of Manchester and
endorsed by the BBA.
Artefact smuggling by ISIL has highlighted the risks involved with antiquities and cultural and art works.
In May, a report highlighted illicit fund flows linked to migrant smuggling
TRADE-BASED MONEY LAUNDERING
RECENT DEVELOPMENTS?
When OFAC recently designated the Panamanian-
based Waked group, several of its leaders, and 68
companies it alleged they were part of an international
money laundering network that uses trade-based
methods and real estate development to support drug
traffickers and their criminal organisations
TRADE-BASED MONEY LAUNDERING
RECENT DEVELOPMENTS?
Customs and Excise has recently added the following
case studies to Notice 1000 MAN.
Substantial frauds involving fraudulent use of bills of
exchange had resulted in very large losses at two
Chinese banks.
In India, the use of patent owners who sold their
intellectual property to front companies overseas, in
schemes that enabled money to enter or re-enter the
country (and pay a much-reduced rate of tax, so lending
legitimacy), ostensibly as legal earnings from the IP.
TRADE-BASED MONEY LAUNDERING
More Information?
Hong Kong Association of Banks issued a Guidance
Paper on Combating Trade-based Money Laundering
FATF typologies and best practices (2012)
FCA report TR 13/3: Banks’ control of financial crime
risks in trade finance
NCA and UK Joint Money Laundering Intelligence
Taskforce (JMLIT) - remit of JMLIT includes
understanding/disrupting trade-based money laundering
TRADE-BASED MONEY LAUNDERING
I would like to mention again this recently published book
TRADE-BASED MONEY LAUNDERING
Questions?