Headings

Trade-Based Money Laundering (TBML) Rethinking the Approach Presenter: Manoj Ahuja

TBML - Studies Global Financial Integrity estimates illicit inflows and outflows to and from developing and emerging economies was between 14–24% of their total trade from 2005–2014. That is more than a trillion dollar problem. The U.S. Treasury Department reported that criminals exploit trade to move billions of dollars in illicit funds each year. The schemes have particularly hurt developing nations, which have lost as much as $3 trillion to false invoicing and other trade-based money laundering methods

TBML Structures Over or under invoicing: Misrepresenting the price of the goods. [True Examples of Abnormal U.S. Trade Prices related to Pakistan:] High Import Prices: Cotton dishtowels from Pakistan, $153/unit Low US Export Prices: Color video monitors to Pakistan, $21.90/unit Multiple invoicing: Invoicing one shipment several times. Short or over shipping: Shipping more or less goods than invoiced. Obfuscation: Shipping something other than what is invoiced. Phantom shipping: Shipping nothing at all with false invoices. Dual Use of Goods: refer next slide

Growing Importance of Screening Dual Use-Goods Attempting to identify “dual use goods” in transactions, wherever possible Ensuring Staff are aware of dual use goods issue, as well as common types of goods which have dual use Confirming with an exporter in higher risk situations whether a Government License is required for the transaction and seeking a copy of the license where required. E.g, Potassium Fluoride, Sodium Fluoride, Graphite etc

Documentary Vs Non-Documentary Trade Bank Intermediated - Documentary Where Bank handles / process documents e.g Bill of lading, Invoices, packing lists etc (LC’s, Collections, Guarantees) Bank Intermediated – Non Documentary Trade loans, Receivable/Payables Financing Not Bank Intermediated – Open Trade Account Processing a wire transfer In 2017, Wolfsberg estimated that approximately 80% of global trade was transacted using open account settlement.

Key Controls for FI’s Creating Effective AML Program KYC / CDD / EDD: Countries Involved – Define high risk Countries and distinction from Sensitive Sanctioned Countries Determine Beneficial Owner - discourage offering trading services to un-registered firms Source of Funds / SOW Goods Traded – Define High Risk Products and Restricted Products Identify types of trading partners and their locations Role & Location of agents and all other 3rd parties involved Capture Purpose of Payments especially for all wire transfers Trade Based Monitoring: Comprehensive List of Red Flags along with known examples / case studies Enhance and update Transaction Monitoring Thresholds to cover Trade transactions Capture data from Trade documents & screening with EU list of Dual use Goods

Key Controls For FI’s Institute Quality Assurance Testing by First Line Strengthening of Payment Screening Controls & improve data quality for wire Transfers Independent Sampling and Review of Wire Transfers above certain thresholds including ensuring data completeness Carryout Price Verifications – Google, Negative Media etc Use of Optical Character Recognition tools to scan through documents and look for names of people, companies / entities that could indicate suspicious activity and need to be vetted against Sanctions List

Collaborating Efforts LEA’s and Government agencies to take an eco-system approach to this problem, brining together FI’s, Customs, shipping companies etc and end to end view can be constructed and mitigating controls put in right place. Information sharing across Public – Private sector is vital to identify trends, structures and techniques used by Criminals. Data pooling form customs and freight community to detect over / under invoicing International Cooperation for Trading Trends / Prices Better Education across all stakeholders