OFFICE OF TECHNICAL ASSISTANCE Trade-Based Money Laundering Kabul, Afghanistan April, 2006 Kabul, Afghanistan April, 2006

OFFICE OF TECHNICAL ASSISTANCE Financial Transparency Successful in War on Narcotics Unsuccessful in War Against Terrorist Finance Terrorism Finance is “Inverse Partner” of traditional Money Laundering New tools necessary

OFFICE OF TECHNICAL ASSISTANCE Growing Threat of Alternative Remittance Systems “ Systems” bypass, in whole, or part financial transparency network Little or no financial intelligence/paper trail generated Indigenous/ethnic based systems Systems developed to avoid taxes and government scrutiny Difficult to penetrate “ Systems” bypass, in whole, or part financial transparency network Little or no financial intelligence/paper trail generated Indigenous/ethnic based systems Systems developed to avoid taxes and government scrutiny Difficult to penetrate

OFFICE OF TECHNICAL ASSISTANCE Examples of Alternative Remittance Systems Hawala Black Market Peso Exchange Misuse of international gold and diamond trade Chinese “chit” system Common denominator: TRADE Hawala Black Market Peso Exchange Misuse of international gold and diamond trade Chinese “chit” system Common denominator: TRADE

OFFICE OF TECHNICAL ASSISTANCE Examples of Trade-Based Money Laundering Fictitious invoicing Double invoicing Barter trade Export incentive fraud Counter valuation Over/under invoicing Fictitious invoicing Double invoicing Barter trade Export incentive fraud Counter valuation Over/under invoicing

OFFICE OF TECHNICAL ASSISTANCE Overvaluation to Facilitate Money Laundering Export cargo with a value of $100,000 Falsify the invoices and other documents to show a value of $200,000 $200,000 is sent in payment, which includes laundered $100,000 Invoices, bills of lading, export documents, etc. $200,000

OFFICE OF TECHNICAL ASSISTANCE Example of Under Invoicing Talat owes Ahmed $200,000 as part of previous business transaction Decides to pay debt by “under invoicing” shipment of goods Talat sends $500,000 worth of goods, but only invoices Ahmed for $300,000 The extra value of goods ($200,000) covers the original debt

OFFICE OF TECHNICAL ASSISTANCE True Examples of Abnormal U.S. Trade Prices High U.S. Import Prices Plastic Buckets from Czech, $972 /unit Briefs and panties from Hungary, $739/doz Cotton dishtowels from Pakistan, $153/unit Ceramic tiles from Italy, $4,480 sq. meter Metal tweezers from Japan, $4,896 per unit Razors from the U.K., $113 /unit Camshafts from Saudi Arabia, $15,200/ unit Iron bolts from France, $3,067 /kg Toilet tissue from China, $4,121 /kg High U.S. Import Prices Plastic Buckets from Czech, $972 /unit Briefs and panties from Hungary, $739/doz Cotton dishtowels from Pakistan, $153/unit Ceramic tiles from Italy, $4,480 sq. meter Metal tweezers from Japan, $4,896 per unit Razors from the U.K., $113 /unit Camshafts from Saudi Arabia, $15,200/ unit Iron bolts from France, $3,067 /kg Toilet tissue from China, $4,121 /kg Low U.S. Export Prices Live cattle to Mexico, $20.65 / unit Radial truck tires to U.K., $11.74 /unit Toilet bowls to Hong Kong, $1.75/unit Bulldozers to Colombia, $1,741/unit Color video monitors to Pakistan, $21.90/unit Gold Watch Casings to Colombia $8.68/unit Prefabricated buildings to Trinidad, $1.20/unit Low U.S. Export Prices Live cattle to Mexico, $20.65 / unit Radial truck tires to U.K., $11.74 /unit Toilet bowls to Hong Kong, $1.75/unit Bulldozers to Colombia, $1,741/unit Color video monitors to Pakistan, $21.90/unit Gold Watch Casings to Colombia $8.68/unit Prefabricated buildings to Trinidad, $1.20/unit

OFFICE OF TECHNICAL ASSISTANCE Cash for high-value orders Items priced well over or under market value Mismatch between customer and items ordered Business transfers made for no apparent reason Third-party financing Packaging inconsistent with contents Routing is circuitous or economically illogical. Size or weight of goods is inconsistent with contents Cash for high-value orders Items priced well over or under market value Mismatch between customer and items ordered Business transfers made for no apparent reason Third-party financing Packaging inconsistent with contents Routing is circuitous or economically illogical. Size or weight of goods is inconsistent with contents Indicators and Trends Trade-Based Money Laundering

OFFICE OF TECHNICAL ASSISTANCE Abnormal Import Weights PortProductCountryWeight San FranBrief Cases Indonesia 98kg/unit San Fran Carpet Iran 63kg/sq meter L.A.Pens Malaysia 8.7 kg/unit L.A. Televisions Malaysia 202 kg/unit L.A. Carpet Pakistan 62/kg/sq meter

OFFICE OF TECHNICAL ASSISTANCE $125,160.00$ $187,740.00$ $156,450.00$ $187,740.00$ $187,740.00$ $187,740.00$ $202,860.00$ $236,000.00$ $212,400.00$34.26

OFFICE OF TECHNICAL ASSISTANCE Gold Bullion delivered from Brazil (in grams) Gold Scrap from Argentina

OFFICE OF TECHNICAL ASSISTANCE Gold Exported From Guyana, 8 Arrested Gold Exported From Surinam, 40 Arrested

OFFICE OF TECHNICAL ASSISTANCE Gold Exported From Guyana, 8 Arrested Gold Exported From Surinam, 40 Arrested

OFFICE OF TECHNICAL ASSISTANCE Trinidad: No Gold Production Netherlands Antilles: “Miraculous Gold Strike”

OFFICE OF TECHNICAL ASSISTANCE Operation Meltdown

OFFICE OF TECHNICAL ASSISTANCE METHODS OF SMUGGLING GOLD OUTBOUND

OFFICE OF TECHNICAL ASSISTANCE Exports of VCRs to Colombia

OFFICE OF TECHNICAL ASSISTANCE Exports of Refrigerators to Colombia

OFFICE OF TECHNICAL ASSISTANCE Countermeasure: Trade Transparency Units Borrowing from the successful Financial Intelligence Unit (FIU) model, create an international network of Trade Transparency Units (TTUs) that will collect, analyze, and disseminate narrowly focused trade data to help combat trade related crime.

OFFICE OF TECHNICAL ASSISTANCE Advantages Proven concept – this works! Little cost Excellent tool to monitor/investigate/disrupt all forms of trade based money laundering Customs fraud reduced Government revenues increased

OFFICE OF TECHNICAL ASSISTANCE Summary Need to develop new tools Trade is common denominator in many underground finance systems Enforcement can use trade as the “back door” for intelligence and investigations “Trade Transparency” is the next frontier in anti-money laundering

OFFICE OF TECHNICAL ASSISTANCE Thank You ! Questions? J ohn Cassara