Trade-based money laundering is an alternative remittance system that allows illegal organizations the opportunity to earn, move and store proceeds disguised as legitimate trade. Value can be moved through this process by false-invoicing, over-invoicing and under-invoicing commodities that are imported or exported around the world. Global trade is frequently used by criminal organizations to move value around the world through the complex and sometimes confusing documentation that is frequently associated with legitimate trade transactions. This method is also utilized extensively by Colombian drug cartels to repatriate drug proceeds commonly referred to as the Black Market Peso Exchange (BMPE). Underground banking, unlicensed money service businesses, hawalas, etc., have all utilized trade to move value as settlement of a debt arising from remittances overseas. These organizations can accomplish settlement by purchasing commodities in one country and then transferring them to another country where the commodity is sold and the proceeds remitted to the intended recipient.
Red flag indicators of trade-based money laundering include:
- Payments to vendor made in cash by unrelated third parties
- Payments to vendor made via wire transfers from unrelated third parties
- Payments to vendor made via checks, bank drafts or postal money orders from unrelated third parties
- False reporting: such as commodity misclassification, commodity over-valuation or under-valuation
- Carousel transactions: the repeated importation and exportation of the same high-value commodity
- Commodities being traded do not match the business involved
- Unusual shipping routes or transshipment points
- Packaging inconsistent with commodity or shipping method
- Double-invoicing
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