TRADE-BASED MONEY LAUNDERING

More Trade Transparency Units Needed

Smuggling and trade fraud are on the rise, according to Viêt Nam News (27 October 2015). The Telegraph reports that the authorities in China have arrested 21 people on suspicion of defrauding almost one million Chinese investors of 50bn yuan (£5.3 billion) after an online peer-to-peer lender turned out to be a giant Ponzi scheme (1 February 2016). Money laundering and fraud seem to be on the increase. Trade-Based Money Laundering (TBML) is one of the big threats facing us today.

According to Premium Times (21 December 2015; click here), the Nigerian

fuel subsidy scam probably broke the ceiling in a room crammed with some of the worst corporate perfidy. Nothing could more sabotage the economic interest of a nation, many Nigerians thought. But then came the rice import quota scheme, an unholy romance between politicians and businessmen, at the moment stretching corporate bad practices in Nigeria to an incredulous length.

About N117 Billion is there for the pick. A total of 26 companies are involved; two of which are owned by a former Attorney General of the Federation and a former civilian governor of Kebbi State respectively. Predictably, in the all-too-familiar Nigerian fashion, not all of the 26 companies selected for the scheme made the list on merit.

The Central Bank of Nigeria (CBN) in 2014 disclosed that Nigeria spent an average of N800 Billion annually on the importation of rice. Unofficial import receipts through the Cotonou corridor was not captured in the CBN figure.

But the business of importing rice, a staple in Africa’s most popular nation, is so huge and attractive that four neighbouring countries of Benin, Togo, Cameroon and even landlocked Niger Republic have technically factored transhipment or smuggling of rice and allied commodities into Nigeria in their national economic plan.

In a recently published book “Trade-Based Money Laundering”, author John A. Cassara, discussed the issue, how to fight TBML and what it would take to achieve trade transparency (click here). Trade-based money laundering is very broad. There’s value transfer, transfer mis-pricing and mis-invoicing, underground financial systems, hawala and others. What do they all have in common? It’s trade, and trade fraud, because it all revolves around invoice fraud and manipuation.

According to Cassara, the FATF identifies three types of money laundering in the world: First is through financial institutions, second is bulk-cash smuggling and the third is trade-based money laundering. The third type is the least known, and he thinks it’s the largest and most prevalent method of money laundering:

We’re getting killed by the old-fashioned ways of laundering money; it’s been around since long before the advent of modern banking. (…) There are, in fact, ways to effectively combat trade-based money laundering, and this is one of the reasons I’m optimistic. Theoretically, I think it’s possible to curtail it. The great thing about trade is that data exists: Every country in the world has a customs service, where they track what goes in and out at the border. We know, basically what the worldwide price of “commodity x” should be, give or take. By using data and sophisticated analytics, those anomalies should pop right out, and they do–when people look.

In theory, it’s possible to create a world of trade transparency. We’re not even close to being there, but we’re seeing the first tentative steps going in that direction. (…)

I think one of the best countermeasures is one I invented before leaving government. It’s a trade transparency unit, analogous to a financial intelligence unit. Instead, you’re looking at trade data. It can overlap with all sorts of data, but the concentration is on trade.

If you enter into an agreement with trading partners, or enter into a customs mutual agreement, you have permission to share targeted trade data for, say, suspicious transactions. If you do that, the anomalies pop right out.

Right now, there are a dozen trade transparency units around the world. Most are in a loose association; I would like to see an expansion of that concept. It’s doable.

The reason I’m so optimistic about this is because a trade transparency unit generates revenue for countries. It cracks down on trade fraud all over the world. I’ve done enough training and mentoring and teaching overseas to know that sometimes the carrot works better than the stick.

Organized and operating under the auspices of ICC’s Commercial Crime Services division FraudNet is a 24/7 international rapid deployment force that pries open the vault of bank secrecy and helps victims locate and recover their stolen assets with the same cyber powered speed, stealth, reach and proficiency as the most sophisticated global fraud network.

Fraudsters meet their match in FraudNet’s experienced team of civil asset recovery lawyers, investigators and forensic accountants, who creatively wield their own sophisticated legal and investigative tools to trace and seize stolen assets wherever located.

To date FraudNet members have recovered hundreds of millions of dollars on behalf of individuals, corporations and national governments victimized by fraud and grand corruption schemes. Since its inception in 2004, FraudNet has worked for the governments of Antigua and Barbuda, Brazil, Guatemala, Nigeria, Trinidad and Tobago, and the United Kingdom, among others.

Today, members of FraudNet are able to take rapid, coordinated and focused action on behalf of fraud victims in most jurisdictions throughout the world. Fraudnet has yielded success in jurisdictions where fraud detection and redress can be a legal minefield, and where the chances of successful asset recovery have historically been slim.

Karel Frielink – member of FraudNet for the Dutch Caribbean (Aruba, Bonaire, Curaçao, St. Maarten, St. Eustatius and Saba)

(2 February 2016)

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“e租宝”非法集资案真相调查

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Update (4 February 2016)

Hearing entitled “Trading with the Enemy: Trade-Based Money Laundering is the Growth Industry in Terror Finance”, Wednesday, 3 February 2016. Task Force to Investigate Terrorism Financing. Click here for the Committee Memorandum.

John A. Cassara, Written Statement for the Hearing On “Trading with the Enemy: Trade-Based Money Laundering is the Growth Industry in Terror Finance”, 3 February 2016 (click here).

Combating trade-based money laundering – Hong Kong banks bolster their artillery, 3 February 2016 (click here).

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