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Signs Of Trade Based Money Laundering And The Intersection With CTPAT Requirements – International Law


Trade-based money laundering (TBML) is quickly developing into a
global tsunami. U.S. Customs and Border Protection (CBP) is looking
to Importers for help in identifying risk in this critical area,
and for CTPAT participants, it is the newest dimension of the
Minimum-Security Criteria (MSC) rolled out in 2020.

Before diving into warning signs and recommendations we must
first give it some context. The Financial Action Task Force (FATF)
defines Trade Based Money Laundering as: `the process of disguising
the proceeds of crime using trade transactions to mask the origins
then integrating it back into the formal economy.’ TBML
involves the exploitation of the global trade system for criminal

Identifying laundering schemes through trade requires a better
understanding of the conditions and parties involved in an
international trade transaction. This naturally involves closer
scrutiny of circumstances, transport documents, and generally
gathering detailed background information in order to detect
potentially illicit behavior. It is important to keep in mind that
the primary objective of TBML is the movement of money. The
movement of goods is the mechanism used for concealing the true
origins or purposes of the money. Organizations that engage in TBML
will exploit any sector, and any commodity or service.

TBML schemes vary in complexity but typically involve
misrepresentation of the price, quantity, or quality of imports or
exports. Traditionally it has been the financial institutions that
carried the burden to identify risks and red flags in transactions.
In international trade the vast majority – approximately 80 percent
– is conducted on an open account basis. Open account refers to a
sale where the goods are shipped and delivered before payment is
due. This creates a separation between the information about the
payment and the information about the trade transaction that can be
exploited by organized and experienced money launderers.

The TBML security criteria in the Customs-Trade Partnership
against Terrorism (CTPAT) program is addressed in three areas:

Section 3.1, Business Partners where it is required to have a
written process for screening new and monitoring existing business
partners. Included in this process should be a check on activity
related to money laundering and terrorist funding.

Section 7.10, Procedural Security where personnel must review
the information included in import/export documents with the intent
to identify or recognize suspicious cargo shipments and unsupported
valuation. Based on risk, attention must be paid to key warning
indicators for money laundering that presents itself during reviews
and activities most applicable to the functions that they and/or
their business entities perform in the supply chain.

Section 12.6, Training is where the rubber meets the road and
discourse must translate into practice. This section states
specialized training should be provided to personnel on the
practical recognition of warning indicators of TBML. (Examples of
personnel who should receive this training include those
responsible for trade compliance, security, procurement, finance,
shipping and receiving).

Given these expectations about TBML, it is imperative to start
with the training area in order to succeed in setting the standards
for the other two. There has been a veritable plethora of
information published in this area over the past year or so, but
the focus here is on how to recognize warning signs of TBML in the
everyday operation of security standards for CTPAT entities.

Structural Risk Indicators are considerations utilized during
business partner screenings and must be considered when screening
potential business partners AND reviewing existing ones. TBML can
work its way into an organization at any time even where a
long-term relationship with a particular manufacturer or logistics
provider may exist. Reviews should be conducted at a minimum
annually or as indicators dictate to minimize exposure. Risk
factors in this area can be less obvious than in others.

First, check the Anti-Money Laundering (AML) countries of
concern risk assessment chart found here:

This chart will indicate MMLC in column three if the country is
a Major Money Laundering Country of concern. If the business
partner being reviewed has corporate presence in one of those
countries look a little closer at the business practices. Some of
these countries may surprise you, (e.g., Canada and Netherlands are
considered as MMLC). Additional risk indicators in this area

  • Does the company structure seem unusually complex or illogical?
    Search for annual reports and find out who the key players are such
    as the members of the Board of Directors and Corporate Officers and
    do they have representation from unlikely sources? An example would
    be a local fashion designer serving as a corporate officer in a
    technology company, or the Board of Directors for a Japanese
    company having representatives from Colombia.

  • Is the trade entity registered at a “mass entity
    address”? Is the filing address for the business located in a
    residential apartment building, or does it only have a P.O. Box
    listed on documents? Also, commercial or industrial buildings that
    are part of a larger complex with no reference to a specific unit
    or suite might be a red flag.

  • Does the business entity appear in negative news or press
    coverage? Perhaps the company has been suspected of fraud, criminal
    activities, or are part of ongoing investigations or past
    convictions. This should include social media research.

  • A business appears to be an imitation of a well-known business,
    or very similar to it, to give the impression that you are dealing
    with a recognized and acceptable entity. For example,
    McMasters-Carr might be represented as MacMaster-Carrs, or Broadcom
    Corp. might be represented as Boardcom Corp. or Deringer Industrial
    as Derringer Industrial. Sometimes the differences are very subtle.
    Pay attention!

Trade Activity Risks are everyday potential warnings in the
activities of handling cargo and documents associated with trade.
There is a long list of warning signs with varied scenarios.
Identifying a single indicator in a transaction may not alone
warrant suspicion of money laundering but it should prompt further
monitoring and alert one to keep an eye open for other
transactions. Likewise, the identification of several indicators
would also warrant closer analysis. Training material should cover
at a minimum the following areas and provide examples. Likewise,
employees need to have a clear path for questioning and reporting
any suspected indicator.

1. High Risk Jurisdictions: The commodity is shipped to or from
a jurisdiction designated as “high risk” for money
laundering and/or terrorist activities. (Check AML list indicated

2. Cash: The transaction involves the receipt of cash (or other
payments like wire transfers, checks, bank drafts or postal money
orders) from unrelated third-party entities or an intermediary
(either an individual or an entity) apparently unrelated to the
seller or purchaser.

3. Incorrect Pricing: Obvious over or under valuation or pricing
of goods. Exporter billed $2M, but only exported $1M in goods. Or
the reverse, importer paid $1M but actually received $2M in goods.
(Communications between departments is critical in identifying
these transactions)

4. Discrepancies: Major discrepancies between the description of
the goods on the bill of lading or invoice and the actual goods
shipped. (e.g., Exporter billed $500K for silver, Importer actually
received $2M in Gold.}

5. False Reporting: Any type of false reporting such as
commodity misclassification.

6. Inconsistent Commodities: Commodities being traded do not
match the business involved such as an equipment manufacturer
shipping pharmaceuticals or a cell phone company shipping

7. Lack of Documentation: Business partner’s inability to
produce appropriate documentation (i.e., invoices, packing lists or
transport documents to support a requested transaction.)

8. Inconsistent Shipping Routes: The commodity is trans-shipped
through one or more jurisdictions for no apparent economic or other
logistical reason. If the shipper deals in jewelry, it would be
highly unlikely that they would be moving a full container on an
ocean carrier and equally as unlikely they would make air bookings
that transship through three different countries. Diamonds from
Israel would probably not be routed though Dubai with a stop in
Costa Rica before arriving at final destination in New York,

9. Letter of Credit: Usage that presents abnormally complex
terms, has unusually long or frequently extended payment terms, or
repeated requests for amendments. Be alert to those requesting
changes of the beneficiary or location of the payment.

10. Sanctioned Parties: The transaction involves individuals or
organizations listed in U.S. sanctioned lists.

11. Uncharacteristic Purchases: Documentation for the purchase
of uncharacteristic commodities for your organization like weapons,
ammonium nitrate, hydrogen peroxide, acetone, propane, or other
dual use commodities.

12. Identity Variations: Business partner provides multiple
variations of name, address, phone number or additional identifiers
under a single vendor number or tax number.

Endeavoring to control TBML is part regulation, part
international business cooperation and part technology solutions;
however, it significantly depends on human factor recognition and
action. The posers involved in TBML use complex networks of modern
businesses moving across the globe and hiding behind trading
systems to illegally transfer large sums of money. While the
tactics used to hide illegal laundering activity is not new, the
application of informed business compliance practices to monitor
and detect vulnerabilities is the newest dynamic that will make a
difference. The key component is vigilance.

For more information on this subject please see the complete
FATF risk indicators paper available at the following link:

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The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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