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

OFFICE OF TECHNICAL ASSISTANCEOFFICE OF TECHNICAL ASSISTANCE

Trade-Based Money LaunderingTrade-Based Money Laundering

Kabul, Afghanistan

April, 2006

Kabul, Afghanistan

April, 2006


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


Growing Threat of Alternative Remittance Systems

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


Examples of Alternative Remittance Systems

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


Examples of Trade-BasedMoney Laundering

Examples of Trade-BasedMoney 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


Overvaluation to FacilitateMoney Laundering

Overvaluation to FacilitateMoney Laundering

Export cargo with a value of $100,000Export cargo with a value of $100,000

Falsify the invoices and other documents to show a value of $200,000Falsify the invoices and other documents to show a value of $200,000

$200,000 is sent in payment, which includes laundered $100,000$200,000 is sent in payment, which includes laundered $100,000

Invoices, bills of lading, export documents, etc. Invoices, bills of lading, export documents, etc.

$200,000$200,000


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


True Examples ofAbnormal U.S. Trade Prices

True Examples ofAbnormal U.S. Trade Prices

High U.S. Import PricesPlastic 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 PricesPlastic 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 PricesLive cattle to Mexico, $20.65 / unitRadial truck tires to U.K., $11.74 /unitToilet bowls to Hong Kong, $1.75/unitBulldozers to Colombia, $1,741/unitColor video monitors to Pakistan,

$21.90/unitGold Watch Casings to Colombia $8.68/unitPrefabricated buildings to Trinidad,

$1.20/unit

Low U.S. Export PricesLive cattle to Mexico, $20.65 / unitRadial truck tires to U.K., $11.74 /unitToilet bowls to Hong Kong, $1.75/unitBulldozers to Colombia, $1,741/unitColor video monitors to Pakistan,

$21.90/unitGold Watch Casings to Colombia $8.68/unitPrefabricated buildings to Trinidad,

$1.20/unit


• 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 TrendsIndicators and TrendsTrade-Based Money LaunderingTrade-Based Money Laundering


Abnormal Import Weights

Port Product Country Weight

San Fran Brief 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


45901066907 19941230 45206 4040 $125,160.00 $30.98

45901067293 19950111 45206 6000 $187,740.00 $31.29

45901067723 19950118 45206 5000 $156,450.00 $31.29

45901068184 19950125 45206 6000 $187,740.00 $31.29

45901068697 19950131 45206 6000 $187,740.00 $31.29

45901070545 19950223 45206 6000 $187,740.00 $31.29

45901071766 19950316 45206 6000 $202,860.00 $33.81

45901074281 19950424 45206 7000 $236,000.00 $33.71

45901073911 19950424 45206 6200 $212,400.00 $34.26


Unit Prices for CO: BR

Entries in chronologica l orde r; 1/89 To Present

UnitPrice in

$

0

5

10

15

20

0 100 200 300 400 500

Unit Prices for CO: AR

Entries in chronologica l orde r; 1/89 To Present

Un itPr ice in

$

0

10

20

30

40

0 20 40 60 80 100

Gold Bullion delivered from

Brazil (in grams)

Gold Scrapfrom

Argentina


Sum of Line Value by Month for CO: GY

Time in months where 0 (le ftmos t) = 8812, 104 (rightmost) = 9708

Su m oflin e va lu e

in $

0

500000

1000000

1500000

0123456789101112131415161718192021222324252627282930313233343536373839404142434445464748495051525354555657585960616263646566676869707172737475767778798081828384858687888990919293949596979899100101102103104

Sum of Line Value by Month for CO: SR



in $

0

5000000

10000000

15000000

20000000

0123456789101112131415161718192021222324252627282930313233343536373839404142434445464748495051525354555657585960616263646566676869707172737475767778798081828384858687888990919293949596979899100101102103104

Gold ExportedFrom Guyana,

8 Arrested

Gold ExportedFrom Surinam,

40 Arrested


Sum of Line Value by Month for CO: TT



in $

0

500000

1000000

1500000

0123456789101112131415161718192021222324252627282930313233343536373839404142434445464748495051525354555657585960616263646566676869707172737475767778798081828384858687888990919293949596979899100101102103104

Sum of Line Value by Month for CO: AN



in $

0

1000000

2000000

3000000

4000000

5000000

0123456789101112131415161718192021222324252627282930313233343536373839404142434445464748495051525354555657585960616263646566676869707172737475767778798081828384858687888990919293949596979899100101102103104

Trinidad:No Gold

Production

NetherlandsAntilles:

“MiraculousGold Strike”


Operation MeltdownOperation Meltdown


METHODS OF SMUGGLING GOLD OUTBOUNDMETHODS OF SMUGGLING GOLD OUTBOUND


Exports of VCRs to Colombia

8521

$0.00

$500,000.00

$1,000,000.00

$1,500,000.00

$2,000,000.00

$2,500,000.00

SED $361,9$420,8$362,3$236,7$419,7$354,4$326,5$2,135$562,1$446,6$552,9$91,10$513,5$730,9$445,3$177,5$79,06$46,86

IMPORTS $120,1$62,28$475,9$354,7$1,244$347,5$80,00$105,1$685,1$172,6$70,26$51,46$69,71$105,6$21,12$41,79$134,9$597,3$225,9

199701

199703

199705

199707

199709

199712

199802

199804

199806

199808

199810

199812

199902

199904

199906

199909

199911

200001

200003


Exports of Refrigerators to Colombia

8418 REFRIGERATORS

$0.00

$1,000,000.00

$2,000,000.00

$3,000,000.00

$4,000,000.00

$5,000,000.00

$6,000,000.00

$7,000,000.00

$8,000,000.00

$9,000,000.00

$10,000,000.00

SED $1,534$2,377$2,847$1,479$2,957$2,032$2,249$2,282$624,3$1,800$3,603$846,4$3,187$7,973$999,0$602,8$689,9$300,6

IMPORTS $1,846$2,145$3,112$2,515$2,017$4,023$2,332$3,641$1,288$1,462$3,201$1,853$702,4$1,541$695,6$739,6$750,4$573,7$1,043

199701

199703

199705

199707

199709

199712

199802

199804

199806

199808

199810

199812

199902

199904

199906

199909

199911

200001

200003


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.


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


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


Thank You !

Questions?

Thank You !

Questions?

John CassaraJohn Cassara

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