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Combatting financial crime 2/5: Money Laundering

18/11/2016

Definition of Money Laundering: Any act, or attempted act, to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources.

 

(Source: Interpol, General Assembly, Beijing, October 1995)

 

An alternative definition provided by HM Revenue and Customs in UK:

".... exchanging money or assets that were obtained criminally for money or other assets that are 'clean'. The clean money or assets do not have any obvious link with any criminal activity. Money laundering also includes money that is used to fund terrorism, however it is obtained."

 

There are three distinct phases to the act of money laundering:

Placement - the initial entry of the 'dirty' money or proceeds of crime into the financial system, exchanging for 'clean' money i.e., travellers cheques.

Layering - electronic movement of funds in multiple constant transactions in order to obscure the audit trail and cut the link with the original crime.

Integration - funds are invested or merged in legitimate non-criminal activities and subsequently re-directed back to the criminal as ‘clean'.

Given the nature of the business, it is unlikely that trade finance will be used by money launderers in the placement stage of money laundering, except where funds are used to collateralise the issuance of a bank undertaking. However, trade finance can be used in the layering and integration stages of money laundering as the enormous volume of trade flows obscure individual transactions and the complexities associated with diverse trade financing arrangements that facilitate the commingling of legitimate and illicit funds. 

Common Money Laundering techniques

There are a number of techniques that are used by money launderers to achieve their goal of defrauding one or more banks. These include:

  • Over-invoicing: fraudulently increase the price of goods, services or performance.
  • Under-invoicing: an attempt to reduce applicable tariffs or taxes.
  • Multiple invoicing: the aim of receiving multiple payments.
  • Short-shipping: shipping less than stated on the invoice.
  • Over-shipping: shipping more than invoiced to avoid tariffs or taxes.
  • Deliberateambiguity in describing (or hiding) the intended type of goods: disguising information in order to hide the true nature of the goods.
  • Phantom shipping: false documentation with no actual underlying shipment.

 

 

A more detailed analysis of financial crime, together with specific examples, can be found within the Financial Crime module at www.tradefinance.training


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