The Government Accountability Office (GAO) report, “Countering Illicit Finance and Trade: Better Information Sharing and Collaboration Needed to Combat Trade-Based Money Laundering,” GAO-22-447, 30 Nov 2021, Full Report (63 pages), Highlights (1 page), is an excellent product and well worth the read. The report describes:
- Vulnerabilities in the U.S. financial and trade systems to Trade Based Money Laundering (TBML) schemes
- The entities that exploit these vulnerabilities for TBML schemes
- How U.S. agencies use available data to detect and combat TBML schemes
- The extent to which U.S. agencies and private-sector entities that combat illicit trade and finance collaborate to analyze and share information
- How banking regulators and financial institutions assess risks of TBML schemes.
The report provides details on the GAO research methodology used to address the above goals, including analyzing suspicious activity reports (SARs). The Department of the Treasury (Treasury), Financial Crimes Enforcement Network (FinCEN), HT SAR Statistics, 2014-2021, all industries, show 10,749 SARs for HT (none earlier than Jul 2018) and 13,254 for TBML. There are 14 money laundering (ML) categories in the system, including TBML.
The report provides background on why TBML is one of the most challenging forms of ML to investigate because of the complexities of trade transactions, the substantial volume of international trade, and criminal organizations’ increasing reliance on professional money laundering networks that specialize in TBML schemes.
The report makes little mention of human trafficking (HT) except for its links to Professional Money Launderers (PMLs) and in DHS comments that HT, together with child pornography/exploitation, are included in its mission of cargo safety and security, and smuggling prevention.
The reference to PMLs is interesting since they are third-party launderers, they are often not familiar with the predicate offense (e.g. HT) and are generally not concerned with the origins of the money that is moved. Nonetheless, PMLs are aware that the money that they move is not legitimate. The PML is concerned primarily with the destination of the money and the process by which it is moved. They are used by clients in order to create distance between those perpetrating the crimes and the illicit proceeds that they generate as profit, or because the criminal clients do not have the knowledge required to reliably launder the money without law enforcement detection. Other features of PMLs are that they sometimes operate on a large scale and often conduct schemes that are transnational in nature (Financial Action Task Force report, “Professional Money Laundering,” Jul 2018).
TBML is just one of several forms of ML used by human traffickers to convert their illicit profits into money that appears to come from a legitimate source. Due to the clandestine nature of ML and HT, it is difficult to estimate the total amount of money that goes through the laundering cycle for HT or any other predicate crime. The estimated amount of money laundered globally in one year is 2 – 5% of global GDP, or $800 billion – $2 trillion in current US dollars (United Nations Office on Drugs and Crime –UNODC). The GAO report cited one estimate, that trade price manipulation (mis-invoicing, including under- or over-invoicing) accounted for approximately $278 billion moved out of, and $435 billion moved into, the United States in 2018. Another study estimated that potential trade mis-invoicing to and from 148 developing countries accounted for between $0.9 trillion and $1.7 trillion in 2015.
The report cites several key TBML references:
FATF, “Trade-Based Money Laundering: Risk Indicators,” 11 Mar 2021
FATF, “Trade-Based Money Laundering: Trends and Developments,” Dec 2020
GAO, “Anti-Money Laundering: FinCEN Should Enhance Procedures for Implementing and Evaluating Geographic Targeting Orders,” GAO-20-546, 14 Jul 2020
GAO, “Trade-Based Money Laundering: U.S. Government Has Worked with Partners to Combat the Threat, but Could Strengthen Its Efforts,” GAO-20-333, 2 Apr 2020
Treasury, “National Strategy for Combating Terrorist and Other Illicit Financing,” 2020
GAO, “Countering Illicit Finance and Trade: U.S. Efforts to Combat Trade-Based Money Laundering,” GAO-20-314R, 30 Dec 2019
Global Financial Integrity, “Illicit Financial Flows to and from 148 Developing Countries: 2006–2015,” 28 Jan 2019
Treasury, “National Money Laundering Risk Assessment,” 2018
John Zdanowicz, “Trade-Based Money Laundering and Terrorist Financing,” Review of Law and Economics, Vol. 5, No. 2, 2009, pp. 855–878
Not mentioned in the report but relevant:
Customs Border Protection, “CTPAT’s Warning Indicators for Trade Based Money Laundering and Terrorist Financing,” 25 Jul 2018
FinCEN advisory, “Update on U.S. Currency Restrictions in Mexico: Funnel Accounts and TBML,” FIN-2014-A005, 28 May 2014
FinCEN, “Advisory to Financial Institutions on Filing Suspicious Activity Reports regarding Trade-Based Money Laundering,” FIN-2010-A001, 18 Feb 2010
The GAO report recommends:
- Treasury establish an interagency mechanism to promote greater information sharing and data analysis
- The Department of Homeland Security (DHS) take steps to allow the sharing of Immigration and Customs Enforcement (ICE), Homeland Security Investigations (HSI), Trade Transparency Unit (TTU) data (from the Data Analysis and Research for Trade Transparency System – DARTTS) with relevant agencies. Treasury emphasized the importance of the TTU sharing data with other agencies. DHS did not concur. GAO continues to believe the recommendation is warranted.
