Managing Trade-Based Money Laundering requires a comprehensive approach that involves close collaboration between regulatory authorities, financial institutions, and law enforcement agencies. The development of an effective assessment methodology focused on the practical implementation of the AML/CFT measures is necessary to prevent the risk of trade-based money laundering.
For example, the FATF Recommendations require a country to have in place a legal framework for the prosecution of ML offenses, while the effectiveness assessment determines the extent to which these offenses, including TBML, are investigated and prosecuted in line with a country’s risk profile. The implementation of a risk-based approach to ML/TF is a starting point for the countries in assessing their trade-based money laundering risk exposure.
Having identified risk exposure, the FATF Recommendations require jurisdictions to use that insight to inform mitigating plans and establish cooperation to support the AML/CFT system, such as the jurisdictions should adopt a risk-based approach to supervision and in the context of trade-based money laundering, this might mean institutions require additional oversight from the supervisory bodies to ensure the effectiveness of any threat mitigation plan.
A Risk-Based Approach in Managing Trade-Based Money Laundering
FATF Recommendation requires countries to identify, assess, and understand their ML/TF risks, and implement subsequent preventative and mitigating measures, which are commensurate with the risks identified. This could include threats and vulnerabilities linked to TBML/TF.
There are multiple ways of assessing ML/TF risk exposure, such as a country assesses several different inputs, including intelligence reports, suspicious transaction reports (STRs), threat assessments, investigation outcomes, and economic and social indicators, as well as the level of the threat and existing vulnerabilities.
This includes assessing the offenses resulting from the smuggling of illicit commodities, such as arms dealing, drug trafficking, or tobacco smuggling, to launder criminal proceeds.
Others noted TBML schemes associated with predicate offenses not reliant on commodity smuggling, such as tax evasion. These schemes require the development of new supply chains and intermediaries as there was no pre-existing commodity supply chain. These TBML schemes were often multi-jurisdictional, not only exploiting trade sectors in the originating jurisdiction but also impacting others through the exploitation of corporate services.
Every country in the world is involved in the trade. TBML can therefore occur anywhere. Contributors noted that TBML/TF enabling activities, such as the misuse of corporate structures may occur in a wide range of jurisdictions. Terrorist financiers may exploit any potential system or financial loopholes, to launder money through trade transactions.
Combating trade-based money laundering necessitates a coordinated effort, involving regulatory authorities, financial institutions, and law enforcement agencies. By implementing a risk-based approach, conducting thorough assessments, and developing effective preventative measures, countries can mitigate the risks associated with TBML and protect their financial systems from abuse.