Trade-Based Money Laundering (TBML) is one of the most effective methods to hide the true source of funds and to obscure the activities that fund your illicit enterprise. Compliance with AML laws is essential for any organization wishing to do business in a legitimate way.
Trade-based money laundering is one of the fastest-growing financial crimes in the industry. At the same time, it causes severe financial damage to the world economy. The occurrence of trade-based money laundering is prevalent because the crime is often concealed as legitimate.
It has become easier for such money laundering criminals to hide their illegal acts through the advancement of technology. Given this, it is necessary to emphasize the importance of anti-money laundering compliance for trade.
Trade-based money laundering is one of the dodging ways for many criminals to turn their illicit funds into clean money. So let’s understand what is trade-based money laundering and how businesses can prevent and curb it.
In trade-based money laundering, criminals exploit a trade process to legitimize a huge amount of illicit funds. The entire process is hidden from the awareness of the authorities. It is also one of the most common crimes to avoid respective taxes. Such criminals often use the international trade system to conceal their dirty money.
There are many examples of trade-based money laundering and the complexities of the process are very varied. Criminals often provide false information about the monetary amount in prices, quality, and quantity. This financial crime is often executed through imports and exports of goods. This is why more companies are now moving forward with anti-money laundering compliance.
Although there are implementations of strict regulations, there are also many limitations that oil the wheel of trade-based money laundering. Businesses are often attracted to trade processes that are hassle-free and do not consist of complex regulations. However, this also comes with heavy consequences. Some of the major factors that may cause limitations for many organizations in preventing TBL are as follows:
The open account for trade allows the shipment of goods before their payment has been cleared. The average time for payment in the terms of an open account often occurs 30 to 90 days after a trading activity. However, these trading practices can often create potential chances for criminals to manipulate the invoices according to their favor.
When it comes to trading transactions, there is no common regulation that is mandated. International traders mostly come to an agreement on their own and mandate regulations that are convenient for them. Thus, it can often cause further complications leading to money laundering.
Many businesses choose a free online platform that is not compliant with AML regulations. This also means no Know Your Customer objectives. It creates a possible gateway for criminals to make it the best money laundering opportunity.
The three common ways criminals operate a money laundering activity in trading are:
Both the exporter and importer pull off this maneuver by portraying that the goods are expensive. However, in reality, it is cheaper.
In these scenarios, exporters often create multiple invoices of the same goods and receive transactions through various mediums. Thus, it makes it possible for criminals to make their illegal funds into clean money.
This is another way to disguise the overall crime and all the values of the goods. It is to justify the legitimacy of the crime and make it difficult for the authorities to trace it.
Some of the best preventative steps a business can take to stay away from money laundering criminals are:
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