Criminal organizations need to disguise their illegal funds. As authorities develop ways to uncover these funds, criminals need more sophisticated methods.
That’s why the international trade system is being used to clean dirty money. However, investing in a strong corporate compliance program can protect your company from unwitting participation in trade-based money laundering (TBML) and safeguard your reputation.
How does TBML work?
Traditional methods of money laundering relied on financial institutions. TBML uses the movement of goods and services across borders to transfer value and hide money trails. Using this system, criminals launder approximately $1.6 trillion annually, which represents between 1.5% and 5% of the global GDP.
Some of the most prevalent TBML schemes include:
Over-invoicing: Inflating the declared value of goods or services above their actual worth. The buyer pays the inflated amount, with the excess over the actual worth representing laundered funds.
Under-invoicing: This is often done in concurrence with other money-laundering methods, where the criminals undervalue goods.
Multiple invoicing: Several invoices are issued for the same shipment of goods, resulting in numerous payments that exceed the actual value received.
Phantom shipments: Involve creating fake documentation, such as bills of lading, invoices and customs declarations, for goods that never move.
With TBML, criminals can launder their money without detection. However, the companies that unknowingly participate face severe consequences, including:
- Penalties and fines that could cost the company hundreds of millions
- Damage to its reputation
- Disruptions to its operations, which could last months or years, while authorities freeze accounts, seize documents and restrict business activities
Effective corporate compliance programs add layers of protection against TBML schemes. Comprehensive controls work together to detect, prevent and report suspicious activities. Customer due diligence, transaction monitoring, supply chain mapping, vendor screening and employee training are all crucial to prevent your company from participating in TBML.
Unfortunately, even the most robust corporate compliance program may not be enough to stop an extremely sophisticated, determined criminal organization. If you or your company is caught up in a TBML investigation, it is critical that you work with a legal professional to develop a strong defense strategy against government allegations. It can make all the difference between freedom and conviction.