Transfer Price-based Money Laundering in International Trade

Abstract

This paper defines money laundering in the context of international trade and builds analytic models to measure the contribution of transfer prices to international money laundering. Money laundry-related transfer pricing and transfer price-based money laundering are analyzed in detail. It argues that transfer price-based capital flight and tax evasion are variants of money laundering in nature to the extent that they all enable the apparently legal ownership of the property shifted illegally. Our main contribution lies in the identification of the artificial transfer pricing (ATP) paradigm and integrating capital flight and tax evasion into the models to estimate its contribution to global money laundering pool, helping anti-money laundering (AML) policy-makers better understand the nature of transfer pricing and its negative impact upon the economy. It concludes that effective audit and inspection systems should be established in order to better detect suspicious money laundering transactions and prevent money laundering crimes (MLCs)