Trade-based Money Laundering Research Articles

Is remittance cost a driver of trade misinvoicing? A case study of Vietnam

PurposeThis study aims to investigate the impact of remittance costs on trade-based money laundering (TBML) and provide insights into the relationship between remittance costs and TBML, particularly focusing on import over-invoicing and low-income trade partners.Design/methodology/approachUtilizing an extended gravity model for TBML, bilateral data from Vietnam spanning 2011 to 2019 are analyzed to examine the correlation between remittance costs and TBML.FindingsThe study reveals a positive association between remittance costs and TBML, highlighting the significance of reducing remittance costs to curb TBML.Research limitations/implicationsThe research is limited by the availability of data and focuses solely on Vietnam, implying potential variations in other contexts.Practical implicationsPolicymakers should consider reducing remittance costs as a strategy to combat TBML effectively.Social implicationsLowering remittance costs could contribute to the prevention of illicit financial activities, fostering economic stability and social development.Originality/valueThis study provides novel insights into the relationship between remittance costs and TBML, offering valuable implications for policy formulation and anti-money laundering (ML) efforts.

Navigating the shadows: exports and money laundering dynamics in Bangladesh

Purpose This study aims to analyze the complex dynamics of money laundering (ML) in the export sector of developing countries, with a special focus on Bangladesh. It aims to uncover the strategies and tactics money launderers use to exploit export transactions and understand the vulnerabilities that exist in economies where enforcement agencies neglect the export industry. Design/methodology/approach This study examines Bangladesh’s export sector ML using qualitative methods. Customs officers, central bank officers, port authorities and selected exporters were interviewed semi-structured. Document analysis of Bangladesh Bank orders, media and Customs Intelligence and Investigation Directorate reports was also done. Qualitative data patterns were identified using theme analysis. Findings The study identifies the most vulnerable export commodities – readymade garments, agricultural items and processed foods – as prime targets for ML. Key methods of laundering include under-invoicing, over-invoicing, misdeclaration and fake documentation. The research highlights the significant risk posed by the improper use of government financial incentives and introduces the “sample shipment” method as a novel laundering tactic. The findings underscore the need for stronger oversight and controls to mitigate these risks. Research limitations/implications This research is limited by single-point data because ML is a continual activity. The reliance on case studies from newspaper reports and online platforms introduces a degree of selection bias and the chosen instances may not comprehensively represent the broader landscape of trade-based ML. Practical implications The study provides several practical recommendations for policymakers and law enforcement agencies to fortify the export sector against exploitation by money launderers, ensuring greater transparency and accountability in international trade operations. Social implications By closing loopholes in the export sector, the research supports the Sustainable Development Goals, particularly Goal 16.4, which aims to reduce illicit financial flows, thereby contributing to poverty eradication and economic stability in developing countries. Originality/value Original research results supported by technical analysis are presented in this work. It contributes to the body of knowledge by detailing the adaptive strategies of money launderers and proposing targeted recommendations for enhancing the integrity of the export sector.

The role of freight forwarding companies in detecting and investigating trade-based money laundering

PurposeThis study aims to investigate the role of freight forwarding companies in detecting and reporting trade-based money laundering. The proximity of freight forwarding companies to shipping-related trade-based money laundering red flags places them in an ideal position to detect suspicious transactions.Design/methodology/approachThe study used semi-structured interviews with expert participants in freight forwarding shipping and compliance aspects around freight forwarding. This study focuses on the South African context.FindingsFreight forwarding companies are well-positioned to detect, investigate and report on trade-based money laundering schemes. However, the companies are not always aware of the guidelines designed to assist in identifying trade-based money laundering schemes. Thus, freight forwarding companies develop internal processes to identify trade anomalies but are often unable to link trade anomalies to illegal financial flows and trade-based money laundering schemes.Research limitations/implicationsThe current regulations on money laundering can be extended to freight forwarding companies by the respective regulators for enhanced anti-money laundering protection. This study is limited to freight forwarding companies in a South African context.Practical implicationsIncreased awareness among staff in freight forwarding companies can assist them in identifying trade-based money laundering red flags to detect and prevent trade-based money laundering schemes.Social implicationsThis paper assists other role players and policymakers in the trade process to create a better awareness of trade-based money laundering. The limited obligations on freight forwarding companies to comply with anti-money laundering regulations lead to a more volunteer-like compliance practice.Originality/valueTo the best of the authors’ knowledge, this is the first paper that offers insight into the role of freight forwarding companies in detecting trade-based money laundering in South Africa.

Money laundering in global trade and the role of financial technology: The structured reviews

Money laundering in international trade facilitates the concealment of illicit funds through the manipulation of trade invoices and the exploitation of regulatory gaps. Addressing this issue involves improving traceability through financial technology, a promising solution. However, the adoption of such technology poses inherent risks and challenges that require careful consideration. This review synthesises knowledge on trade-related money laundering and financial technology, highlighting critical areas for additional research and improvement. Employing a Preferred Reporting Item for Systematic Reviews and Meta-Analyses (PRISMA) approach, academic databases, including Scopus and Web of Science (WoS), were systematically searched to identify relevant studies and articles. Advanced search techniques using keywords such as money laundering, trade-based money laundering, and financial technology resulted in the identification of 57 articles for eligibility. After excluding 20 articles due to being out of the field, having titles not significantly related, or abstracts not aligning with the study's objective, 37 eligible articles and conference proceedings were further examined. Two main themes were developed, concluding that the convergence of money laundering through digital trade and financial technology requires collaborative efforts among regulatory bodies, financial institutions, and technology experts. Such collaboration is essential to balance innovation and security, ensuring stability and prosperity in global economies.

Trade-based money laundering: a systematic literature review

PurposeThis paper aims to offer the first known synthesis of peer-reviewed literature on trade-based money laundering (TBML). Given the topic is in its nascent stage yet gaining prominence across scholarship and practice, this foundation is pertinent for future TBML research.Design/methodology/approachA systematic literature review was undertaken with a formulaic search string. Both qualitative (thematic) and quantitative (meta) analysis methods were used to illustrate the findings.FindingsThe systematic literature review, using qualitative and quantitative synthesis, led to a thematic categorization of extant TBML literature into four categories: TBML risk assessment, TBML detection, the role of professionals and understanding of TBML. Due to the limited number of studies, insights that can be drawn from the extant literature on the best way to combat TBML are also limited.Originality/valueAs the first systematic literature review on TBML, this study identified that the existing TBML literature has focused on increasing the understanding of the phenomenon in terms of its definition and mechanisms, detection, linkage with other crimes, such as organized crime and terrorism financing, and risk assessment frameworks. The originality of these findings lies in identifying areas future researchers might explore to broaden the academic literature.

Exploring the Potential: Smart Contracts and the Fight against Trade-Based Money Laundering in International Trade

In the evolving landscape of international trade, this comprehensive exploration delves into the paradigm shift enabled by smart contracts, challenging the traditional role of Documentary Credits (LCs). By prioritizing transparency, the article showcases how the integration of smart contracts revolutionizes proforma invoicing submission and offers a robust mechanism for scrutinizing over and under-invoicing—an entrenched tactic in Trade-Based Money Laundering (TBML). The innovative concept of introducing a bidding process within smart contracts opens doors for global participation, reducing entry barriers for startups and entrepreneurs, thereby transforming poverty into prosperity. These transformative mechanisms, rooted in blockchain technology, mark a compelling shift towards combatting TBML and fostering a more inclusive and dynamic global economy.

Trade Based Money Laundering Evidence from Indonesia: Cigarette Import Customs Smuggling and Money Laundering

Public-Private Partnership (PPP) is an instrument to strengthen synergy in eradicating money laundering and other economic crimes launched by the government of the Republic of Indonesia, with 3 (three) main priorities to be handled, namely trade-based money laundering (TBML), narcotics, and business email compromise (BEC). The Financial Action Task Force (FATF) defines Trade Based Money Laundering as the process of disguising the proceeds of crime and transferring value through the use of trade transactions in an attempt to legitimize its illegitimate origin. Customs is everything related to the supervision of the traffic of goods entering or leaving the customs area as well as the collection of import and export duties, the supervision of which is carried out by the Directorate General of Customs and Excise (DGCE). In import customs activities, importers are obliged to fulfill customs obligations, one of which is the inward manifest. The research aims to provide an overview of money laundering and violations in the Customs Sector. Using secondary data from 2019 to 2023 and primary data through interviews, to answer the research objectives using qualitative methods based on court decisions. The research results show that the mode of money laundering violations in the customs sector is smuggling of unmanifest imports of cigarettes without excise stamps attached using the ship-to-ship mode. In laundering money from the crime, the perpetrator hides or disguises the proceeds from the crime of selling cigarettes that are not attached with excise stamps by placing the money from cigarette sales in several accounts in the perpetrator's name and in other names as well as in other forms of assets. Research suggestions, violations in the customs sector that have sufficient evidence of a crime, apart from being able to investigate predicate crimes, money laundering investigations can be carried out so that asset recovery can be carried out and optimizing the PPP scheme in cracking down on money laundering.

Unveiling The Shadows: Exploring Money Laundering Mechanisms In Bangladesh's RMG Sector

This study examines the intricate web of money laundering in Bangladesh's Readymade Garments (RMG) sector, a vital industry for the nation's economy. Utilizing two ethically sound focus group discussions (FGDs) with various stakeholders, including RMG representatives, labour leaders, legal experts, and law enforcement officers, the study was conducted in Gazipur, a significant centre for garment manufacturing in Bangladesh. The findings highlight the multifaceted nature of prevalent money laundering strategies in the RMG industries. Notable techniques include trade-based money laundering, smurfing and structuring, false invoicing, shell companies, offshore accounts, cost manipulation, informal value transfer systems (IVTS), and real estate investments. This research sheds light on the concealed financial complexities of the RMG industry, highlighting the need for vigilant regulatory measures and industry-wide awareness.

무역기반 자금세탁에 대한 효과적인 리스크 관리 방안에 관한 연구

무역기반 자금세탁에 대한 효과적인 리스크 관리 방안에 관한 연구

Food crime: An often-ignored money laundering typology and a predicate crime

Food crimes, including adulteration, poisoning, mislabelling, and misrepresentation of information, have cost billions in the global food industry. The coronavirus (COVID-19) pandemic has highlighted the weaknesses of the food supply chain. Unfortunately, such weaknesses are exploited by actors to engage in illicit activities. Consequently, this work aims to highlight the inherent susceptibility of the food sector to being exploited to launder illicit funds and as a predicate crime for generating illicit funds. This study emerges from two independent systematic literature reviews on trade-based money laundering and food crime to identify a knowledge gap highlighting the dual role of the food sector, both to launder illicit funds and as a predicate crime generating such funds. It adopts a viewpoint approach by considering the factors identified in the academic literature to outline the vulnerabilities of the food sector to illicit practices. The novelty of this study lies in focusing on the dual role of the food sector, which to date has been ignored.

Uncovering the depths of trade-based money laundering: evidence from a seaport in Bangladesh

PurposeMoney laundering (ML) is a major criminal offence stemming from unethical practices by personnel on the ground at Chattogram Port, an important import and export facility in Bangladesh. Because money can be more easily laundered through imports, it is necessary to investigate the dubious process in this sector. This study aims to identify the items most regularly used for easy ML and the factors contributing to their vulnerability.Design/methodology/approachThis research uses a qualitative approach and analyses information from primary sources. Data is obtained from customs officials, port authority personnel, importers and customs brokers through semi-structured questionnaires. Although there are many techniques for ML, this study only found three most overwhelming: under-invoicing, over-invoicing and misdeclaration. A few case studies have been used based on newspaper reports and the internet to triangulate the qualitative data.FindingsFour import items – food products, garments, capital machinery and chemicals – have a higher risk of ML. This study also revealed that money launderers prefer under-invoicing food and garment items. Misdeclaration is more commonly associated with capital machinery and chemical items. Over-invoicing, on the other hand, is only prevalent in government purchases. The port authorities need to pay particular attention to these issues.Research limitations/implicationsAs ML is an ongoing activity that changes over time, the findings of this research are circumscribed by the data collected at a single point in time. Additionally, this research did not consider alternative laundering methods.Practical implicationsThe research results can provide a basis for creating effective anti-money laundering (AML) strategies to assist with sustainable economic growth.Social implicationsDeveloping effective AML measures can help combat corruption and establish good governance in the country and support human well-being.Originality/valueThis paper presents original research findings based on technical analysis. The Chattogram Port Authority and the National Board of Revenue have accepted and used the main findings in a collaborative action plan to tackle ML. The Bangladesh Bank, the country’s central bank, has also incorporated the necessary guidelines and regulations into the Money Laundering Prevention Act, 2012.

THE THREAT OF TRADE-BASED MONEY LAUNDERING TO THE AFRICAN CONTINENTAL FREE TRADE AREA*

Africa has dedicated considerable effort to establishing a Continental Free Trade Area to facilitate intra-African trade and deepen economic integration. However, the liberalisation and facilitation of trade on the continent would increase trade openness significantly in the markets for goods and services, thereby expanding the threat of trade-based money laundering (TBML) and undermining the potential benefits the agreement would bring to economic growth, industrialisation and sustainable development in Africa. This paper focuses on the threat of TBML to the African Continental Free Trade Area (AfCFTA), typically perpetrated through trade mis-invoicing as the main vehicle for illicit financial flows. It deduces that increases in the volume of trade across the continent potentially increase the vulnerability of the AfCFTA to TBML.

The evolution of trade-based money laundering schemes: a regulatory dialectic perspective

PurposeThe purpose of this study is to apply the regulatory dialectic to describe the evolution of trade-based money laundering (TBML) schemes, to describe three recent TBML innovations uncovered by a large bank in the important global trade jurisdiction of the United Arab Emirates (UAE), and to provide recommendations for an effective regulatory response.Design/methodology/approachThe methodology used is a caselet approach with three examples of TBML schemes recently foiled in the UAE as well as an application of the regulatory dialectic literature to TBML.FindingsThe implications of the regulatory dialectic for research regarding TBML and associated regulation and compliance will enable regulators, the financial services sector and academics to understand TBML and the ever-evolving steps criminals are taking to circumvent the changing landscape of regulation and controls implemented by the financial services sector and customs tasked with mitigating such behaviour. This paper will bring awareness of the evolution of TBML, the controls and frameworks that may be used to prevent, detect and investigate some of the complex schemes of TBML.Research limitations/implicationsThe regulatory dialectic theory provides insights into the evolution of TBML schemes as well as why compliance activities tend to be reactive, rather than proactive. The cases covered in this paper provide insights into the nature of this circular process between financial crime and regulation, which is useful for anti-financial crime professionals and regulators focusing on deterrence.Practical implicationsThe UAE is a small, rapidly developing trade and finance center in the Middle East, surrounded by nations that are sanctioned, in active conflicts, politically unstable and/or highly corrupt. TBLM undermines the security of the UAE; the authors provide insights into criminal innovations and regulatory responses.Social implicationsTo promote the safety and stability of the ten million residents of the UAE, and others in the Middle East and North Africa (MENA) region, it is important to understand the process of innovation in TBML schemes and regulatory response.Originality/valueTo the best of the authors’ knowledge, this paper is the first to apply the regulatory dialectic theory to TBML to describe innovation in TBML schemes and to provide cases describing contemporary TBML innovations in the MENA region.

Trade Based Money Laundering Through Shell Banks: A New Avenue of Tax Fraud

Trade Based Money Laundering Through Shell Banks: A New Avenue of Tax Fraud

Exploring the Potential: Smart Contracts and the Fight against Trade-Based Money Laundering in International Trade

Exploring the Potential: Smart Contracts and the Fight against Trade-Based Money Laundering in International Trade

Estimates of Trade Based Money Laundering within the European Union

ABSTRACT This paper applies a Multiple Indicators Multiple Causes Model to benchmark trade-based money laundering (TBML) activity for 26 European Union member countries between 2005 and 2015. Results indicate substantial TBML levels in the region averaging between $0.9 to $1.8 trillion USD annually. Surprisingly, we also find that TBML is a complement to traditional money laundering activities. Policies focusing on deterring traditional money laundering and tax evasion are associated with reduced TBML activity in the region. Aggressive government attitude towards traditional money laundering and illicit drug trade, without effectively reducing the illicit proceeds, can deter the detection of money laundering and increase TBML.

Effects of foreign direct investment on trade-based money laundering: The case of Vietnam

Effects of foreign direct investment on trade-based money laundering: The case of Vietnam

The money laundering typologies and the applicability of placement-layering-integration model in undocumented South Asian economies: a case of Pakistan

PurposeThis study aims to determine the applicability of the placement-layering-integration model of money laundering (ML) in the South Asian context with emphasis on Pakistan by analysing different ML typologies.Design/methodology/approachThis study applied content analysis in the first step. It explored three primary documents concerning ML typologies: Asia Pacific Group’s yearly reports on ML typologies from 2010 to 2021, the mutual evaluation reports and the National Risk Assessment of Pakistan. In the second step, expert interviews were recorded, and NVivo was used for data management and analysis.FindingsThis study found primary predicate offences: corruption, tax crimes, smuggling and drug and human trafficking. Pakistani launderers often use traditional typologies, including cash smuggling, round-tripping, multiple bank accounts, investment in real estate (in Pakistan and Dubai) and hawala. However, cybercrimes, cyber laundering and trade-based ML are rising. The politically exposed persons are involved in most of the laundering cases.Originality/valueRare studies specifically address the south Asian typologies and the limitations of the placement, layering and integration model. Therefore, there is a need to understand the current typologies used in developing, less regulated and undocumented jurisdictions like Pakistan.

Beyond Banks: A Case for Interagency Collaboration to Combat Trade-based Money Laundering in Africa

Abstract Regulation regarding trade-based money laundering (TBML) has focused mainly on documentary trade financing arrangements, which are bank intermediated. Yet, African countries predominantly employ alternative forms of trade financing models that span beyond banks’ usual purview. These alternative models are supported by many actors across the supply chain that are not holistically supervised given the fragmented regulatory framework at the global and domestic levels. In contending that TBML significantly undermines intra-African trade and therefore amounts to a non-tariff barrier (NTB) to trade, this article challenges the need for globally transplanted solutions to address TBML. Rather, it argues for the introduction of new approach: a country focused experimental legislation that facilitates inter-agency collaboration beyond banks. This approach would ensure a homegrown, responsive, and legitimate framework that encompasses currently un-supervised actors. It contends that if the experimental legislation works at a country level, it may then be cascaded to the African Union level for contextual adaptability across other African countries.

Trade-based Money Laundering: general methodologies Is smart contract blockchain technology a possible solution?

Trade-based Money Laundering: general methodologies Is smart contract blockchain technology a possible solution?