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This is the eighth part in our series revealing exactly what banks are looking for when they are combatting money laundering.
Trade finance is one of the most common areas for laundering money. Accordingly banks throughout the world look for suspicious transactions. Avoid the following situations if you want your business to flow smoothly.
Trade in Suspicious Goods
Businesses have standard types of goods associated with their businesses. When they shift to or add items to their normal purchases or sell products that aren’t their normal business, that sets off an alarm. For example, a company that sells perishables but switches to machinery would trigger an alert.
Higher Risk Jurisdictions
Transactions involving parties in higher-risk jurisdictions automatically receive more scrutiny; activities that might pass muster in other jurisdictions may lead to problems.
Transiting Higher Risk Jurisdictions
Transactions that transit higher risk or non-cooperating jurisdictions receive additional scrutiny. That is because criminals may substitute cargo or divert funds,
Customers Involved in High Risk Activities
Banks scrutinize any customers handling risky products such as those below for possible involvement with criminal gangs or terrorists.
- equipment for military or police organizations of foreign governments,
- chemical mixtures,
- classified defense articles
- sensitive technical data
- nuclear materials
- precious gems
- certain natural resources such as metals, ores, and crude oil
Trade Pricing Fraud
Goods or services that are obviously mispriced are a common way to launder money and evade taxes. Central Bank authorities are well aware of this and in most cases require that their banks be alert for such activities and alert them to any such cases. And, of course, when periodic audits are conducted, this is one of the areas that receives close attention.
Misstating of the Quantity
This is a variant of Pricing Fraud where the unit cost is correct but the quantity is changed up or down to achieve the results that the company wants.
Just as corrupt governments create over-complex laws to enable graft and self-dealing, fraudsters design over-complex transactions to enable fraud in commerce. Banks are on the lookout for such transactions and are responsible to report such cases to the Central Bank.
Third Party Payments
If a transaction between party A and party B stipulates a payment to party C, this will alert the bank to look more deeply into the transaction. Obviously the could be a legitimate transaction but the method is often used to launder money.
If the terms of and L/C haven’t been precisely met, the bank will not honour it. If it does, either by accident or on purpose, then the examiners will conduct an investigation to determine why that was done.
Bank authorities will investigate all significant changes to L/Cs to determine the reason why the change(s) were made.
It is clear that international trade is an area in which it is relatively easy to launder money. Banks are alert to the possibilities but the sheer volume of trade makes this an area of ongoing concern.
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