Trade-Based Money Laundering: The Next Frontier in International Money Laundering Enforcement (Wiley and SAS Business Series)

Uncover the financial fraud that funds terrorist organizations Trade-Based Money Laundering is an authoritative examination of this burgeoning phenomenon, now coming under scrutiny in the War on Terror. This book walks you through the signs and patterns of trade-based money laundering (TBML) to help you recognize it when it occurs, and shows you how data and analytics can be used to detect it. You'll learn the common value transfer techniques including invoice fraud, over-and-under invoicing, and misrepresentation, and learn why analytic detection systems have yet to be implemented despite the existence of copious data. Case studies from around the world highlight the real-life implications of the concepts and processes presented in the text, giving you a first-hand view of the mechanisms at work inside this expanding illegal market. Trade-based money laundering uses trade to convert large quantities of illicit cash into less conspicuous assets or commodities to evade financial transparency laws and regulations. As an ideal funding mechanism for terrorist groups, the practice is getting more attention even as it increases in scale and spread. This book takes you deep inside TBML to better arm you against its occurrence. Learn the typical value transfer techniques of TBML Examine case studies detailing international examples Discover why institutions have failed to implement detection systems Explore ways in which analytics can identify TBML According to the U.S. State Department, TBML has reached staggering proportions in recent years, and is considered by many to be the next frontier of international money laundering enforcement. Trade-Based Money Laundering gives you a battle plan, with expert insight and real-world guidance. Cover 1 Title Page 7 Copyright 8 Contents 9 Foreword 11 Preface 15 Acknowledgments 19 About the Author 21 Chapter 1 The Next Frontier 23 The Magnitude of the Problem 26 How Are We Doing? 30 Notes 32 Chapter 2 Trade-Based Money Laundering Techniques: Invoice Fraud 35 How Does TBML Work? 37 Invoice Fraud 38 Case Examples: Invoice Fraud and Manipulation 44 Case Study 1: False Invoicing Polypropylene Pellets 44 Case Study 2: Inflated Invoices and Terror Finance 45 Case Study 3: TBML and Export Incentives 45 Case Study 4: Vehicles, TBML, and Terror Finance 46 Case Study 5: TBML and Iranian Sanctions 48 Case Study 6: Teddy Bears Used to Launder Drug Money 48 Case Study 7: Brazilian Paralelo 49 Case Study 8: South Korean Uses Invoice Fraud to Circumvent Iranian Sanctions 50 Cheat Sheet 50 Questions to Ask if a Shipment of Goods Looks Suspicious 51 Notes 52 Chapter 3 Black Market Peso Exchange 55 Background of the BMPE 57 A Typical BMPE Value Transfer Scheme 58 Expansion of the BMPE to Mexico and Venezuela 62 The China Connection 67 Cheat Sheet 68 Notes 69 Chapter 4 Hawala: An Alternative Remittance System 71 Definition of Hawala 73 The Hawala Transaction 74 How Do Hawaladars Make a Profit? 77 Countervaluation and Trade 79 An Abused Financial System 82 How to Recognize Hawala 84 Countermeasures 86 Case Examples: Hawala 88 Case 1: Manhattan Foreign Exchange 88 Case 2: Shidaal Express 88 Case 3: Health-Care Fraudsters Send Funds to Iran 89 Case 4: Somali Remittances 89 Case 5: Financial Intelligence Instrumental in Hawala Investigation 90 Cases 6 and 7: Examples of Hawala and Terror 90 Cheat Sheet 90 Notes 91 Chapter 5 Chinese Flying Money 95 An Ancient System 96 The Modern Era 98 How Does It Work? 100 Chinese Presence in Africa 103 Case Examples 105 Case 1: Fei-Chien and Hawala 105 Case 2: Underground Money Shops’ Role in Drug Money Laundering 106 Case 3: Underground Banking and Immigrant Smuggling 106 Case 4: Triads Use Underground Finance in Russia’s Far East 106 Case 5: Used-Tire Trade Masks TBML and Trafficking in Endangered Wildlife 107 Case 6: Underground Banking Links Korea and China 107 Case 7: Chinese TBML in Poland 108 Cheat Sheet 108 Notes 109 Chapter 6 Misuse of the International Gold Trade 111 Why Gold Is so Popular with Money Launderers 112 Gold Has Been a Haven of Wealth Since Antiquity 112 Gold Is a Readily Acceptable Medium of Exchange Anywhere in the World 113 In Times of Uncertainty and Civil Strife, Gold Is Often More Reliable Than National Currencies 113 Gold Prices Are Fixed Daily in Markets Worldwide, and Gold’s Value Is Relatively Constant Over Time 114 The Weight and Quality of Gold Can Be Assured 114 Gold Offers Easy Anonymity 115 Gold Is Generally Immune to Asset Freezes 116 There Is a Tremendous Demand for Gold in Various Cultures around the World 116 How Is Gold Manipulated to Launder Money and Transfer Value? 117 Depending on the Need, Gold Can Be Altered in Form 117 Gold Brokers Can “Layer” Transactions That Further Confuse the Paper Trail 119 Gold Is Susceptible to Double Invoicing, False Shipments, and Other Fraudulent Schemes 119 Gold Is Easily Smuggled 121 Gold Is Often the Commodity of Choice in Underground Financial Systems 123 Possible Questions for Gold Dealers 123 Case Examples 124 Case Study 1: The Magharian Brothers 124 Case Study 2: Illegal Gold Mining and Tax Fraud in South Africa 125 Case Study 3: Gold Smuggling into Colombia 126 Case Study 4: Operation Meltdown 126 Case Study 5: Fake Gold Sales 126 Case Study 6: Cash-for-Gold-for-Drugs 127 Examples of Gold and Terrorism Financing 127 Cheat Sheet 128 Notes 129 Chapter 7 Commercial TBML 133 Trade Diversion 134 Example 1: Illegally Diverted Cancer Drug 137 Example 2: HIV Drugs Destined for Africa Diverted to Europe 138 Trade Misinvoicing 138 Transfer Pricing 140 Cheat Sheet 144 Notes 145 Chapter 8 More Schemes and Facilitators 147 Barter Trade 148 Service-Based Laundering 149 Free Trade Zones 150 The Afghan Transit Trade 152 Latin America's Tri-Border Area 156 Carousel Fraud 158 Case Studies 161 Case 1: Customs Fraud in an FTZ 161 Case 2: Smuggling via an FTZ 161 Case 3: Afghan Transit Trade Scheme 161 Case 4: TBML in the TBA 162 Case 5: Carousel Fraud 163 Notes 163 Chapter 9 Monitoring Trade 167 Steps in the International Trade Process 168 Information Sources 171 What about Weight Analysis? 176 Pioneering Analysis in TBML 178 Trade Transparency Units (TTUs) 180 The Application of Big Data and Analytics 185 Case Example: Operation Deluge 186 Notes 187 Chapter 10 Red-Flag Indicators 189 Possible Red-Flag Indicators of TBML 191 Prudent Steps 195 Guidance 196 Notes 196 Chapter 11 Conclusions and Recommendations 199 Get Serious about TBML 200 Define the Magnitude of the Problem 201 Focus from the Top 202 A FATF Recommendation 202 Curtail the Commercial Misuse of Trade 204 Enhance Wire Transfer Reporting 205 TBML Analytics 206 Expand the International TTU Network 206 Reempower Treasury Enforcement 209 The Misuse of Trade Is a Law Enforcement Issue—Not Just a Customs Issue 211 National Task Forces on Underground Finance 213 Notes 215 Appendix A Money-Laundering Primer 217 Financial Intelligence 219 Currency Transaction Reports 219 Report of Foreign Bank and Financial Accounts (FBAR) 220 Form 8300 (Cash over $10,000 Received in Trade or Business) 220 Suspicious Activity Reports 221 How Is Financial Intelligence Used? 222 Availability of Financial Intelligence 223 Legislation 224 Investigating Money Laundering 225 Money-Laundering Methodologies 226 Notes 228 Appendix B Original Trade Transparency Unit (TTU) Proposal 229 May 2003 Proposal: Trade Transparency Units 230 Summary Proposal 230 Defining the Problem 230 Investigating Trade-Based Money Laundering 231 Conclusion 237 Glossary 239 Index 247 EULA 257 **Uncover the financial fraud that funds terrorist organizations**__Trade-Based Money Laundering__ is an authoritative examination of this burgeoning phenomenon, now coming under scrutiny in the War on Terror. This book walks you through the signs and patterns of trade-based money laundering (TBML) to help you recognize it when it occurs, and shows you how data and analytics can be used to detect it. You'll learn the common value transfer techniques including invoice fraud, over-and-under invoicing, and misrepresentation, and learn why analytic detection systems have yet to be implemented despite the existence of copious data. Case studies from around the world highlight the real-life implications of the concepts and processes presented in the text, giving you a first-hand view of the mechanisms at work inside this expanding illegal market. Trade-based money laundering uses trade to convert large quantities of illicit cash into less conspicuous assets or commodities to evade financial transparency laws and regulations. As an ideal funding mechanism for terrorist groups, the practice is getting more attention even as it increases in scale and spread. This book takes you deep inside TBML to better arm you against its occurrence. * Learn the typical value transfer techniques of TBML * Examine case studies detailing international examples * Discover why institutions have failed to implement detection systems * Explore ways in which analytics can identify TBML According to the U.S. State Department, TBML has reached staggering proportions in recent years, and is considered by many to be the next frontier of international money laundering enforcement. __Trade-Based Money Laundering__ gives you a battle plan, with expert insight and real-world guidance. Trade-Based Money Laundering is a timely, user-friendly guide that sheds light on shadowy and complex components of international trade fraud and its relationship to criminal and commercial money laundering, underground financial systems, and various forms of value transfer and capital flight. Financial compliance officers and law enforcement professionals will gain from unique insights and turn to the rare adivce inside this book again and again to improve their analytic and investigative skills. A wealth of international case studies and illustrative diagrams bring to life the practical ways criminals and their accomplices transfer value through international markets. Written by a former federal agent who had firsthand interactions with players in international black-market financial systems--from dust jacket