Page 25 - Banking Finance November 2021

ARTICLE

Learning from the Paradox: impossible) for law enforcement agencies to follow (FATF
2010). It also reported that 'goods introduced in a FTZ' are
More than US$3.07 quadrillion in payments are made
annually. By comparison, World Trade Organization (WTO) generally not subject to the usual customs controls, with
estimates roughly $16 trillion of trade transactions occur goods undergoing 'various economic operations, such as
each year. Accordingly, approximately 0.52% of the value transshipment, assembly, manufacturing, processing,
of all payments represent trade settlement. Given that at warehousing'.
least 80% of trade is open account, only about 0.1% of the
FinCEN has identified TBML red flags that are specific to
value of payments made reflect settlement of documentary
FTZs. In its 2010 report, FinCEN (2010: 4) signaled that a
trade. All of the AML monitoring and controls put in place
number of red flags seen in conjunction with shipments of
in a bank's trade services department are there to identify
and intercept roughly 0.1% (or less) of illicit funds flow. high dollar merchandise (such as electronics, auto parts and
precious metals and gems) to duty free trade zones could
"To truly make a difference in mitigating TBML, we must
look beyond documentary trade, and beyond banks." be an indication of a trade-based money laundering activity.
These include :
Major Typologies of Trade Based Money
: Third-party payments for goods or services made by an
Laundering intermediary (either an individual or an entity)

Asia Pacific Group has grouped the typologies of TBML such apparently unrelated to the seller or purchaser of goods.
as over or under invoicing, phantom shipping, short shipping, This may be done to obscure the true origin of the funds;
multiple invoicing etc into four broad categories based on : Amended letters of credit without reasonable
reporting of various cases by various countries . The broad justification;
categories reveal the identified pattern in which majority
: A customer's inability to produce appropriate
of TBML activity has been detected so far.
documentation (ie invoices) to support a requested
transaction;
i) Jurisdiction :
: Significant discrepancies between the descriptions of the
a) The commodity is shipped to or from a jurisdiction
goods on the transport document (ie bill of lading), the
designated as 'high risk' for MLactivities or sensitive /
non-co-operative jurisdictions. invoice, or other documents (i.e. certificate of origin,
packing list etc) (FinCEN 2010).
b) The commodity is transhipped through one or more
d) Circuitous route of shipment and/or circuitous route of
such high risk / sensitive jurisdictions for no apparent
financial transaction or Orderor the goods is placed by
economic reason.
firms or individuals from foreign countries other than
c) Presence of Free Trade Zones / Special Economic Zones thejurisdiction of the stated end-user.
also affects the sensitiveness of a jurisdiction as far as
TBML is concerned. e) Transaction involves shipment of goods inconsistent with
normal geographic tradepatterns of the jurisdiction.
FTZs are also emerging as being especially vulnerable to
TBML. FATF (2010: 4) defines FTZs as 'designated areas ii) Goods Involved :
within countries that offer a free trade environment with a Most of the jurisdictions have responded to state that no
minimum level of regulation'. In the said report, FATF noted definite pattern of goods involved in TBML is identifiable.
that most zone authorities operate separate company This is probably due to the vulnerability of almost all trade
formation services from those that exist in the rest of the transactions for TBML, however , Global trade in services
jurisdiction and market the ease of setting up a legal entity provide greater opportunities for ML than trade in
in an FTZ to attract business.. As a result, it is simpler for merchandise because fraud particularly in regard to
legal entities to set up the firms/companies in FTZs and hide valuation of services is more difficult to detect and
the name(s) of the true beneficial owners. This lack of prove.Some goods are found to be more vulnerable to be
transparency has allowed companies located in FTZs to used in TBML activity such as consumer goods, textiles,
create layers of transactions that are difficult (if not garments, engineering goods, electronics goods, illicit

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