Panel: International Trade Fertile Ground for Money Laundering

Chris Gaetano
Published Date:
Oct 27, 2016
Money Laundering

Money laundering is a serious crime, so of course neither you nor your clients engage in it. But panelists at the FAE's Anti-Money Laundering Conference on Oct. 27 said that even if you don't plan to launder money anytime soon, you and your clients, particularly if they are financial institutions, must still be vigilant against being used as an unwitting vehicle for money launderers. 

Steven Schrank, assistant agent-in-charge with the Department of Homeland Security, has seen legitimate U.S. entities who want to move legitimate products and conduct legitimate business with counterparties that want to import their goods overseas nonetheless find themselves attached to illegitimate ventures. Schrank said that, as an accountant or auditor looking at these businesses, it is incumbent to recognize how things like changes in payment models may be indicators of trade-based money laundering. 

Above all, he said, people should ask themselves whether a particular transaction actually makes sense. He brought up the example of a U.S. entity exporting computers to Colombia. It would be very odd, he said, if the ultimate recipient of these computers paid for the goods with a cash counter deposit in the U.S. Similarly, he said, it would be odd if payment of goods came in multiple cash deposits, particularly if these deposits were made in multiple jurisdictions in sums that were always under $10,000 (which avoids triggering reporting requirements by banks). 

Another thing to watch for, he said, is where the funds are originating. For instance, that aforementioned U.S. exporter may be paid by a wire transfer from an entity besides the one they made the agreement with, or from a U.S. financial institution versus the country that was purchasing the products. While these things by themselves might not seem suspicious, if these things change frequently, it might be time to look a little more deeply into a particular customer. 

Jake Jacobson, a principal at Ernst & Young, said one of the things he's done to check for money laundering activities is to think logically about how goods are being shipped or stored. 

"If there's $30 million worth of grain or corn, but only three container numbers listed, obviously that much corn won't fit in three containers," he said. 

Another way is to look at price: Is the price of the goods significantly over or under what it generally goes for? If so, someone might be trying to piggyback some illicit money onto the transaction. 

Or, added Marcy Forman, managing director of Citigroup's global investigations unit of its anti-money laundering compliance unit, there could be no container at all, and someone just produced dummy documents to make it look like a legitimate transaction went through. 

Clark Abrams, the moderator, noted that beyond the risk of money launderers using legitimate businesses to move their funds, there's also the risk of breaking money laundering rules by doing something that seems totally innocent. For example, say the U.S. exporter introduced earlier has always paid their international importer the same way each time. In that time, however, the economy shifts gears and the supply of U.S. dollars in that country shrinks. 

"Your customer is likely having difficulty getting its hands on dollars, legitimate dollars, and your customer may say to you, 'Look, can you help a colleague of mine, can you please funnel dollars?' You may be thinking you're doing something good, and in some sense you may be, but you may be acting as an unlicensed bank," he said. This is a violation of New York criminal law, of federal banking law, and of the general money laundering statute. "You need to be concerned," said Abrams. 

Jacobson said that macroeconomic trends, combined with the state of the trade bank sector, have made fighting money laundering more difficult. Businesses in general, he said, are looking to be more efficient, which for trade banks has meant moving processes that they used to take care of themselves, instead, to global hubs where the bank is two or three steps removed from the actual customer. This, he said, reduces transparency and makes it more difficult to actually know your customer. However, he also said that the industry itself is highly fragmented, with the top 20 trade banks having only 40 percent of total market share. 

"So the major institutions can only do so much. It's a good place to start, but it still remains a fragmented business across many smaller institutions covering the globe," he said. 

Sean O'Malley, vice president and deputy chief inspector for enforcement at the New York Federal Reserve, bemoaned what he felt was a trend away from the transparency needed to effectively fight money laundering, at least in terms of interbank communication. He said that while there are protocols in the SWIFT system (a payment system banks use to pay each other) that allow for extensive information disclosure, but said many don't use them. 

"We are not seeing any indication of who the real buyer and seller is... We've got a huge, gaping hole right now in our system," he said. 

Forman, however, emphasized that there's many partnerships that are aimed at cutting off money laundering activity, noting that she herself has a law enforcement background. Working with partners, she said, banks can get real time information and work together, noting that there are few banks that want to host money laundering. 

"You think everyone is bad, but I can tell you there are a lot of hardworking people trying to keep bad people from the bank," she said. 

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