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Collaboration is key to combating trade-based money laundering

6 January 2021

In simpler times, a business front would suffice to make illegally acquired money appear legitimate. A chain of laundromats did the job for Al Capone and is the origin of the term ‘money laundering’.

Over time, criminals have turned to increasingly sophisticated methods to disguise the origins of dirty money and integrate it into the mainstream economy.

In trade-based money laundering (TBML), criminals take advantage of the size and complexity of international trade to transfer money between parties and evade authorities.

Techniques include mismatching the value of the goods and payment (over- or under-pricing relative to market value, quantity or quality), issuing multiple invoices for a single shipment or sending no goods at all.

Money launderers may also seek to obscure their crime through constructing a network of highly complex trade processes that mingle legitimate with illicit funds and take advantage of governance gaps across jurisdictions.

TBML is big business. The profits of international organised crime have been estimated as 1.5% of global GDP, with more than half of these profits laundered through the global financial system.

Developing countries are particularly vulnerable, where value gaps in reported international trade have been estimated as USD 8.7 trillion over 2008-17, and USD 817.6 billion in 2017 alone. The human consequences are grave, including 40.3 million people forced into slavery worldwide, a quarter of whom are children.

For authorities and the trade financing industry, TBML can be difficult to detect amid the many processes, parties, transactions and jurisdictions. As with any disruption approach, anti-TBML efforts need to be constantly refined to keep up with new and emerging risks posed by criminals seeking to harm the community and profit from their crimes.

Acknowledging that no single body can tackle such challenges, AUSTRAC has been taking a collaborative approach.

We established the Fintel Alliance in 2017, the world’s first private-public partnership of its kind. Fintel Alliance’s 28 members include experts from financial industry, intelligence agencies, law enforcement, and academic and research institutions. Along with improved operational outcomes, members’ capability increases as partners learn from one another and synthesise knowledge.

Fintel Alliance has now formed a TBML working group that includes front line experts from industry and law enforcement to develop indicators and typologies that can be broadened to other jurisdictions and trade types.

The value of this interconnected approach is becoming clear. Better intelligence and information-sharing regarding child sexual exploitation resulted in a 643% increase in suspicious matter reports to AUSTRAC. This supported the detention or arrest of 73 persons and the protection or rescue of 35 victims in 2018-19.

To combat TBML, as with other serious and organised crimes, we need to continue to monitor and prepare for shifts in the risks that criminals may pose to the financial system and community. Timely and quality contributions from industry are crucial for success. As financial crime becomes more complex across the globe, collaboration is a critical foundation to overcome criminal exploitation of our interconnected trade, financial systems and global communities.

New report highlights latest TBML risks and challenges

A joint Financial Action Taskforce (FATF)-Egmont Group project on TBML recently concluded. AUSTRAC led Australia’s input into the project and there were substantial contributions from private and public Fintel Alliance members to the development of the project’s final report.

Read the report and learn more about the risks and challenges posed by TBML: Trade-based Money Laundering: Trends and Developments.