Austrac has warned of the growth of trade-based money laundering in its latest financial crime guide and put financial institutions involved in trade finance on notice that their systems and controls must be able to deal with this threat.
Austrac said international trade is an attractive avenue for the movement of the proceeds of crime because the high volume of global trade flows helps criminals obscure their transactions and the complexities of the process help prevent detection.
“Related financial transactions are commonly fragmented, making it challenging for reporting entities to use transaction monitoring processes as they are unlikely to have oversight of the whole transaction chain,” the report said.
Austrac said that as controls applied to other forms of money laundering become more effective, the use of trade-based money laundering is expected to become more attractive to criminal groups.
It said financial service providers should be able to identify and understand the money laundering and terrorism financing risks associated with the trade finance services they offer.
Trade-based money laundering may be mingled with legitimate trade. Techniques include moving illicit founds out of Australia by purchasing imported goods at overvalued prices or exporting goods at undervalued prices.
Conversely, the movement of illicit funds into Australia can be done by importing goods at undervalued prices and exporting goods at overvalued prices.
Other techniques include falsely describing goods, phantom shipping (where no goods are moved) and “carouseling”, which involves importing and exporting the same goods repeatedly using different invoices each time.
Austrac said criminals favour goods that are difficult to value or fluctuate in price. This reduces the risk of third parties being able to value them accurately. It lists precious gems, bullion, tobacco, scrap metal, solar panels, luxury cars, meat products, sugar and recycled textiles.
Trade in services such as software, consultancy and advisory services and trademarks is also susceptible to money laundering.
Reporting entities should be on the lookout for trade customers with limited experience in import or export, customers with no publicly available “footprint” and customers that want to ship products that do not relate to their primary business.
Other red flags include customers that appear to deal with only one counterparty, pay cash or trade exclusively with related parties.
Jurisdictions involved in the trade that are high risk for money laundering should also raise concerns, along with transport routes that do not make sense.