Reports from the US Government Accountability Office (GAO) and the US Treasury suggest that trade-based money-laundering (TBML) is impacting several financial institutions in the US and globally. Malicious actors engage in TBML most commonly through deliberate mis-invoicing or incorrect declarations to customs authorities. Value-added tax fraud, capital flight and informal value transfer systems also come under TBML. Moreover, corrupt officials could use TBML to move black money through shell companies.
Unlike law enforcement authorities, financial institutions cannot engage in investigations into a bank’s customers. At the same time, unlike financial institutions, government regulators and AML departments cannot investigate TBML-facilitating businesses. Similarly, concerned entities submit the reports of commercial trade transactions to governments as customs data, but the underlying transaction data is not made available to the governments. On the other hand, banks have all transaction data, but may not have the associated trade data. Financial criminals exploit these loopholes in the system to conduct TBML.
Public-private partnerships (PPPs) across the globe present a highly effective way to end TBML. PPPs bring together the expertise of AML departments, law enforcement, commercial enterprises to develop methods to ward off TBML. This could strengthen the US financial institutions.