Money laundering is a series of ‘transfers and purchases’ designed to distance criminals from their illicit funds.
Money launderers are not limited to following scripted typologies but are free to randomly select techniques as opportunities become available.
Trying to match observed circumstances to written typologies has become a woeful distraction that has over complicated the anti-money laundering measures.
The result: only a small number of inexperienced money launderers are ever caught.
Trade-Based Money Laundering (TBML) is an umbrella term to encompass money laundering techniques utilising a wide range of trade transactions to obfuscate a funds’ true origin, purpose, and destination.
The methods vary in complexity depending on the purpose, sums involved and the frequency with which the illicit funds must be laundered.
Small and infrequent sums could be effectively commingled with the legitimate business activity of a small retail shop set up at a temporary location. Large and frequent flows may need sustainable schemes maintained by lawyers, accountants, or financial advisors. However, those wishing to avoid currency restrictions might need to revert to using Letters of Credit, Documentary Collections, Guarantees, and other trade finance products that provide a legitimate cover for the funds transfer.
The global estimates of money laundering range from $2.3 trillion to $3 trillion per year, based on measuring international trade flows. Major economies like the UK and the US are reported to process most of the illicit trade flows due to their well-developed international trade partnerships and supporting financial services sectors.
Criminals take advantage of these opportunities by blending their illicit ‘transfers and purchases’ with other legitimate trade transactions across various financial products and institutions, making detection difficult.
By processing billions in trade transactions daily, UK banks are exposed to illicitly obtained funds and the techniques to launder them. Criminals simply blend their trade transactions with other banking products to make detection difficult. Equally they can coerce banking staff to support their operations.
Expanding on trade transactions, today’s regulatory guidelines primarily focus on detecting import/export data misrepresentations, such as over/under-invoicing, over/under-shipment, phantom shipments, and falsely declared product quality. Unfortunately, these risk indicators are primarily identified within trade finance products, where sufficient documentation is provided to support a full assessment of the trade taking place.
However, this practice overlooks the wide range of financial products and services available for money launderers to exploit as means to transfer funds, both domestically and internationally, disguised as legitimate purchases of various kinds.
Criminals understand the need to not trigger the regulatory red flags. They know how to maximise a banks’ vulnerabilities by trading in services rather than goods, conducting domestic trade before considering international transactions, maintaining low-risk KYC profiles, and selling/buying goods/services as part of customer-to-customer or business-to-customer interactions in addition to standard business-to-business practices.
Of greatest concern is how the disguised proceeds link to serious offenses, such as tax evasion, fraud, drug sales, arms sales, corruption, human trafficking, goods smuggling, illicit goods sales, environmental crimes, terrorism financing, and many other predicate crimes.
Furthermore, typology-driven red flags often fail to identify anything of value. They may render a client suspicious to the extent that a bank cannot fully comprehend their behaviours, leading to defensive suspicious activity reports, de-risking, and even de-banking.
De-risking and de-banking underscore the failure of the AML regime where banks are lead to deprioritise their societal duty of financial inclusion and monitoring customers, thus impeding the generation of intelligence for combating crime.
At Vortex Risk we have taken the time to understand money laundering – like no one else before.
Our extensive research data indicates that by breaking down money laundering into numerous typology reports, we only ever detect a tiny number of inexperienced criminals who made mistakes when designing their schemes. These mistakes include incorrectly filling in trade finance documentation, failing to understand typical trade practices in a given sector, trading in high-risk goods or geographies, initiating transactions that violate the bank’s internal risk appetite policies, and many others.
Skilled money launderers do not trigger regulatory red flags; they run their operations undisturbed. Unfortunately, these are the majority, as evidenced by low prosecution rates globally.
Vortex Risk changes these dynamics by approaching money laundering from a criminal perspective of pick-and-mix opportunities beyond those contained in regulatory guidelines and depicted by ineffective red flags.
The knowledge behind Vortex Risk supports a proactive approach, allowing for appropriate money laundering risk mitigation controls while safely growing business activities. Our clients experience reduced reliance on expensive and ineffective regulatory compliance technologies, defensive Suspicious Activity Report filing, and the need to implement damaging de-risking measures. Furthermore, law enforcement efforts are enhanced, and compliance teams gain greater insight into how money laundering is being undertaken.
Vortex Risk puts its clients in the driver’s seat so they can effectively apply the Risk-Based Approach and demonstrate how their bank is closed to dirty money.
We are seeking further interest from banks keen to see the benefits of our RAMP solution and become trusted partners in transforming how we approach mitigating money laundering risk.