This report examines a form of money laundering based on the trade of goods and services, commonly known as trade-based money laundering (TBML), and the characteristics of this particular criminal activity. Misuse of trade operations has been identified as an emerging form of money laundering that needs to be addressed by several anti-money laundering and counter-terrorism financing (AML/CTF) agencies around the world, including the Financial Action Task Force (FATF), Europol and the Bureau of International Narcotics and Law Enforcement Affairs, as well as, in Australia, the Australian Transaction Reports and Analysis Centre and the Australian Crime Commission. While TBML has been signalled as a concern by these agencies, this type of money laundering is not well understood—in terms of its procedures, as well as its prevalence in Australia and overseas. The purpose of this report is to provide enhanced understanding of TBML through the following—attempting to define clearly what constitutes TBML, identifying the risks of TBML in Australia and around the world, analysing what strategies and programs have been devised to tackle TBML globally, and exploring the possibilities for combating TBML in Australia.
The most common types of TBML involve trade description fraud. However, TBML can also take other forms including the concealed transportation of cash using trading operations, which is different from cash smuggling by individuals (cash couriers); the acquisition and sale of intangibles, such as the sale of PINs; and related party transactions, where one business or corporate group operates both the import and export ends of a trade transaction, thus permitting fraudulent trading to occur, including the potential for TBML. It is acknowledged that TBML often overlaps, or is used in connection with, other forms of money laundering using the financial system, but it is important to be aware that it exists and can often go undetected under current AML/CTF regulatory activities.
Australia’s strict border and customs regulations do, however, limit the opportunity for TBML to occur to some degree. This report highlights that one of the risk factors for TBML is the existence of open borders for trade purposes (or lax border controls in general). There is a high risk of TBML associated with trade within Free Trade Zones, such as the open border arrangements of the European Union. Australia’s lack of Free Trade Zones (despite being part of several Free Trade Agreements) is likely to contribute to a somewhat lower risk of TBML.
This report has found that the global response to TBML has been limited so far. This is partly due to the fact that not enough is known about TBML, limiting the ability of many countries to implement any kind of regulatory framework to address the problem, but also partly because combating TBML would require the implementation of different mechanisms than are currently used to combat money laundering within financial systems. FATF’s recommendations for combating TBML are far narrower than the 40+9 Recommendations outlined for dealing with money laundering and financing of terrorism generally, with much more emphasis being placed on education and raising awareness, as well as information gathering and dissemination among relevant agencies. Australia’s current Anti Money Laundering/Counter Terrorism Financing Act 2006 (Cth) is directed towards detecting money laundering and terrorism financing within the financial system by making it compulsory for nominated reporting entities to report suspicious activities. There is a concern that the introduction of a requirement to compel traders to undergo the same level of regulation would be very costly and very difficult logistically. Further, given the Australian Government’s emphasis on maintaining low levels of compliance burden on business, it is unlikely that general implementation of the regime to trading entities would be viable.
The narrower recommendations set out by FATF are much more in line with what Australian authorities are inclined to do in response to risks of TBML. Enhancing education and awareness-raising concerning TBML by FATF corresponds with AUSTRAC’s policy of educating people, businesses and agencies about AML/CTF generally, and consideration might be given to incorporating more information about TBML specifically, into current education and training. FATFs proposals to disseminate information, share intelligence more widely and develop new databases, units and taskforces to analyse data, may provide an enhanced response to TBML, although arguably, more research needs to be conducted into the nature and impact of TBML before such avenues for reform are pursued in Australia.