The primary aims of those who commit economic crimes are to secure a financial advantage and to be able to make use of the stolen funds without being detected by police or regulatory agencies. Many criminals seek to disguise the origins of their criminally derived funds by engaging in money laundering to enable them to materially benefit from their crimes and avoid detection by the authorities. Organised criminals, in particular, see many benefits to money laundering, which include the ability to enhance their lifestyle and to enable the profits of their crimes to be reinvested in future criminal activities or in legitimate business operations.
In response to mounting international concern about money laundering, the Financial Action Task Force (FATF) on money laundering was established in 1989. The FATF is an inter-governmental body that sets international standards and develops and promotes policies to combat money laundering and terrorist financing.
In a 2006 report, FATF identified the use of international trade as an emerging avenue for money laundering, particularly as the financial sector became more regulated in an attempt to stop money laundering and the financing of terrorism. One of FATF’s key research findings in that report is that
[t]rade-based money laundering is an important channel of criminal activity and, given the growth in world trade, it represents an increasingly important money laundering and terrorist financing vulnerability (FATF 2006: 25).
For the purpose of this report, TBML is defined as a form of money laundering that uses trading operations to conceal the origins of (often illegally obtained) funds. This is usually done by trade-description fraud, such as the over- and under-invoicing of goods, over- and under-shipment of goods, multiple invoicing or falsely describing goods, although TBML can also entail fraudulent acquisition and sale of intangibles (such as consultancies and similar services or PINs), or related-party transactions.
Aim of report
This study forms part of a four year research project undertaken by the Australian Institute of Criminology examining a number of aspects of Australia’s AML/CTF regime. The research presented in this report considers a form of money laundering using trade operations, commonly known as TBML, and explores the characteristics of this particular criminal activity. TBML has been identified as an emerging form of money laundering that needs to be addressed by several AML/CTF agencies around the world, including FATF, Europol and the Bureau of International Narcotics and Law Enforcement Affairs (BINLEA). In Australia, there have been similar warnings from the Australian Transaction Reports and Analysis Centre (AUSTRAC) 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 nature and its prevalence in Australia and overseas. The purpose of this report is to develop a greater understanding of TBML by:
- defining 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.
Research comprised a review of publicly available official reports and literature on TBML from a range of Australian and international sources. While the latest publicly available information has been used, there are time delays, especially in the release of official statistics, which make it difficult to present completely contemporary information. At present, the information about TBML and its impact is relatively limited. Unlike money laundering using the financial system, TBML is an emerging concept that has had little attention from academic scholars and regulatory and policy bodies. Thus, it is often the case that currently available information does not provide accurate definitions of TBML, or explain how it differs from other forms of money laundering.
This review of the publicly available literature was guided by consultations with experts and stakeholders from Australian and overseas law enforcement, prosecution and regulatory agencies who were identified as having operational information and experience of direct relevance to TBML and its impact on Australian interests. These consultations have formed the background to the research contained within this report, although all material reported on here is taken from publicly available sources.
As with many studies of complex financial crime, the present report is subject to a number of limitations. First, the data used in this report could only be sourced from publicly available information. Second, TBML is not clearly defined nor understood, which means that instances of TBML activity may not be recognised as such and therefore may not be distinguished from other forms of money laundering and terrorism financing. Third, and perhaps partly as a result of the first two limitations, the number of case studies this report describes is quite small. Finally, most of the instances of TBML identified in this report come from overseas, particularly the United States, but also from FATF, the Asia/Pacific group on Money Laundering and the Eurasian Group on Combating Money Laundering and Terrorism Financing. Little is publicly known about the nature and extent of TBML in Australia.
Following the Introduction, the report seeks to define TBML more clearly as a distinct form of money laundering that can be identified separately from other forms of money laundering involving financial systems. This section also looks at the risk environment in Australia and around the world that may allow TBML to occur.
The following section explores how agencies outside of Australia have responded to TBML, how FATF have devised recommendations that specifically relate to TBML and that are narrower in scope than the 40+9 Recommendations made to combat money laundering and terrorism financing more widely. This section also examines the Trade Transparency Units (TTUs) established by the US Immigration and Customs Enforcement (US ICE) as an example of how countries may choose to practically deal with TBML.
Consideration is then given as to how TBML may be dealt with by Australian authorities. Assessment is made of how the current AML/CTF regime could be applied to those dealing with financial systems and the limitations that would impact on transferring this program to those dealing in trade transactions. FATF’s Best Practices Paper on TBML, with its emphasis on education and awareness training, is taken as a framework for Australia’s initial ventures into combating TBML. In essence, it is concluded that while TBML has been highlighted as an emerging concern by AML/CTF agencies in Australia and elsewhere around the globe, more research needs to be done to delineate how TBML operates and the extent to which it occurs, globally and in Australia.