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With the evolution of anti-money laundering controls, criminals are finding new ways to legitimise the financial proceeds from illegal activities. One of the most prevalent mode is to exploit the vulnerabilities of cross border trade via Trade Based Money Laundering (TBML)
TBML involves multiple methods and organizations spread over several jurisdictions. International criminal and terrorist organisations are increasingly using trade and trade finance as a conduit to finance narcotics and terrorist activities and evading taxes. 2-5 per cent of global GDP amount is being laundered by criminal enterprises annually in the guise of Trade.
Banking industry, governments, regulators and law enforcement agencies have to collaborate and be on constant vigil to keep this demon in check.
Introduction
The international trade is subject to a wide range of risks and vulnerabilities that can be exploited by criminal organizations and terrorist financiers, this risk partly arise from the enormous volume of trade flows and the complexities associated with the use of multiple foreign exchange transactions and diverse trade financing arrangements.
Criminal organizations and terrorist financiers use following three methodologies to move money for the purpose of disguising its origins and integrating it into the formal economy.
□ Through financial system
□ Physical movement of bulk cash
□ Movement of value (through goods and services)
Governments around the world are threatened by organized crime's use of money laundering, corruption, transfer pricing, and the associated threat of terror finance. Effective anti-money laundering and combating financial terrorism (AML/ CFT) measures taken by the governments and regulators have almost closed the front door for Launderers. With extensive AML controls that banks/FIs are using to combat cash smuggling and other money laundering methods, manipulations of trade finance is becoming more and more appealing to money launderers. In this view, strict measures are being taken by authorities across the globe to identify and mitigate the threat posed by trade-based money laundering and value transfer.
Financial Action Task Force (FATF) defines trade based money laundering as "The process of disguising the proceeds of crime and moving value using trade transactions to legitimize their illicit origins." That means, the value represented by trade of goods and services accompanied by documentation (both genuine and fictitious) may also represent the transfer of illicit funds and value.