Increasing use of third parties in money laundering schemes, including TBML

An interview with anti-corruption expert José Hernandez published this month by the Chartered Professional Accountants (CPA) of Canada provides a comprehensive overview of the global factors making it ever more difficult to “follow the money” in cases of corruption or money laundering.

Hernandez looks at how trade-based money laundering (TBML) schemes can be implemented in the simplest of ways and draws particular attention to the increasing use of third-parties to obscure illicit financial flows, a practice the Financial Action Task Force (FATF) and the Egmont Group have already noted can be an integral component in TBML operations.

Third-party focus

Statistics show that in three-quarters of corruption cases or cases where funds are being diverted for improper purposes, third parties are used to handle these transactions according to Hernandez. He suggests a simple example would be where a party makes a US$100 payment to an offshore company and tells them to take US$20 from the US$100 and send it to a high-ranking government official.

Hernandez cites a 2020 joint FATF-Egmont Group report (Trade-based Financial Crime, 11 December 2020) that notes the continued occurrence of third-party intermediaries, often as part of the financial settlement process in TBML or trade-based terrorist financing (TBTF) schemes.

“These third-party intermediaries, linked to the organised criminal group, professional money launderer or terrorist financier, can quickly integrate into the transaction chain, creating additional distance between their activities and the TBML or TBTF scheme,” the report, Trade-based Money Laundering: Trends and Developments, says.

Recommended reading

A qualified accountant and CEO of Ortus Strategies, Hernandez also draws attention to the Cullen Commission Final Report published in June (Trade-based Financial Crime, 22 June 2022). It was commissioned by British Columbia following revelations of widespread TBML in the Canadian province (Trade-based Financial Crime, 24 May 2019).

Hernandez, who provided expert input to the Cullen Commission, says the report is very effective in showing how TBML can happen in the simplest of ways, by using commodities that are easy to buy and sell and by using methods such as over-invoicing.

It also provides a good road map for understanding the types of entities that are involved in TBML and what to look for he suggests, and particularly recommends reading Chapter 38, “because the risk factors are really clear”.

The interview with accountant and anti-corruption expert José Hernandez, As CPAs, we have to look for anything that is unusual, published by the Chartered Professional Accountants (CPA) of Canada can be found here.

The 2020 FATF – Egmont Group report, Trade-based Money Laundering: Trends and Developments can be found here.

The Cullen Commission Final Report and many resources associated with it can be downloaded or found here.



Categories: Trade Based Financial crimes News

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