Trade-Based Money Laundering is Like a Box of Chocolates

In the cat-and-mouse game of money laundering, which we earlier covered here (in an overview) and here (about what can go wrong), some of the more sophisticated schemes involve trade-based money laundering, which embeds the proceeds of criminal activity in legitimate cross-border commerce.

Take any good that is imported or exported around the world, and you can use the trade in that good to launder money by manipulating or misrepresenting price, quality, or quantity upon shipment.

Just think of a box of chocolates. If you import a box of chocolates worth $10 but agree with the seller to pay $100 for them, you’ve created cover to launder an extra $90 and transfer it abroad. Now add a few zeroes to those numbers and you get the idea.

The basic technique is in the invoicing: if you want to slip money into a country, you over-value exports or under-value imports; to get money out, you do the reverse. You can double-invoice, over-invoice (or under-ship), or under-invoice (or over-ship) to your heart’s content, or until you’ve washed all your money. And because you’re commingling dirty money with clean money and legitimate goods, the subterfuge becomes more difficult to detect. Trade-based money laundering is often a part of worldwide, alternative banking and remittance systems like the famed Black Market Peso Exchange, which is used to run drug money down to Latin America, or the hawala system, which is used to pay drug suppliers in Asia.

But the government is reacting. Since 2004, the U.S. Bureau of Immigration and Customs Enforcement (or ICE) has begun creating so-called trade transparency units (or TTUs) to generate investigative leads. These are agreements with certain trading partners to share data for comparison and analysis. The government then runs the data through a data-mining computer program called DARTTS, or the Data Analysis & Research for Trade Transparency System. The idea is to reveal anomalies that only appear when you examine both sides of a transaction.