Money laundering is big business. Trade-based money laundering is a means by which value is washed clean by traveling in the form of commodities through national and international supply chains.
The Financial Action Task Force (FATF), founded in 1989, is an intergovernmental organization that is aimed at countering financial crime and global money laundering. The group has approximately 40 international members who work to investigate “how money is laundered and terrorism is funded, promotes global standards to mitigate the risks, and assesses whether countries are taking effective action.”
Trade-based money laundering, according to FATF, is one of three modes by which money can be cleansed of its origins through criminal enterprise, tax evasion, and terrorist organizations. In trade-based money laundering, money is converted into hard goods that are used and transacted around the world. Invoicing is altered to misrepresent the value, quantity, quality, origin, and destination of goods being shipped, imported, or exported. The other two branches of money laundering include the physical transport of actual cash and the flow of illicit cash into financial systems around the world. Money laundering is not a stand-alone, and iteratively uses all these techniques over time.
FATF identifies a number of mix-and-match trade-based money laundering techniques. Many of these practices involve networks of individuals, buyers, sellers, importers, exporters, and others throughout transportation and financial systems. Some of these schemes include:
- Valuation of goods and services: The idea behind trade-based money laundering is to use trade transactions to move money, in the form of goods and services, away from criminal sources toward legitimate financial streams. Along the way, this means a cohort of individuals working to misrepresent the value, origin, and other metrics of physical goods during invoicing and shipping.
- Fraudulent invoicing: Using original invoicing repeatedly on successive shipments obfuscates the pathway and destination of trade goods. As well, inaccurately describing one or many shipments as being of less or more value contributes to the screen of confusion. The same strategy works with the volume or amount of goods being shipped, leading large shipments to be undervalued and phantom shipments to be overvalued.
- Use of intermediaries: The use of third parties and intermediaries is critical to money laundering in general. A willing supply chain in the import/export business means, illicit businesses can tailor their invoicing and reporting to boost income, reduce tax liability, and most importantly, move money from here to there.
There is a world of illicit business that relies on the many modes of money laundering. When you have questions about what is and what is not legal movement of money within transportation or financial systems, speak with an experienced tax lawyer before you move your money anywhere.
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When you are involved in money laundering or a tax controversy, our legal team offers strategic guidance for recognizing and resolving challenges with the IRS. Set up a consultation or call us at 440-250-9709. We serve clients across the U.S. and internationally from our offices in Cleveland and Chicago.
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