Right at the start of my working life, just after the Industrial Revolution, I did one of those early personality tests. I’m struggling to remember what it was called (something about umbrellas, or maybe anchors?) but it was meant to push me in the direction of a career that I would find fulfilling. And after answering the hundreds of questions, it informed me that I should be an Expert. In other words, I would be happiest spending my life learning more and more about a subject. Which is entirely true. The only unexpected thing is that my target is accelerating away from me: the more I learn about money laundering and AML, the more there is to learn.
One facet that I have neatly sidestepped for two decades is trade-based money laundering. It’s not that I’m not interested; it’s just that I suspected (and this has been proven to be true) that this is a ginormous subject in its own right, and we Experts don’t like to skim – we like to immerse. But I can sidestep for no longer and the time has come for me to get to grips with TBML (which sounds much jauntier than it is). And if you work for a firm that has customers in trade (and I don’t mean that in a snooty, “Upstairs, Downstairs” way), you too might need to take the immersive plunge.
Way back in 2006, the FATF put its TBML cards on the table: “There are three main methods by which criminal organisations and terrorist financiers move money for the purpose of disguising its origins and integrating it into the formal economy. The first is through the use of the financial system; the second involves the physical movement of money (e.g. through the use of cash couriers); and the third is through the physical movement of goods through the trade system.” The APG followed that in 2012 with a detailed typologies report (modern Asia being almost entirely built on trade), which alarmed me with two stark warnings: “TBML requires mingling of the trade sector with the finance sector – and having an AML regime for finance sector alone is a weakness” and “there are many links in the trade chain and any one can be weak: manufacturer, trader, consigner, consignee, notifying party, financier, shipper, insurer, freight forwarder and end purchaser”. And as my exposure to international trade is limited to “place order on Amazon and hope for the best”, I know that I am out of my depth.
And it seems I am not alone in the AML community, as a very recent report from the FATF comments: “Most private sector respondents, mainly financial institutions, consider TBML as the hardest type of money laundering activity to detect. TBML is highly adaptive and can exploit any sector or commodity, making it difficult for financial institutions to prioritize resources and translate the latest insights into the business rules and compliance systems. In practice, TBML schemes can consist of a large number of front companies, with funds transmitted between several banks, meaning each of the involved financial institutions can see only a small part of the network.”
Quite rightly, this is not a problem for the (current) AML community alone. Steps recommended by the FATF include ensuring that TBML is addressed in National Risk Assessments, ensuring that registers of beneficial ownership are robust so that companies can be unpicked for CDD purposes, and extending the AML family to include other parties in trade, such as shipping companies. In the meantime, the prudent MLRO will read the latest FATF report and use its case studies and red flags to become a little more trade-savvy.