Trade based money laundering rising in Canada and globally

By Christine Mingie

Despite tougher federal anti-money-laundering laws, criminal organizations in Canada continue to find ways to convert dirty money — the proceeds of illegal activities — into clean cash to disguise its illicit origin, and international trade is fast becoming their preferred way to do it.

A recent 2009 report from the U.S. Bureau of International Narcotics and Law Enforcement Affairs estimates that annual trade-based money laundering is worth hundreds of billions of dollars and is growing each year. Canada continues to be a key location for trade-based money laundering activity.

By its nature, international trade is subject to risks and vulnerabilities that provide criminals with the opportunity to launder money with a relatively low risk of detection. Those risks and vulnerabilities include the sheer volume of international trade; little to no customs and trading information-sharing among countries; complexities associated with foreign currency exchanges required for international trade; and limited resources for customs agencies to detect illegal trade transactions.

How trade-based money
laundering works

Trade-based money laundering involves using one of the following schemes to disguise the illicit origin of money:
- over- and under-invoicing or shipment of goods and services;
- multiple invoicing of goods and services; or
- falsely described goods and services.

Over- and under-valuation schemes involve the preparation of invoices and trade documents that misrepresent the price of the goods or services being traded. By invoicing a shipment of goods destined for an overseas market at prices above the fair market value, the criminal organization creates an apparent legitimate paper trail that allows it to receive illicit funds from abroad. Thus, if a shipment of stereos is worth $50,000 but is over-invoiced for $100,000, the eventual payment by the overseas importer of $100,000 facilitates the laundering of $50,000.

An under-valuation scheme is the same thing in reverse. An importer receives goods that are worth more than declared in the invoice. The importer sells the under-valued goods and receives more than the value reflected in the invoice and trade documents. If the transferred value represents illicit proceeds, the result is money laundering.

Recent reported instances of over- and under-valuations indicative of trade-based money laundering include the export of rocket launchers to Israel for $52 each; tweezers imported from Japan at $4,898 each; and toilet bowls exported to Hong Kong for $1.75 each. Large sums of dirty money can be moved through these types of money laundering schemes.

The trade of international services, such as accounting and legal services, is often used in a similar way to launder money. For example, a company in Peru may offer geological or environmental services to a mining client in Mexico for $250,000 when services of this type typically cost $25,000. The Mexican company transfers $250,000 to Peru and the funds leave that country in apparent legitimacy. Fraudulent invoices and supporting documents are used to conceal the transfer of dirty money for real or fictitious services from one jurisdiction to another.

Multiple invoicing of goods and services involves the issuance of several invoices for one international trade transaction, allowing criminal organizations to justify multiple payments for the same shipment of goods or delivery of services.

Money laundering is not the only problem. Funds raised to finance terrorism usually have to be laundered and thus combatting money laundering in Canada is important in the identification and tracking of terrorist financing activities in Canada.

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Philippine authorities preparing stronger anti-money laundering steps

By Paolo Luis G. Montecillo

The Country's Anti-Money Laundering Council (AMLC) is moving to bring its legal framework up to speed with international standards to affirm the Philippines’ commitment against money-laundering and terrorist financing.

In a statement over the weekend, Bangko Sentral ng Pilipinas (BSP) Governor and AMLC head Amando M. Tetangco, Jr. said the inter-agency body has moved to address deficiencies in Republic Act No. 9160, or the Anti-Money Laundering Act of 2001, as well as related laws like RA 9372, or the Human Security Act of 2007, as identified in a report co-written by the World Bank.

"We need to continually enhance our systems to meet new challenges that come our way," Mr. Tetangco said.

New risks rising

"Philippine authorities, especially the financial regulators, are aware of the existence of risks, including new ones that might arise in the aftermath of the global financial crisis," the statement quoted the central bank chief as saying.

Speaking at the 12th annual meeting of the Asia Pacific Group on Money Laundering (APG) in Australia last week, Mr. Tetangco said the country’s dirty money watchdog had likewise submitted proposals to Congress which seek to address deficiencies in anti-money laundering laws.

The Philippine delegation to Australia was composed of AMLC members Mr. Tetangco, Securities and Exchange Commission Chairman Fe B. Barin and officials of the Insurance Commission, the BSP statement read.

The proposals presented were the same deficiencies and gaps identified in the Detailed Assessment Report prepared last year by the APG in cooperation with the World Bank beforehand, the BSP said.

The three changes sought are:

1. the need to treat terrorist financing as a crime in itself, no longer as a mere proof of involvement in terrorism;
2. the need to increase the number of predicate crimes, or those related, to money laundering; and
3. the need to require non-financial businesses and professions such as casinos, lawyers, accountants and "other gatekeepers" to report suspicious transactions and observe customer due diligence.

The APG is a 29-country organization which follows the standards of the Paris-based Financial Action Task Force (FATF), a global watchdog that monitors the cross-border flows of dirty money.

Failure to comply with recommendations such as these may mean more stringent monitoring of the country’s transactions, becoming a black mark on the country’s image in the international community. Among others, this may make it harder for the Philippines to gain financial aid from multilateral lenders.

One lawmaker, in whose committee the measures would be discussed, saw no immediate problem with the proposals.

"I agree in principle, as long as it won’t be too intrusive and won’t pave the way for more government corruption," said Senator Francis G. Escudero, chairman of the Senate Committee on Banks.

However, he noted that amendments to the country’s anti-money laundering framework was not in the Senate’s priority agenda.

One bill which seeks to address the World Bank and APG’s criticisms has already passed the committee level at the House of Representatives, but its passage into law will have to wait at least until the last regular session of the current 13th Congress that starts on July 27.

If passed, House Bill 4784 would expand the list of institutions and persons being monitored by the AMLC for suspicious transactions to casinos, as well as lawyers, accountants, real estate agents and jewelry dealers.

This means that, like banks, these institutions and persons would have to report "suspicious" transactions to the AMLC.

This would amend the current reach of the AMLC, which, under the Anti-Money Laundering Act, covers financial institutions supervised by the BSP, securities dealers, pre-need companies, foreign exchange dealers and other corporations regulated by the SEC, as well as insurance firms supervised by the IC.

The threshold for suspicious transactions under RA 9160 was P4 million, but this was reduced to P500,000 in 2003 to convince FATF to remove the Philippines from its list of non-cooperative countries which have inadequate anti-money laundering laws. — Paolo Luis G. Montecillo
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Australia declares money laundering still a viable threat

By Daniel Pace
Australian Federal Police chief Mick Keelty says money laundering still presents a significant threat in the Asia-Pacific region.

The annual meeting of the Asia-Pacific Group on Money Laundering (APG) wound up in Brisbane on Friday after a week of talks involving 300 officials from 40 countries.

Mr Keelty, who co-chairs the APG, said cooperation between nations was crucial to fighting the financing of terrorism and crime.

"Money laundering and the financing of terrorism continue to present significant threats in the region," Mr Keelty said.

"These crimes require active and ongoing attention."

APG co-chair, senior Singapore government official Ong Hian Sun, said the meeting had helped "strengthen the global resolve to fight these ever-increasing transnational crimes".

A public report will be released later this year rating small Pacific nations' ability to meet global standards in the fight against organised crime and terrorism.

But officials on Friday declined to publicly shame those nations dragging the chain.

"We can't tell you which countries in particular (aren't up to the global standards)," said Neil Jensen, chief executive of the Australian Transaction Reports and Analysis Centre (AUSTRAC).

"We're working together as a forum to make sure everyone meets the standards.

"I think importantly the message is we need to deter the financing of terrorism.

"We have a group of 40 member countries here who are working towards that cause.

"It's important for all countries to put into place the global standards because if they don't, it leaves the door open and makes them vulnerable to money laundering or terrorism financing."

APG executive secretary Gordon Hook admitted there were "weaknesses" in Pacific islands' systems but denied the region was a hub for terrorist activity.

"There are weaknesses in the Pacific Island jurisdictions," he said.

"A lot of donors such as the IMF (International Monetary Fund), the World Bank and the Asian Development Bank are offering technical assistance and training to close the gaps within those jurisdictions.

"There's a lot of success in doing that."

The meeting endorsed reports evaluating anti-laundering measures in Bangladesh, the Philippines, Vietnam, Pakistan, Japan, Korea and the Cook Islands.

Dr Hook said over the past decade the Cook Islands had emerged as a leader in the battle against terrorism funding and money laundering.


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