Trade Based Money Laundering (TBML)

The TBML paper published by the Financial Action Task Force (FATF) has a list of red flag indicators that can be used by bank to combat TBML.

These red flags include the following:

1	Significant discrepancies between the description of the commodity on a bill of lading and the invoice
2	Significant discrepancies between the value of the commodity or goods reported on the invoice and the fair market value. For example, gold jewelry being exported at US$500 an ounce when the market rate is approximately US$950 per ounce.
3	The type of commodity being shipped is not in line with the exporter or importer’s regular business activities, e.g., a manufacturer of toys exporting IT equipment. Cross linking “know your client” data and regular business alerts is an absolute requirement for an effective AML compliance program.
4	The size of shipment appears inconsistent with the scale of the exporter or importer’s regular business activities. For example, a small textile exporter shipping a consignment worth US$50 million when its normal turnover is $1.5million.
5	The goods are shipped through one or more jurisdictions or unconnected subsidiaries for no apparent economic reason.
6	The transaction involves the receipt of cash (or other payments) from third party entities that have no apparent connection with the transaction. The transaction involves the use of front or shell companies.

Controlling Measures:

KYC (Know-your-customer) related to trade-based activities is the most important requirement that include:

1	business nature, such as major products, jurisdictions and markets
2	delivery / transportation mode for goods or services
3	major suppliers and buyers
4	products and services to be utilized from the FI
5	anticipated account activities
6	anticipated major methods and terms of payment and settlement
7	internal customer risk assessment ratings by the FI
8	any previous suspicious transaction reports filed with relevant authorities,
9	Other information from the relationship manager or other relevant staff.

Finally, KYE (Know-your-employee) is also an essential precaution along with KYC (Know-your-customer). An organization implementing and maintaining a rigorous internal control system and with a moral and ethical value system would prevent any distortion of rules and regulations