Trade-Based Money Laundering is an entry-level subject. It's time to look at the full picture.
The history of financial crime is pretty much the history of trade. That’s why we should refer to trade-based financial crime rather than trade-based money laundering.
I know: in the 1980s and early 1990s, I worked with international trading companies to create mechanisms, some of which would today be illegal – but were then legitimate trade practices.
Goods, services and payments were all funnelled through networks of companies, multiple banks and middle-men.
Then it changed. But those mechanisms are still used, illegally, by many financial criminals. And by many businesses that don’t see themselves as committing crime, living by the mantra “I do what I have to do.”
The possession, custody or control of the funds generated from those crimes is – and here the term is correct – money laundering.
Money laundering is an offence that is derived from criminal conduct. Yes, it is a crime in its own right but it exists only because other, predicate, crime has been successful.
So, while the world concentrates on money laundering, it has for many years lost sight of the criminal conduct that underpins it.
Money laundering through trade mechanisms is a subset of financial crime committed through trade: it is not the primary offence. There is a mistaken view that it's the other way around and that trade based financial crime is a subset of money laundering.
It is ironic that when counter-money laundering laws based on suspicious activity were first introduced one of the main things that regulated businesses were supposed to do was to conduct "training and awareness" schemes for the people in the business. It is material that these two things were separated.
“Trade-based money laundering” is the entry level. Trade-based financial crime is the level you need to be at.
Money laundering is a symptom, it is not the cause.
Yes, many mechanisms which are used by money launderers are mechanisms of trade but those same mechanisms are also the mechanisms of predicate crime. Sometimes.
Worse, the concentration on money laundering creates a very misleading picture of criminal conduct.
There are many technical reasons why conduct that we would ordinarily consider criminal are
a) not, in fact, criminal
b) are criminal when committed by some persons but not others and/or
c) they do not meet the threshold to be regarded as predicate crime for money laundering purposes.
So we should be concerned with trade-based financial crime of which money laundering is actually a small component part.
There are many false assumptions about trade-based financial crime.
There is a broad view that shell companies are inherently suspicious: no, they are not. Even the US Treasury says they are not.
There is a broad view that free trade zones are an inevitable and veritable hotbed of crime: no, they are not. The UK government says they are not. So do almost all governments – and have done for centuries.
There is a broad view that transfer pricing is by its very nature illegal: no, it isn’t. Nor is having and using bank accounts outside one’s own jurisdiction of domicile.
There is another perspective: financial crime is done TO businesses whereas money laundering, functionally, is done THROUGH businesses. Measures to detect and prevent crime AGAINST the business will, in most cases, detect and prevent crime USING the business.
In short, to concentrate on money laundering is to look at the issues ex post facto. It is to be reactive when businesses need to be pre-active.
When I started writing Trade Based Financial Crime, it was going to be in two volumes. It’s expanded and I am now working on the third volume.
Physical books are available from Amazon:
Vol 1 paperback: https://amzn.to/3YajAO4 Vol 1 hardback: https://amzn.to/3Gze1m4
Vol 2 paperback: https://amzn.to/3Y9GTHU Vol 2 hardback: https://amzn.to/4ixhyin
Or in personalised e-book
Vol 1: https://buy.stripe.com/8wMdSG2NR6CB144bKD
Vol 2: https://buy.stripe.com/4gw3e27477GF5kk6qn
Contact me for face to face seminars.
The summary of contents of the books is in the attached PDF.
TRADE BASED FINANCIAL CRIME
Summary of contents
Vol 1
Chapter One. What is financial crime in trade, commerce and industry? 7
1.1. Defining trade, commerce, industry and professions. 7
1.2 The four basic types of conduct at the core of financial crime offences in commerce and industry, trade and professions. 8
1.3 The argument against micro-classification of offences. 9
1.4. The Umbrella Principle. 12
1.5 In the beginning (or perhaps before it) 14
1.6 When the past and the present meet but don’t collide. 16
Chapter Two. Borders 19
2.1 The origins of the term ″trade-based money laundering″ and why we should not use it. 19
2.2 Plastic toilet seats: the surprising game-changer. 20
2.3 Fluid definitions and legal (un)certainty. 22
2.4 Uncertain borders 28
2.5 Invisible borders, visible enforcement. 32
2.6 Can we define ″the border″? 34
2.7 Further Reading 35
Chapter Three: Free Trade Zones. 36
3.1 Five points to remember 36
3.2 Old wine in new bottles. 38
3.3 Are tax havens and duty free zones the same thing? 47
3.4 Relevant concepts you are familiar with – in your personal life. 48
3.5 Crossing the fiscal barrier. 51
3.6 ″The Free Trade Zone fad″. 53
3.7 Who uses free trade zones? 55
3.8 Goods in a free port behave just like money in a bank. 56
3.9 Long division and the value of cigarettes 57
3.10. What law applies in Free Trade Zones? 60
3.11 Sample law setting up a free trade zone. 63
3.12 "You said it was what?" 68
3.13 Permits and Permissions 70
3.14 Free trade zones and the evasion of sanctions and embargoes. 75
3.15 By any other name…. 76
Chapter 4. The application of domestic law to global operations. 81
4.1 Reducing the need for extra-territorial application of laws. 81
4.2 Classifying "dirty money." 83
4.3 Money Laundering 85
4.4 Free trade zones and sanctions evasion. 90
Chapter 5. Free Trade Zones: additional topics. 92
5.1 Quantifying financial crime through free trade zones. 92
5.2 Attempts to combat risk of financial crime in free trade zones. 96
5.3 CASE STUDY: the free-port fallacy. 109
5.4 Further Reading 112
CHAPTER 6 Smuggling, etc. 115
6. Smuggling 115
Chapter 7. Commercially motivated environmental crime 140
7.1 Overview. 140
7.2 Climate Change. 143
7.3 Corruption in Climate Change projects 150
7.4 Endangered Species – plants, animals and products thereof. 153
7.5 Poaching. 158
7.6 Endangered species – plants. 160
7.7 Endangered Species - animals 160
7.8 Endangered species - medicinal uses 163
7.9 Endangered species - conclusions 174
7.10 Destruction of habitat. 176
7.11 Waste Disposal 182
Chapter 8. People smuggling and trafficking 185
8.1 What is the difference between smuggling and trafficking in people? 185
Chapter 9. Cross-border currency trade and illegal payments. 188
Vol 2
Predicate Crime: Lists – v – All Crimes. 13
How a US judge opened the door for confiscation proceedings against companies which have benefited from laundering. 22
Shipping and aircraft registers 29
Shipping registers and anonymity. 41
On the subject of boats... this is fishy. 46
Crime in the most basic of trade. 50
Mobile Apps – tailor made for fraud. 52
Fraud, fraud everywhere and no honesty to drink 54
Companies formed for the purpose of illegal activity 57
The risks to financial institutions where the law and the common morality are in conflict. 59
Financial Sector Fraud and Regulatory Capture. 80
Fake Credibility – far from a new problem 95
Value Added Tax / GST - Missing Trader / Carousel Fraud 110
Corporations as vehicles for organised crime. 123
Shell companies 127
What are shelf and shell companies? 127
Corporate fraud 136
The mis-named "ultimate beneficial owner" regime 156
Fraud on markets 164
Fraud on the public purse 179
Companies formed for the purpose of committing financial crime. 179
Pandemic fraud - UK 206
Criminal networks at the heart of the financial sector. 217
Insolvency offences 252
Using insolvency (civil) court proceedings to identify potential criminal activity. 256
Failure to pay due salary or wages. 277
If you can't trust the currency, what can you trust? 280
Competition, cartels. Monopolies and anti-trust. 292
Phishing as a service. 324
Environmental crime 328
Polluting waterways 333
"I think we are in serious trouble." 334
Persistent failures at a manufacturer 338
Health and Safety 342
How laws have created a crack that allows companies to slip through the most powerful laws: those relating to money laundering. 342
Companies used for financial crime. 347
Commercial exploitation of children for sexual abuse 352
The Selling and renting out of children has a long history. 363
Money laundering reports are not a viable solution. 365
Rich and Powerful - the corporations who take the money but deny their part. 366
Child labour in the USA 367
Children in the global supply chain. 369
The commercial exploitation of migrants 374
Racketeering and Organised Crime 381
Online market places. 400
Improper labelling 403
Counterfeits on online platforms 407
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