Risk indicators of trade-based money laundering

In December 2020, the Financial Action Task Force (FATF) and Egmont Group of Financial Intelligence Units (Egmont Group) published a report on trade-based money laundering (TBML) that provides a detailed insight into emerging risks and outlines a number of best practices for authorities to mitigate this threat. In March 2021, this report was further supplemented with a non-exhaustive list of risk indicators intended to help private sector companies detect trade-based money laundering.

TBML is emerging as one of the most challenging crimes to investigate. Based on the case studies, FATF and Egmont Group have found that all types of sectors may be misused for TBML. The risk indicators in the report cover four areas – structural risk indicators; trade activity risk indicators; trade documents and commodity risk indicators; account and transactions activity risk indicators. The report provides not only the list of risk indicators but also examples of how they can look in practice. ECOVIS ProventusLaw pays attention to the main risk indicators provided in the report.

Structural risk indicators:

• The corporate structure of a trade entity appears unusually complex and illogical.
• A trade entity is registered or has offices in a jurisdiction with weak AML/CFT compliance.
• A trade entity lacks an online presence or the online presence suggests business activity inconsistent with the stated line of business.

Trade activity risk indicators:

• Trade activity is inconsistent with the stated line of business of the entities involved.
• A trade entity engages in complex trade deals involving numerous third-party intermediaries in incongruent lines of business.
• A trade entity makes unconventional or overly complex use of the financial product.

Trade documents and commodity risk indicators:

• Contracts, invoices, or other trade documents have vague descriptions of the traded commodities.
• Contracts supporting complex or regular trade transactions appear to be unusually simple.
• Shipments of commodities are routed through a number of jurisdictions without economic or commercial justification.

Account and transaction activity risk indicators:

• A trade entity makes very late changes to payment arrangements for the transaction.
• Transaction activity associated with a trade entity increases in volume quickly and significantly and then goes dormant after a short period of time.
• Payment for imported commodities is made by an entity other than the consignee of the commodities with no clear economic reasons.

According to the FATF and Egmont Group, the most powerful weapon to combat TBML is public private partnerships. Collaboration between private and public sectors is a must to combat TBML.

Prepared by legal assistant Vilius Neverdauskas