House Task Force Report Suggests US Activities to Counter Trade-Based Money Laundering

Currently, relevant trade data is scattered among agencies and private-sector entities, potentially hindering efforts to stop trade-based money laundering, the report said. The task force cited congressional testimony of Northeastern University criminal justice professor Nikos Passas suggesting that all relevant data be “'gathered and analyzed in one place,’ ideally FinCEN,” as well as Sayari Analytics CEO Farley Mesko, who called for greater government-private sector data integration.

The magnitude of trade-based money laundering hasn’t been systematically examined, but academic research of 2013 U.S. trade data showed that $220 billion of illicit value was moved out of the U.S., equivalent to 6 percent of trade, while about $340 billion was moved into the U.S. using “suspect trade transactions,” equivalent to about 9 percent of U.S. trade, the study said, citing the perspective of former U.S. intelligence officer and Treasury special agent John Cassara. During a Feb. 3 task force hearing, testifiers recommended expanding ICE’s Trade Transparency Units (see 1602040038). Eight currently exist, mostly in South America.

While trade-based money laundering schemes vary in sophistication, one simple example of the act is the under- or over-invoicing of the price, quantity or value of goods in a trade transaction, the report said. Money launderers often use witting and unwitting financial institutions to provide trade finance and letters of credit, according to the research. This form of money laundering is notoriously difficult to investigate largely because of complicit merchants, but the activity can have a more destructive impact on international commerce than other schemes, the report said. The task force noted a FinCEN analysis of suspicious activity reports between January 2004 and May 2009 that showed trade-based money laundering activity most frequently appeared in transactions involving Mexico and China. Panama, the Dominican Republic and Venezuela were also identified as trouble spots.

All too often, the private sector attracts government financial investigators, which could dilute the potency of public processes to counter money laundering, the report said. “The private sector often seems to use government service in this area in the same way a baseball team uses its farm system as a training ground for its most successful players,” the task force said. “While that means good, well-trained people are working in the private sector, it can leave the government scrambling for talent or constantly disrupted by turnover at all levels.” Major trade-based money laundering concerns include Al-Shabaab trade practices regarding charcoal and sugar, ISIS trafficking of cultural artifacts, and West Africa serving as a hub for narcotics and terrorist-affiliated migrant, cigarette and weapons trafficking, the report said.

Notably, the report also touched on implementation of the Joint Comprehensive Plan of Action. If Iran violates its commitments under the deal and the U.S. re-imposes primary sanctions on the country, a “wide range” of countries that depend on energy and other trade with Iran could be reluctant to comply with those sanctions, unless Iran commits “clear and egregious” violations, the report said.