Trade Based Money Laundering

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First in a Two-Post Series

The U.S. Department of Treasury (“Treasury”) has issued its 2020 National Strategy for Combating Terrorist and Other Illicit Financing (“2020 Strategy”). This document sets forth the key priorities of the U.S. government regarding enforcement of the Bank Secretary Act (“BSA”), and the furthering of the government’s Anti-Money-Laundering (“AML”) and Combating the Financing of Terrorism (“CFT”) goals in general. It is lengthy document addressing numerous issues – albeit in a relatively high-level fashion in regards to any specific issue.

In this post, we will summarize the findings and recommendations of the 2020 Strategy, and will highlight some topics this blog has followed closely – including calls for: increased transparency into beneficial ownership; strengthening international regulation and coordination, and modernization of the AML/BSA regime. Our next post will focus on the 2020 Strategy as it relates to combating money laundering relating to real estate transactions and “gatekeeper” professions, such as lawyers, real estate professionals and other financial professionals, including broker-dealers.

The 2020 Strategy also focuses on several other important issues which we will not discuss in this limited blog series, but on which we certainly have blogged before, including the role of money laundering in international trade, casinos, money services businesses and digital assets.
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On January 29, 2020, the U.S. Government Accountability Office (GAO) publicly released the results of a study which the GAO conducted on trade-based money laundering, or TBML, entitled “Countering Illicit Finance and Trade: U.S. Efforts to Combat Trade-Based Money Laundering” (the Study). The Study – sent upon request to the U.S. Senate Subcommittee on Crime and Terrorism – was commissioned in January 2019 after the U.S. Department of Treasury issued a related report, entitled the 2018 National Money Laundering Risk Assessment, identifying TBML as one of the most commonly-used, and one of the most difficult to detect, methods of money laundering.

According to the Study, U.S. law enforcement agencies believe that the increase in TBML is due, ironically in part, to improved compliance by U.S. financial institutions with requirements under the Bank Secrecy Act (BSA) and related Anti-Money Laundering (AML) regulations. For example, the Study noted a downturn in reported cash seizures throughout the United States, suggesting that international crime has pivoted to utilizing TBML schemes to keep the U.S. government’s hands out of the illegal till. In other words, as one rat hole gets closed, the rats creatively create other holes. This is a familiar story in law enforcement, across all spectrums.

The Study describes the particular vulnerabilities that U.S. financial institutions experience with monitoring trade-based transactions as opposed to other day-to-day activity. The Study further notes that this problem has not gone unnoticed, and suggests that there is hope that developing tools and technologies will stave off those who seek to use U.S. systems for TBML. The Study further draws upon earlier reports, described herein, to acknowledge that the problem is not new.
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