Strengthening Our Security: A New International Standard on Trade-Based Money Laundering Is Needed Now

By Delston, Ross S.; Walls, Stephen C. | Case Western Reserve Journal of International Law, Winter 2012 | Go to article overview

Strengthening Our Security: A New International Standard on Trade-Based Money Laundering Is Needed Now


Delston, Ross S., Walls, Stephen C., Case Western Reserve Journal of International Law


Recently, the Financial Action Task Force (FATF) missed an opportunity to address trade-based money laundering (TBML) in its International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, known as the Forty Recommendations. In mid-February 2012, the FATF incorporated the Nine Special Recommendations on Terrorist Financing into its Forty Recommendations, yet chose not to revise the Forty Recommendations to specifically address TBML. Despite the serious and growing concern within the AML/CFT field and FATF over the widespread abuse of the international trade system to legitimize the proceeds of crime and finance terrorist activities, and the demonstrated ability of FATF to identify and respond to evolving money laundering typologies, TBML remains the only major avenue of money laundering that the FATF Forty Recommendations have not explicitly addressed. Because of the need for international action on TBML that reaches beyond banks, this article therefore proposes language for a new 41st Recommendation.

 I. BACKGROUND
    A. TBML Is Widely Regarded as a Global Threat
    B. Legally Binding U.N. Conventions on International Crime and
       Corruption Require Action on TBML
    C. FATF Missed Opportunities to Address TBML in 1996, 2003 and
       2012
II. WHY EXISTING U.S. AND INTERNATIONAL APPROACHES ARE
    NECESSARY BUT NOT SUFFICIENT
    A. Enhanced Inspections Are Critical but Impractical as a
       Comprehensive Solution
    B. Trade Transparency Units Are Valuable, but Currently Cannot
        Generate Enough Information to Deter TBML
III. THE LANGUAGE OF A 41ST RECOMMENDATION ON TBML
 IV. CONCLUSION

I. BACKGROUND

A. TBML Is Widely Regarded as a Global Threat

Estimates for the amount of money laundering through the abuse of the international trade system range from $5 billion for Colombia alone (1) to "hundreds of billions" worldwide. (2) Trade-based money laundering (TBML) has been identified as a major issue in the popular press for almost twenty years, (3) and has received significant attention in both the U.S. Congress and the Executive Branch since at least the late 1990s. (4) The Financial Action Task Force (FATF) first took note of TBML as a major avenue of money laundering in 2006 in its Report entitled Trade Based Money Laundering. (5)

TBML not only threatens legitimate businesses in both the developed and developing world by undermining legal import and export operations, (6) it also impacts one of the largest sources of income for many developing countries--customs duties. (7) Beyond the threats to legitimate businesses, economic development and the rule of law, the U.S. State Department and U.S. Treasury Department have directly linked TBML schemes with Hezbollah, (8) the Afghanistan drug trade, (9) and al-Qaeda. (10)

Despite recognition of the widespread abuse of the international trade system to legitimize the proceeds of crime and finance terrorist activities, and the demonstrated ability of FATF to respond to evolving money laundering typologies, (11) TBML remains the only one of three main avenues of money laundering (12) that has not been addressed by specific language in the FATF Forty Recommendations.

B. Legally Binding U.N. Conventions on International Crime and Corruption Require Action on TBML

A December 2009 report from the U.N. Office on Drugs and Crime (UNODC), which analyzed the requirements of international instruments addressing money laundering, found that, although neither relevant U.N. conventions nor the Forty Recommendations contain an "express obligation" to address TBML, TBML does fit under the broad obligations to combat money laundering contained in those conventions. (13) The report states "to properly investigate money-laundering ... the money-laundering offence needs to be defined broadly to include trade-based money-laundering schemes" and goes on to say that:

   [T]he Organized Crime Convention, the Convention Against Corruption
   and the FATF recommendations require countries to identify,
   investigate and prosecute trade-based money laundering schemes,
   through both the monitoring of financial transactions and sharing
   of relevant trade data, [although] the provisions of the two
   conventions and the FATF recommendations are rather general and
   give Member States little guidance on how best to implement their
   obligations. … 

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