On May 1, the U.S. General Accountability Office (GAO) publicly released a report on trade-based money laundering (TBML). The report examined three main topics: “(1) what the available evidence indicates about the types and extent of international TBML activities, (2) the practices that international bodies, selected countries, and knowledgeable sources have recommended for detecting and combating TBML, and (3) the extent to which ICE has effectively implemented [the Trade Transparency Unit (TTU) program under the Department of Homeland Security’s (DHS) Immigration and Customs Enforcement (ICE)] and steps the U.S. government has taken to collaborate with international partners to combat TBML.”
The report first stated that different types of criminal organizations use TBML to disguise the origins of illicit proceeds and fund their operations. These include drug trafficking organizations through Latin America, which “have used TBML schemes for decades to launder the proceeds from illegal drug sales”; other criminal organizations, which “launder proceeds from a range of other crimes, including illegal mining, human trafficking, and the sale of counterfeit goods”; corrupt government officials; and terrorist organizations including Hezbollah and the Revolutionary Armed Forces of Colombia (FARC).
These organizations use a range of TBML schemes involving many different goods and services, such as black market peso exchanges, import-export businesses, purchase and export of gold using drug proceeds, and purchase and export of higher-quality foreign goods. The most common items in TBML schemes are precious metals, automobiles, clothes and textiles, and electronics. The United States is not alone in dealing with TBML risks; the U.S. State Department has identified TBML risks in 26 countries or territories in multiple regions of the world, and free trade zones have been identified as particular areas of risk for TBML.
Multiple sources indicate that “the amount of TBML occurring globally is substantial and has increased in recent years,” possibly in the billions of dollars each year. The report, however, recognized that “specific estimates of the amount of TBML occurring around the world are unavailable” from either academic or government studies.
The report took note of recommendations from official and other sources for governments to strengthen their efforts to detect and combat TBML. It identified and discussed five categories for these recommendations: “(1) partnerships between governments and the private sector, (2) training in detecting and combatting TBML, (3) sharing information through interagency collaboration, (4) international cooperation through information and knowledge sharing, and (5) further research on challenges, such as potential impediments to combatting TBML.”
According to the report, U.S. officials and knowledgeable sources “noted several challenges to international cooperation related to technology and data uniformity.” These included changes in government administration and technological limitations that “affect the continuity and the commitment to information sharing with foreign partners,” and a lack of trust among countries, which complicates “arrangements for sharing trade data between multiple countries as a possible means of improving detection of TBML-related activities.”
The report also stated that DHS and the Departments of Justice, State, and the Treasury “provide a variety of support to partner countries to assist in combating TBML, including establishing information-sharing methods, funding training and technical assistance, and providing ongoing law enforcement cooperation.” In particular, the report observed that the TTU program, which it termed “[t]he U.S. government’s primary partnership effort focused specifically on combating TBML,” “has faced challenges that limited its results in disrupting TBML schemes.”
These challenges included (1) insufficient resources or support for partner TTUs, (2) slow expansion of the TTU program and limited geographic range, (3) delays in launching partner TTUs and lapses in their operation; (4) Differences in objectives between HSI and partner TTUs (i.e., placing higher priority on revenue collection than TBML scheme disruption); (5) limited authorities and lack of interagency coordination in TTU partner countries; and (6) data-sharing and connectivity problems. The report cited DHS’s Homeland Security Investigations (HSI) for not taking “key management steps to address those challenges and to strengthen the TTU program.”
The report presented two recommendations for the Secretary of DHS: (1) direct the Director of ICE “to develop a strategy for the TTU program to ensure that ICE has a plan to and guide its efforts to effectively partner with existing TTUs, and to expand the program, where appropriate, into additional countries”; and (2) “direct the Director of ICE to develop a performance monitoring framework for the TTU program that would enable the agency to systematically track program results and how effectively it is achieving the program’s goals.”
Note: This GAO report underscores the importance of TBML as a key, though still inadequately measured, component of money laundering worldwide. Anti-money laundering (AML) compliance officers should circulate this report within their teams to increase overall awareness about TBML, and to assist in refining their AML risk assessment processes to take greater notice of TBML methods and techniques.