Updated: Feb 3, 2022
On October 19th, the ACAMS Carolinas Chapter hosted a deep-dive session into Trade-Based Money Laundering (TBML) and illicit shipping practices. The session focused on recent and national import volumes, the AML/CTF details of the Customs Trade Partnership Against Terrorism (CTPAT) program, deceptive shipping practices, TBML and the “China connection”, and countermeasures.
The event was moderated by Board Member Peter Wild who is also a Senior Advisor at McKinsey & Company. The panelists were:
Michael N Emmerman BCFE DACFEI - Founder and Chief Investigator of the Special Operations Support Group and Contract Intelligence Analyst for the DEA New York Division and OCDETF Strike Force
Chris Healy, Deputy Special Agent in Charge, DHS
Raymond Monzon, Supervisor, CTPAT, US CBP
Ray kicked off the meeting by discussing import volumes, by container, at US seaports. Ray noted that in the Carolinas, Charleston has the highest volume of cargo and represents over 4% of the total volume in the U.S. Ray discussed the origin, purpose and the huge role that CTPAT plays in ensuring the supply chain is safe and secure through its partnership with trade partners and as part of Customs and Border Protection’s (CBP) layered law enforcement strategy. CTPAT program members represent all sectors of the supply chain network and have to uphold security and trade compliance measures by being in good standing with CBP and other government entities in order to participate in the program. The program also includes some basic AML requirements. Ray noted that CTPAT is considered a “trusted trader program and we like to keep it that way. It’s quality, not quantity”.
In addition to CTPAT, the CBP also utilizes non-intrusive inspection equipment in all ports of the US that screen 100% of containerized cargo for radiation. The CBP also maintains a container security initiative which consists of officers stationed in 65 foreign ports that prescreen cargo containers coming into the U.S which helps mitigate terrorism and WMD concerns.
Peter Wild switched gears and led a discussion on deceptive shipping practices. Peter covered several practices including ways in which vessels will attempt to mask their location by disabling the Automatic Identification System (AIS) transponders. Many times this system is disabled to allow vessels to make ship to ship transfers, mid ocean, to further obscure the movement of goods. Additionally, vessels will alter their vessel identification numbers (IMOs), fly false flags or flag hop. Peter talked about the 2019 OFAC settlement with e.l.f. Cosmetics regarding North Korea sanctions violations tied to the procurement of false eyelashes via a Chinese agent that sourced the supply from North Korea. For a “bedtime reading list” Peter provided links to two guidance documents published in 2020 that provide additional details on these deceptive shipping practices.
Next, Chris Healy explained Homeland Security Investigation’s (HSIs) role in combatting TBML via ongoing financial cases and partnerships with financial institutions. Chris started the conversation by noting “the best way to attack any criminal organization is to take away their financial gains. HSI takes a holistic approach to investigations to determine how they earn their money, move their money, store and launder proceeds. Chris notes that some of the biggest cases in the Carolinas are tied to narcotics and human trafficking/smuggling via the Southwest border of Texas and through Atlanta. Over the last three fiscal year, approximately 60% of the 800 cases worked and $20,000,000 worth of seizures are tied to TBML because criminal organizations are moving away from bulk cash smuggling due to the level of seizures made in shipping containers and vehicles primarily along the southwest border. Chris provided case examples tied to the biggest trends observed with domestic and international criminal organizations including:
TBML via salvage cars, airplanes (shipping and insurance claims), and appliances,
Real Estate purchases via business loans/lines of credit used for stash houses, operations, or secondary income streams, and
Crypto Currency (specifically Monero due to its ability to anonymize senders).
Chris notes that SAR filings containing good KYC information along with documentation following the source and use of funds helps law enforcement, in partnership with financial institutions, identify and prosecute these criminal organizations.
Michael Emmerman discussed the city of Guangzhou in the Guongdong province of China that has become the “black hole” of money laundering in China. The city is commonly referred to as Little Africa because over 15,000 Africans live there and more than 500,000 Africans from areas of Africa including the Democratic Republic of Congo, Egypt, Ghana, Mali and Nigeria, travel to Guangzhou each year to buy goods and conduct transfers. In December of 2016, China grew tired of its citizens moving money out of China so it set regulations and restrictions to limit what can be transferred out of the country. However, due to a trade agreement between China and Mexico, the Chinese government allows transfers of any size to take place between these countries as long as there is a business reason. These transfers create a cover for illicit activity in both directions and sometimes through the U.S. This relationship has created an environment where Chinese money launderers are taking over the classic Mexican money laundering business by undercutting the commissions charged (sometimes zero) by using illicit cash to buy and ship high profit items to other countries and then moving the cash proceeds through Chinese organizations. In many instances, these proceeds are used to buy cryptocurrency (I.e., Monero and others) which is transferred back to the criminal organization. Mike also discussed concerns with China’s Belt and Road Initiative which seeks to connect countries in African, Europe and Asia via land and sea by creating two trade routes; the first across mainland Asia (New Silk Road) and a maritime route through the Indian Ocean and Suez Canal (Maritime Silk Road). According to Mike, over 140 countries, excluding the U.S., have signed trade and infrastructure deals with China that effectively allows for the future movement of billions of dollars of goods off the U.S. radar and outside of US jurisdiction which will further TBML issues over the next 20 years.
Peter Wild finished the call with a discussion of trade countermeasures and open account trading (which according to the Wolfsberg Group includes 80% of all trade) and concerns tied to the sophistication of international trade wires tied to the settlement of these transactions. He also mentioned the Trade Transparency Units as a deterrent to TBML which are discussed in the book Money Laundering And Illicit Financial Flows by John Cassara and other documents that dive deeper into TBML for additional bedtime reading.
The “Bedtime Reading List”
Money Laundering And Illicit Financial Flows by John Cassara
Trade Based Money Laundering by John Cassara
Guidance to Address Illicit Shipping and Sanctions Evasion Practices published by the US departments of State and Treasury and the US Coast Guard is available at: https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20200514
Maritime Guidance published by the UK HM Treasury is available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/948299/OFSI_Guidance_-_Maritime_.pdf
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Blog Written by: Associate Board Member, Sean Marsden, CRC, CAMS