Trade-Based Money Laundering

Chapter 1The Next Frontier

The Financial Action Task Force (FATF) has declared that there are three broad categories for the purpose of hiding illicit funds and introducing them into the formal economy. The first is via the use of financial institutions; the second is to physically smuggle bulk cash from one country or jurisdiction to another; and the third is the transfer of goods via trade.¹ The United States and the international community have devoted attention, countermeasures, and resources to the first two categories. Money laundering via trade has, for the most part, been ignored.

The United States' current anti–money laundering efforts began in 1971, when President Nixon declared the “war on drugs.” About the same time, Congress started passing a series of laws, rules, and enabling regulations collectively known as the Bank Secrecy Act (BSA). The BSA is a misnomer. The goal is financial transparency by mandating financial intelligence or a paper trail to help criminal investigators “follow the money.” Today, primarily as a result of the BSA, approximately 17 million pieces of financial intelligence are filed with the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) every year. The financial intelligence is warehoused, analyzed, and disseminated to law enforcement agencies at the federal, state, local, and increasingly the international levels.

The worldwide community slowly followed the U.S. lead. In 1989, the G-7 created the FATF. The international ...