TRADE BASED MONEY LAUNDERING: EXPLORING THE IMPLICATIONS FOR INTERNATIONAL BANKS

Abstract

Written in response to a current gap in academic and industry based literature, this thesis was written on the topic of Trade Based Money Laundering (TBML) and risk assessment, within the banking context. Despite the increased use of TBML, most academic descriptions of money laundering have used the cash based model of placement and integration of large cash deposits acquired from criminal activity, which are then merged into legitimate pre-existing funds. However, there are a significant number of examples to show that cash transferred into goods and then shipped to other countries can be easier to move and less conspicuous or traceable than simple cash based deposits. One of the main challenges for detecting shipping based laundering techniques is that they involve a number of agencies sharing data and information, in order to catch the criminals. Simple banking checks may not always elicit the required information without verification from either customs or law enforcement agencies. The research sought to identify the current challenges and issues facing risk assessment professionals in the banking sector and to identify gaps in the current systems being used. The data collected included interviews and survey information taken from professionals working on AML risk assessment in banking and financial institutions from across the globe. In addition to the description of different money laundering schemes, much of the current academic discussion on money laundering in banking has focused on the regulation requirements for financial institutions to stop money laundering activity, but there has been little empirical guidance on how regulation can be adapted and implemented at the individual banking level. This research accessed a number of legal cases available in the public domain, which were analysed to see how and where some of the larger banks have failed to implement current anti-money laundering controls and to consider how this could impact on the detection of TBML activity. This research uses an Agency theory model to look at the pressures banks are under to manage client’s accounts efficiently, versus the requirements of outside regulation to undertake extensive checks on business transactions and accounts. Finally, the researcher proposed a simple risk matrix approach that developed the current thinking of client behaviour and transaction monitoring risk analysis associated with cash based laundering, to develop a four-point risk model that added geography and third party behaviour, to account for shipping and trade based laundering activity.