A risk-based approach to managing employee fraud and malpractice
Droit réglementaire et enquêtes
In this article we look at risks for freight forwarders and customs brokers identified in the recent paper¹ on TBML published by the Financial Action Task Force (FATF) and the Egmont Group of Financial Intelligence Units.
The paper specifically highlighted the risk to those organisations who don’t currently have any obligations to comply with anti-money laundering (AML) or countering the financing of terrorism (CFT) laws or regulations (due to being outside the regulated sectors) but who may be exposed to prosecution risk, due to being unwittingly involved in or facilitating those money laundering (ML) or terrorist financing (TF).
Historically, TBML has been a very effective way for organised crime groups (OCGs) and professional money launderers (PMLs) to disguise the proceeds of crime. In fact, a 2006 FATF study of TBML described it as one of the top three methods used by criminals to launder the proceeds of their crimes.
The 2020 paper highlights a number of factors which together paint a picture where TBML still presents a significant ML or TF risk. These factors include:
However, there are some further characteristics which also help explain why PMLs and OGCs continue to exploit trade transactions when laundering the proceeds of crime:
The most significant risk is that participants in a given trade transaction could unwittingly be exposed to the risk of facilitating the crimes of money laundering or financing of terrorism. Any subsequent investigation or legal proceedings could lead to significant disruption of business and, depending on the circumstances, potential criminal liability.
The likelihood is that it would not be limited to a single trade transaction but would form part of a scheme which would be systematically exploited over a prolonged period of time once it was deemed to be viable by those responsible.
Whilst it is acknowledged that no single stakeholder in a given trade transaction has access to all the information that could conclusively identify a case of TBML, taking steps to help mitigate the risk of being unwittingly implicated in ML or TF is a sensible precaution to take. We would suggest three immediate but pragmatic steps:
1. Read the FATF paper – it’s a helpful tool which suggests that for freight forwarders and customs brokers, taking measures to improve their understanding of TBML/TF schemes is a sensible step.
The paper provides an easy to understand clarification at definition level and helps stakeholders understand the differences between TBML and trade based terrorist financing. It describes some of the main TBML schemes and how they can interact with the financial aspects of trade.
It also sets out real world examples of some of the higher risk goods that could be exploited and moved through a TBML scheme to help illustrate the different characteristics of a given scheme. For example:
In addition, the paper highlights some commodities that have often in the past been associated with TBML schemes, for example gold and other precious metals and minerals. These commodities, along with others such as oil, are commonly traded in the Middle East and their inclusion as case studies in the FATF paper should help local businesses reflect on the potential ML risks related to the trading activities that they perform. Other regional risk factors include the exploitation by PMLs of Free Trade Zones and the historical connections with and geographical proximity to, sanctioned jurisdictions.
2. Review the processes and procedures that drive your business to identify any areas that could be subject to exploitation by OCGs, PMLs or terrorist financiers. If this step is challenging, bring in experts to assist you and conduct training for your key employees. Once you understand your business vulnerabilities to TBML, consider the adequacy of any controls you may have in place or, if you don't have any controls, implement them. Consider running desktop scenario exercises to stress test your vulnerability to being exploited by a TBML scheme.
3. Consider developing a set of TBML risk indicators or red flags that are relevant to your business. Then, crucially, review the profiles of your customer base. Raise awareness internally of these red flags and high-risk customers perhaps using company-wide training. Ensure that training is complemented by a documented procedure which provides guidance to staff on what to do if red flags are identified. The FATF paper provides some examples to get you started.
Companies operating in sectors which are unregulated for AML purposes, such as freight forwarders and customs brokers, need to be alive to the potential risks to their businesses and livelihoods of being unwittingly caught up in a ML or TF scheme. These schemes are becoming increasingly sophisticated so the risk of your business being used for the purposes of ML or TF is consequently higher. The 2020 FATF paper has put TBML under the spotlight. Even if you or your business is not ultimately prosecuted, an investigation into TBML by the regulatory and law enforcement authorities can be very disruptive, as can be the potential reputational damage.
²WTO Statistical Review of 2019