Shell Companies and Trade Based Money Laundering

Cover Image for Shell Companies and Trade Based Money Laundering

| Courtney Price

Trade-Based Money Laundering (TBML) is an issue that has been gaining attention in recent years. In his latest webinar: Trade Based Money Laundering - What is it What Role Does it Play, Robert McAllen explains that TBML involves the manipulation of trade transactions to disguise the movement of money derived from illicit activities, thereby giving it a veneer of legitimacy. This blog post will focus on the activities consistent with TBML and how they can be detected and mitigated.

One of the most common methods used in TBML is the use of shell companies. These are entities that serve as a vehicle for business transactions without having significant assets or operations of their own. They are often used to obscure the true ownership of funds and to facilitate the transfer of value from illicit sources. Shell companies can be extremely difficult to detect due to their legitimate appearance. However, certain red flags can indicate potential TBML activity. For instance, shell companies often have turnover well in excess of their account or lack of account banking turnover. They may also show signs of dormancy with no trades since corporation, or have addresses of convenience (where the person at the address is unaware of the company's existence!)

Another activity consistent with TBML is the rapid movement of money into and out of bank accounts, leaving a zero balance every month. This can be a sign that the account is being used to launder money, as the funds are quickly moved to avoid detection. Accountants need to be vigilant and request full bank statements for the past 12 months, not just the year-end balance, to identify such patterns.

Furthermore, inconsistencies between a company's alleged activity at the time of formation and its actual transactions can also indicate TBML. For example, an agricultural merchant with transactional history from countries blacklisted by the Financial Action Task Force (FATF) could be a red flag.

Enhanced due diligence is crucial in detecting and preventing TBML. This includes verifying the identity of company officers, especially those living overseas, and scrutinising offshore legal entity ownership to uncover any attempts to hide the true ownership of the company. Enhanced due diligence also involves monitoring for unusual or suspicious transactions, such as large amounts of money coming into a bank account and then going straight back out.

Trade Based Money Laundering is a sophisticated form of money laundering that requires a proactive approach to detect and prevent. By understanding the activities consistent with TBML and implementing robust due diligence measures, businesses and financial institutions can play a crucial role in combating this global issue.

To watch the full session, click here. In this webinar, Robert McAllen covers the following topics:

· Financial Action Task Force (FATF) and how they came into existence

· How FATF assisted countries with their Money Laundering Regulations (MLR).

· Trade Based Money Laundering (TMBL)

· How to detect TBML

· The role TBML plays in global money laundering

· Informal Value Transfer System (IVTS)

· IVTS networks (Global Controller Networks)

· How TBML can assist IVTS networks with liquidity.

The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article.

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About the Author

Courtney Price is a content creator for CPDStore UK. Courtney joined us during the COVID-19 pandemic and has been involved in the ever-evolving world of accounting ever since. Her passion for reading and writing, coupled with her degree in copywriting from Vega School has allowed her to channel her creativity and expertise into crafting engaging and informative content.


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