Unmasking Invoice Manipulation in Trade-Based Money Laundering Schemes
Unmasking Invoice Manipulation in Trade-Based Money Laundering Schemes
Trade-Based Money Laundering (TBML) is a commonly used typology or method by money launderers. It involves manipulating international transactions of goods that can be traded. This infographic discusses how money launderers carry out TBML by manipulating invoices of goods traded across international borders and methods of invoice manipulation such as over-invoicing, under-invoicing, and multiple invoicing, including suggestive TBML risk mitigation measures to combat TBML through invoice manipulation.
Check out Unmasking Invoice Manipulation in Trade-Based Money Laundering Schemes now and safeguard your business from ML, TF, and PF risks.
TBML process is quite similar to usual money laundering, which involves placement, layering, and integration. Here, placement is done by providing scope for introducing or commingling illicit proceeds with legitimate proceeds by manipulating the value of goods imported or exported by manipulating invoices of such goods.
This manipulation of invoices is done by over or under-invoicing or placing multiple invoices for a single cluster or batch of goods. The manipulation of invoices facilitates the layering of illicit proceeds, separating them from the original illegal source by providing a facade of legitimacy through manipulated, tailored, or doctored invoices. Lastly, integration happens when such goods are sold in the open market.
Invoice manipulation is a TBML technique used by money launderers. It facilitates TBML by misrepresenting the quality, quantity, and price of goods in the invoice.
Common TBML Typologies Using Invoice Manipulation
Over-Invoicing or Under-Invoicing
Over Invoicing: Involves receiving invoices from sellers and suppliers at an inflated value compared to their market value.
Under Invoicing: Involves receiving invoices from sellers and suppliers at a price lower than market value.
Multiple Invoicing
Involves receiving more than one invoice for a single transaction.
Mitigation Strategies to combat TBML through Invoice Manipulation
Common ML/FT and PF Risk Mitigation Strategies to Mitigate Invoice Manipulation:
Some of the standard methods to counter TBML through invoice manipulation are:
Sanctions Screening, Politically Exposed Person (PEP), and Adverse Media Checks:
Businesses involved in international trade transactions need to carry out sanctions screening of their customers/suppliers, importers and exporters to ensure that the individual or ultimate beneficial owner behind such transactions is not a sanctioned individual, PEP or has any relevant or material adverse media against their names. This possibility must be ruled out to eliminate the probability of money laundering through the trade transaction.
Deploying Adequate Transaction Risk Assessment:
Businesses in UAE must take adequate measures to ascertain or identify the level of TBML invoice manipulation risk posed to their business and deploy risk-based measures to mitigate such risk by putting in place transaction risk assessment measures. A transaction risk assessment process would facilitate identifying potentially suspicious trade transactions. Further transaction monitoring software can be configured to suit business-specific risks by using machine learning models combined with the power of artificial intelligence (AI) to automate such transaction risk assessment processes that generate alerts when any anomaly is found.
Devising Robust Supply Chain Controls:
Having in place a well-strategized Supply Chain Policy enables businesses to define and document the processes, timelines, workflows, parameters, and controls through which it shall closely monitor its trade activity involving inflow and outflow of goods. Especially in the case of dealers in precious metals and stones, supply chain policy or ethical sourcing policy is a requirement in many jurisdictions. Such a supply chain policy would enable businesses to devise and implement supply chain controls to curtail TBML in the following ways:
- Defining adequate TBML identification measures and monitoring of TBML risks
- Defining the timing, frequency, extent, and depth of personnel training, enabling them to identify TBML red flags and typologies.
- Defining areas or jurisdictions and trade routes that are usually associated with TBML red flags.
Assessing Business Rationale:
Identifying the business rationale or purpose of business behind every invoice helps ensure that proposed trade transactions are well within a business’s risk appetite. If the business rationale is absent, it is a major red flag that the invoice or transaction is unusual, requiring further investigation.
Closely conducting Transaction and Inventory Monitoring:
When inventory and transactions are closely monitored, there is no room for manipulation of invoices from internal factors that might facilitate money laundering or TBML motives. When inventory and transaction value are coherent, the TBML risk is significantly reduced.
Deploying Invoice Verification Tools:
Technology is always a smart move when running any business with a high volume of transactions. Usually, the businesses involved in trade activities are invoice-heavy. Invoice verification tools are automated software that checks product descriptions, invoice particulars, invoice numbers, dates, etc. This helps prevent TBML through multiple invoicing and over or under-invoicing.
Specific TBML Risk Mitigation Strategies
Over-Invoicing or Under-Invoicing:
Assessing Product Category: Checking the product category, whether the product is prone to duplication, and whether its quality is worth the price quoted and entered into the invoice helps mitigate over or under-invoicing of such a product.
Ascertaining Unit Price Accurately: To prevent misrepresentation of invoice price through quantity, the price per piece helps verify the invoice value claimed.
Comparing Quantity Unit Price and Market Value Against Invoice Price: Ultimately, cross-checking the quantities of goods mentioned in the invoice, their per unit and order price, and the market value of similarly traded goods helps identify if any invoice presented to a business is over or underpriced.
Multiple Invoicing
Checking the Date of Transaction: Checking the date of transaction for an invoice is a general best practice and a TBML risk mitigation method. It helps identify the period for which the invoice is claimed, further cross-verify its authenticity, and avoid multiple invoicing.
Checking Invoice Number: Checking and verifying invoices through the invoice number is the best way to avoid the same invoice being used twice to claim or process the payment. It helps cross-verify the invoice and its particulars across different sets of databases pertaining to the same invoice or order number, thus helping identify if TBML through multiple invoices is attempted.
Checking Invoice Particulars: Checking invoice particulars for preventing TBML involves verifying the quality, product description, quantity, invoice number and other invoice attributes to make sure that the invoice in question is not manipulated, duplicated, or tampered with, forged, counterfeit or neither the particulars within the invoice are erased or added to make it look like a different invoice for multiple invoicing, thus establishing its legitimacy, which helps mitigate multiple invoicing risk.
Checking Product Description: Product description checking helps prevent TBML by confirming that a product for which a particular amount is billed is worth the amount it is billed for. This leaves no room for invoice duplication, which facilitates TBML through multiple invoicing.
Conclusion
TBML is a widely used methodology by criminals to launder money by manipulating invoices of tradeable goods across international borders. Having an adequate TBML invoice manipulation mitigation strategy helps prevent TBML invoice manipulation risk effectively.
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