The role of Customs in identifying The role of Customs in identifying

TradeTrade--based Money Launderingbased Money Laundering

Norbert Steilen Norbert Steilen

Technical Officer Technical Officer

World Customs OrganizationWorld Customs Organization

�� Customs is Customs is vital vital to the achievement of national to the achievement of national economic, fiscal and social development objectives.economic, fiscal and social development objectives.

�� Customs is responsible for monitoring the Customs is responsible for monitoring the movement of goods, conveyances and people movement of goods, conveyances and people across frontiers which is a fundamental assertion of across frontiers which is a fundamental assertion of national sovereigntynational sovereignty

Core role of CustomsCore role of Customs

Roles of Customs in countering MLRoles of Customs in countering ML

�� Customs is the premier agency for ensuring Customs is the premier agency for ensuring compliance with international trade agreements and compliance with international trade agreements and the collection of accurate trade statistics.the collection of accurate trade statistics.

�� Customs is uniquely placed to contribute directly to Customs is uniquely placed to contribute directly to national and international efforts to combat transnational and international efforts to combat trans--national organized crimenational organized crime

Core role of CustomsCore role of Customs （（（（（（（（ContinuedContinued))

Roles of Customs in countering MLRoles of Customs in countering ML

TradeTrade--based ML based ML

�� FATF definition:FATF definition:��

““TBML is the process of disguising the TBML is the process of disguising the proceeds of crime and moving values by proceeds of crime and moving values by means of trade transactions in an attempt to means of trade transactions in an attempt to legitimize their illicit originlegitimize their illicit origin””

TradeTrade--based MLbased ML

Main techniquesMain techniques

�� overover-- and underand under--invoicing of goods and servicesinvoicing of goods and services

�� multiple invoicing of goods and servicesmultiple invoicing of goods and services

�� overover-- and underand under--shipments of goods and servicesshipments of goods and services

�� falsely described goods and servicesfalsely described goods and services

TradeTrade--based MLbased ML

Risks related with TBML:Risks related with TBML:

�� Enormous volume of crossEnormous volume of cross--border tradeborder trade

�� Often complex trade / trade financing transactionsOften complex trade / trade financing transactions

�� Commingling of illicit funds with legitimate fund Commingling of illicit funds with legitimate fund transactionstransactions

�� Limited exchange of Customs data on international Limited exchange of Customs data on international levellevel

A case of tradeA case of trade--based money launderingbased money laundering

Country ACountry A Country BCountry B

To bring money in from Country B to Country A To bring money in from Country B to Country A

““HawalaHawala””

Tax refundTax refund

FRAUD

FRAUD

OverOver--

invoicinginvoicing

ExportExport ImportImport

Payment through Payment through

telegraphic transferstelegraphic transfers

““LegalLegal”” proceeds proceeds

A case of tradeA case of trade--based money launderingbased money launderingTo bring money out from Country A to Country B To bring money out from Country A to Country B

Country ACountry A Country BCountry B

ImportImport ExportExport

OverOver--

invoicinginvoicing((Zero duty)Zero duty)

PaymentPayment

ReRe--exportexportUnderUnder--

invoicinginvoicing

A case of tradeA case of trade--based money launderingbased money launderingTo transfer money (value) in kind To transfer money (value) in kind

Country ACountry A Country BCountry B

Illegal proceedsIllegal proceeds

e.g. Antique e.g. Antique

goodsgoods

Purchase at Purchase at

domestic marketdomestic market

ExportExport

UnderUnder--

invoicinginvoicing

ImportImport

UnderUnder--

invoicinginvoicing

Sale at Sale at

domestic domestic

marketmarket

““LegalLegal””

proceedsproceeds

A case of tradeA case of trade--based money launderingbased money laundering

Country ACountry A Country BCountry B

Over-invoicing of exports

Black market

Over-invoiced

TRADE TRANSPARENCY UNIT

(+ / -)

No invoice

Country CCountry C

Examples of effective measures to identify Examples of effective measures to identify

TBML:TBML:

1. Post Clearance Audits (PCA)

2. Use of a national valuation database

3. Mutual administrative assistance

1.Post Clearance Audits (PCA)

• Means to verify compliance of traders

• Supports Trade Facilitation procedures (simplified import /

export procedures)

• Legal access to books and payment records of

international traders (compliance control – no investigation)

Leads to identify TBML:

1. Double invoicing / Altered invoices / Incomplete invoices

(value of goods + commission or license fees)

2. Unusual trade financing patterns

3. Falsified certificates of origin

2. Use of a national valuation database

• Customs database to identify discrepancies in the

Customs value for imported goods

• Risk assessment tool, usually containing other aspects

such as origin, tariff code number, importer’s profile etc.

• Trade data analysis and international sharing of trade

data are useful to identify trade anomalies (TTU)

Leads to identify TBML:

1. Under- / Over-invoicing of goods (unit price)

2. (False tariff code (at lower duty rates))

3. (New foreign trade partners)

3. Mutual administrative assistance (MAA)

• MAA = Instrument of an administrative procedure

between Customs administrations of different jurisdictions

• WCO instruments (Nairobi Convention, Johannesburg

Convention, Model Bilateral Agreements, WCO Recommendations on MAA)

• Bilateral / multilateral MAA’s

Assisting to identify TBML:

1. Under- / Over-invoicing of goods (double invoicing, incomplete invoices, exporter’s price – import price)

2. Altered / falsified documents (e.g. Certificates of Origin)

�� CustomsCustoms’’ skills and knowskills and know--how in applying risk how in applying risk management contribute to target cash smugglers management contribute to target cash smugglers and detecting tradeand detecting trade--based money launderingbased money laundering

ConclusionsConclusions

�� Customs do have an important role to play in Customs do have an important role to play in countering money laundering as a primary border countering money laundering as a primary border control agencycontrol agency

�� International Customs cooperation is International Customs cooperation is essential to identify cases of TBML and essential to identify cases of TBML and crosscross--border movements of cashborder movements of cash

Conclusions Conclusions (Continued)(Continued)

�� Cooperation with relevant enforcement Cooperation with relevant enforcement

authorities at national level is of the utmost authorities at national level is of the utmost

importance for Customs to fulfil its missionsimportance for Customs to fulfil its missions

�� Customs should be integral partner of the Customs should be integral partner of the

national delegation to ML and TF Meetings national delegation to ML and TF Meetings

�� Application of the WCO Instruments for mutual Application of the WCO Instruments for mutual

administrative assistance and best practices administrative assistance and best practices

should be further pursuedshould be further pursued

Thank you for your attention Thank you for your attention

Norbert STEILEN Norbert STEILEN

Technical Officer Technical Officer

Compliance/Enforcement SubCompliance/Enforcement Sub--Directorate Directorate

World Customs OrganizationWorld Customs OrganizationTel: +32Tel: +32--22--209209--9353 9353

Fax: +32Fax: +32--22--209209--9394 9394

EE--mail: Norbert.Steilen@wcoomd.orgmail: Norbert.Steilen@wcoomd.org