A Cover for Dirty Money

The Financial Intelligence Unit of the Nepal Rastra Bank released a serious message: trade-based money laundering (TBML) is no longer a remote threat; rather, it is a pattern increasingly found in cross-border trade. These kinds of financial offenses have been connected, with actual trade, with imports and exports as a cover through which illicit money is shifted, disguised as legitimate business. The Financial Action Task Force (FATF) has already warned of Nepal's increasing vulnerability and has pointed to trade fraud as one of the main ways through which illegal money is hidden. Trade-based money laundering, in principle, aims at confusing the normal trade documents. Prices, numbers, or product descriptions are changed to make it possible for money to leave a country and come into another without arousing suspicion immediately. Over-invoicing means that a lot of extra money is transferred abroad, under-invoicing means that the values declared are kept artificially low, while the repeated invoicing is done for the same shipment and is billed more than once. Other deceptions are declaring more goods than are actually shipped, less than are actually shipped, or a complete mislabeling of products. All these methods rely on the ordinary paperwork to hide the activity, which makes even the regular customs and banking control less effective in finding these crimes. The problem is not new, but its scale and sophistication appear to be increasing. It is due mainly to a system in which trade documentation becomes vulnerable because of a combination of structural weaknesses and lure for financial gains.