Thursday, August 2, 2012

Trade-Based Money Laundering - Affecting HSBC, ING, and now YOUR business too.....


The British bank HSBC is making headlines, thanks in part to a U.S. Senate hearing held this past month, during which executives from the bank were grilled for failing to stop Mexican drug cartels, subsidiaries linked to al Qaeda, and nations on the U.S. sanctions lists like Syria and Iran, from making illegal purchases and moving money into the United States. HSBC executives admitted that a large portion of some $7 billion transferred by their Mexican subsidiaries into the bank's U.S. operation likely belonged to drug cartels.

Likewise, a Settlement Agreement was released in June 2012 by the United States Department of the Treasury regarding the voluntary self-disclosure to the Office of Foreign Assets Control (OFAC) by ING Bank. ING admitted to violating numerous sanctions programs imposed by the United States against Cuba, Burma, the Sudan, Libya and Iran. These violations were deemed by the Americans as “egregious” and the total settlement by ING Bank to resolve this matter with the U.S. government is $619,000,000.00, an amount equivalent to 8.5 percent of ING Bank’s net profits in fiscal 2011.

As succinctly stated by Malcolm Beith from The Daily Beast, "the reality is that international institutions—and the U.S. financial sector—have long been vulnerable to money launderers, who are often several steps ahead of the authorities in their bid to exploit loopholes and weak links in institutions hellbent on capitalizing and expanding." While catching banks like HSBC and ING involved in this kind of money laundering may take the Federal government years of investigation, advances in technology as well as Homeland Security's recent partnering with foreign nations to exchange trade data, have allowed for an explosion of seizures of by the Drug Enforcement Administration (DEA) and the U.S. Immigration and Customs Enforcement (ICE) or Homeland Security Investigations (HSI) for alleged trade-based money laundering (TBML) for companies involved in importing and exporting goods to and from the United States.

TBML is a money laundering method through which transnational criminal organizations (TCOs) earn, move, and store illicit proceeds by disguising them as legitimate trade. TCOs often exploit global trade networks to move value around the world, using the complex and sometimes confusing documentation that is frequently associated with legitimate trade transactions. A notable example - Colombian drug cartels use TBML extensively to repatriate drug proceeds in a scheme commonly referred to as the Black Market Peso Exchange.

Just as major banks like HSBC and ING have learned the hard way of the consequences of not keeping a watchful eye for signs that money is being laundered, it is important for U.S. importers and exporters to be aware of the realities and consequences of not being fully aware of who they are doing business with and where money is coming from. Red flag indicators of trade-based money laundering include: 
  • Payments to vendor made in cash by unrelated third parties
  • Payments to vendor made via wire transfers from unrelated third parties
  • Payments to vendor made via checks, bank drafts or postal money orders from unrelated third parties
  • False reporting: such as commodity misclassification, commodity over-valuation or under-valuation
  • Carousel transactions: the repeated importation and exportation of the same high-value commodity
  • Commodities being traded do not match the business involved
  • Unusual shipping routes or transshipment points
  • Packaging inconsistent with commodity or shipping method
  • Double-invoicing
It is critical for all importers and exporters to understand these factors and implement systems to recognize when any one of these "red flags" comes into play. The explosion of bank account seizures this year as well as the "taking down" of major financial institutions is ample proof that the federal government is watching the money coming in and out and it is critical to take this new reality seriously.

In the event your bank account is seized, it is important to know that bank account holders absolutely have the right to challenge the taking of their money by the DEA or ICE.  If your money has been seized, you have a right to know the legal basis for the seizure, and should, through your attorney, contact the DEA or ICE Agent, or the Assistant U.S. Attorney.  In civil forfeiture cases, there is an administrative process to follow once a Notice of Seizure is issued to the bank account holder by the Fines, Penalties, and Forfeitures Office of U.S. Customs and Border Protection (CBP) or a Notice of Seizure by the DEA.  If the Notice of Seizure is from CBP, file a Petition, and if the Notice of Seizure is issued by the DEA, file a Sworn Claim with the Asset Forfeiture Section located in Quantico, Virginia.  The procedures of both agencies are very specific, and must be followed carefully, otherwise, your right to challenge the seizure will be lost forever.

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Comments or questions, please post below or feel free to contact me directly.

For any questions or comments regarding these topics, please contact:

Peter Quinter, Shareholder and Chair
Customs and International Trade Law Group
GrayRobinson, P.A.
1221 Brickell Avenue
Suite 1600
Miami, Florida 33131
Office: (305) 416-6960
Mobile: (954) 270-1864
Peter.Quinter@Gray-Robinson.com

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