US banks’ gaps in money-laundering controls enable drug, fraud proceeds to be cycled through trade transactions, GAO says

29 Jan 2020 12:45 pm by Neil Roland

US banks' gaps in money-laundering controls are enabling a "large and growing" amount of illicit proceeds from international drug traffickers, terrorists, and financial fraudsters to be cycled through international trade transactions, a congressional watchdog said.

These organizations — including Colombian drug organizations and opioid traffickers from China and Mexico — have been disguising criminal gains using international trade fraud such as over- and under-invoicing of goods and services, the nonpartisan US Government Accountability Office report today said.

Most of these trade transactions are processed through a bank's automatic payment systems without human intervention, blocking the institution's visibility of the underlying trade and documents, the report said.

US and international experts "believe the amount of illicit funds laundered through [trade-based money laundering] and related schemes — which would include illicit funds derived in other countries that are then laundered into the US financial system — to be large and growing," the report said.

Some US public- and private-sector efforts to explore new tools are looking at the use of blockchain and other distributed ledger technology to improve visibility into the flow of funds, the report said.

Criminal organizations that exploit gaps in US trade and bank money-laundering controls are primarily involved in drug trafficking, customs fraud, financial fraud, and terrorism, the report said.

Drug traffickers are the most frequent exploiters of trade-based money laundering to transfer the value of US dollars earned from narcotics sales in the United States to other countries' currencies in the Western Hemisphere, it said.

In a discussion of participating criminal organizations, the report said there was an increasing involvement of China-based entities. These organizations are increasingly using shell companies to launder funds, and Chinese companies are relying more on wire transfers for goods, it said.

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