This is the first part of a new series detailing advanced and obscure money laundering techniques that are generally unknown to frontline compliance officers, and are a major reason why money launderers are successful 95% of the time, if not more. We have noted that most compliance departments have failed to train their staff adequately in the techniques (Tradecraft) they will encounter. Hopefully, this series will fill some of the gaps in their education on an advanced level.
Most bankers are are aware of domestic product diversion, where produce being shipped from Florida to Arkansas is diverted to New York or Los Angeles where it will command a higher price, or where luxury goods that are supposed to be sold only in premium shops are diverted, and sold, at a price below the customary retail price, in big box stores.
International product diversion is another matter, and in many instances, it constitutes criminal activity. A Fortune 500 company, anxious to develop a new foreign market for its product, will export it to a local wholesaler, at a bargain level price, stripped of all marketing, and advertising costs, just to create demand for the product in a new region. Also, products that are close to their listed expiration date may be quickly shipped overseas at a greatly reduced price, just so the manufacturer can recover its costs, before the product is no longer eligible for retail sale to consumers.
Criminals are aware of this practice; they set up shell companies, charities, bogus educational entities, all to entice large manufacturers to sell them their products at extremely low versions of the price they go for in the United States. Then, they perform one of these operations.
(1) They arrange for the goods, already shipped abroad, to be returned to the US, by diverting them at an intermediate port, and quietly sell them here for the full domestic rate. The interesting thing about this maneuver is that they come in as "Returned US goods" free of duty. Some call this a U-Turn.
(2) They totally fail to export the goods, covertly substituting a worthless item of similar weight at the US port, and keeping and selling the goods here.This, of course requires the assistance of either corrupt warehouse staff or other co-conspirators to divers and/or relabel the packages containing the rewal goods, in order to to spirit away for domestic sale.
(3) They sell only a small portion of the goods abroad, and return the vast majority of the product to the US, where it commands a premium price.
Some US-manufactured goods use foreign raw materials, and Customs rewards manufacturers who export finished US products using them by granting rebates on duties paid for the raw materials; these are called Drawbacks, and when criminal elements illegally return goods where Customs has paid Drawbacks, they are guilty of defrauding the United States, in addition to all the false statements and false record keeping offenses that they have committed by altering the shipping documents.
Money launderers, who need to repatriate criminal profits earned outside the United States, and in the process render them clean, have been known to participate in international product diversion, in order cleanly move their money inbound. Unfortunately, most compliance officers, unless their bank clients are engaged in international trade, are unfamiliar with international product diversion, and even those are generally not aware that laundrymen are using those methods, sending payment for those good in from overseas, without arousing suspicion, and then actually earning a handsome profit on their "investment" when they resell the goods inside the Continental United States.
Along with trade-based money laundering, the education of compliance staff about international product diversion should be a priority. Here is a portion of a landmark federal case on the subject; note that the AUSA artfully educated the Court in the method employed by the laundrymen running their international product diversion.
International product diversion is another matter, and in many instances, it constitutes criminal activity. A Fortune 500 company, anxious to develop a new foreign market for its product, will export it to a local wholesaler, at a bargain level price, stripped of all marketing, and advertising costs, just to create demand for the product in a new region. Also, products that are close to their listed expiration date may be quickly shipped overseas at a greatly reduced price, just so the manufacturer can recover its costs, before the product is no longer eligible for retail sale to consumers.
Criminals are aware of this practice; they set up shell companies, charities, bogus educational entities, all to entice large manufacturers to sell them their products at extremely low versions of the price they go for in the United States. Then, they perform one of these operations.
(1) They arrange for the goods, already shipped abroad, to be returned to the US, by diverting them at an intermediate port, and quietly sell them here for the full domestic rate. The interesting thing about this maneuver is that they come in as "Returned US goods" free of duty. Some call this a U-Turn.
(2) They totally fail to export the goods, covertly substituting a worthless item of similar weight at the US port, and keeping and selling the goods here.This, of course requires the assistance of either corrupt warehouse staff or other co-conspirators to divers and/or relabel the packages containing the rewal goods, in order to to spirit away for domestic sale.
(3) They sell only a small portion of the goods abroad, and return the vast majority of the product to the US, where it commands a premium price.
Some US-manufactured goods use foreign raw materials, and Customs rewards manufacturers who export finished US products using them by granting rebates on duties paid for the raw materials; these are called Drawbacks, and when criminal elements illegally return goods where Customs has paid Drawbacks, they are guilty of defrauding the United States, in addition to all the false statements and false record keeping offenses that they have committed by altering the shipping documents.
Money launderers, who need to repatriate criminal profits earned outside the United States, and in the process render them clean, have been known to participate in international product diversion, in order cleanly move their money inbound. Unfortunately, most compliance officers, unless their bank clients are engaged in international trade, are unfamiliar with international product diversion, and even those are generally not aware that laundrymen are using those methods, sending payment for those good in from overseas, without arousing suspicion, and then actually earning a handsome profit on their "investment" when they resell the goods inside the Continental United States.
Along with trade-based money laundering, the education of compliance staff about international product diversion should be a priority. Here is a portion of a landmark federal case on the subject; note that the AUSA artfully educated the Court in the method employed by the laundrymen running their international product diversion.
For further information on money laundering tradecraft: miamicompliance@gmail.com
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