Trade Based Money Laundering in the News: Miami-Area Electronics Exporters Targeted in FinCEN Anti-Money Laundering Initiative

On April 21, 2015, the Financial Crimes Enforcement Network (FinCEN) issued a Geographic Targeting Order (GTO) to approximately 700 businesses in the Miami, FL area which export electronics, including mobile phones.  The GTO implements several reporting requirements for these businesses when they are involved in currency transactions over $3,000, which is significantly lower than the usual $10,000 threshold.  The report to the government (typically referred to as an Form 8300) includes information about the transaction and the people involved.

According to the FinCEN press release, the purpose of the GTO is to “shed light on cash transactions that may be tied to trade-based money laundering schemes.”  Criminal organizations including drug cartels, crime syndicates, and terrorist-financing operations use trade-based money laundering to move and launder incredibly large sums of money just by buying and selling merchandise in international markets.

According to the Financial Action Task Force (FATF), an intergovernmental body formed in the late 1980s to combat money laundering and other financial crimes, anywhere from $590 billion to $1.5 trillion in illegally obtained money was laundered world-wide in 2012 through trade based money laundering.  There are four basic techniques for laundering money through trade:

• over- and under-invoicing of goods and services;
• multiple invoicing of goods and services;
• over- and under-shipments of goods and services; and
• falsely described goods and services.

A common method of  bringing “clean” money into a country, involves a company undervaluing its imports or overvaluing its exports.  To move money out of a country, the opposite would occur.  For example, a U.S. company could sell $2 million in products to a cartel-linked company or customer in Latin America.  The U.S. company then invoices these products upon export for only $1 million.  The foreign customer obtains the products – for which they paid only $1 million – and resells them in country for the full $2 million.  This creates $1 million in laundered money.  The problem of import-export invoice discrepancy is so large, that the Global Financial Integrity and the International Monetary Fund estimate that the difference between the declared value of Mexican exports to the United States in 2013 was almost $40 billion higher than the declared value of those same imports into the U.S. Of course, this is only one example of a trade based money laundering transaction. The list of other trade based money laundering transactions is seemingly endless, but FinCEN is clearly mobilizing to reign it in.

Under the GTO, select businesses operating in the area immediately around Miami International Airport, as well as their agents, subsidiaries, and franchisees, must now file FinCEN Form 8300, “Report of Cash Payments Over $10,000 Received in a Trade or Business,” anytime they receive currency, cashier’s checks, or money orders in an amount over $3,000 in an export transaction.  (As noted in the title of the Form, such reporting normally is required for transactions in excess of $10,000, not $3,000.)  The businesses must also obtain the customer’s telephone number, a copy of a valid photo identification, and written certification from the customer as to whether he or she is conducting the transaction on behalf of another person.  With respect to the transaction itself, the Form must also include a description of the goods involved in the transaction, the name and phone number of the person receiving the goods, and the final address to which such goods are being shipped.

FinCEN has been using GTOs to combat money laundering since August 1996, when certain licensed money transmitters in the New York metropolitan area were required by FinCEN to report information about the senders and recipients of all cash-purchased transmissions to Colombia of $750 or more.  Over the last two decades, other GTOs have targeted such areas as the Los Angeles Fashion District, armored car and money couriers in San Diego County, and wire transfer agents in Arizona.

In issuing the GTO, FinCEN Director Jennifer Shasky Calvery stated, “We are committed to shedding light on shady financial activity wherever we find it.  We will continue issuing GTOs, as necessary, as well as exercising FinCEN’s other unique anti-money laundering authorities, to ensure a transparent financial system that impedes money launderers and other criminals from masking their identity and illicit activity.”

And certainly GTOs can have an enormous impact on money-laundering operations.  In the aftermath of the first GTO involving New York area money transmitters, the U.S. Department of Treasury found that the targeted money transmitters’ business volume to Colombia dropped approximately 30%; the volume of transactions at other, non-targeted businesses fell at a similar level.  This would imply that in addition to the government-stated goals of collecting data and transparency, the practical effect of a GTO is to shift money laundering activity away from the targeted area.  Returning to the August 1996 New York GTO, U.S. Customs (now U.S. Customs and Border Protection) reported a marked increase in interdiction and seizure activity involving cash smuggling at the U.S.-Mexico border immediately after the GTO went into effect.

It will be interesting to see where the money laundering activities will shift as a result of the new Miami-area GTO.  According to Export-Import Bank figures, the top 10 electronics exporters operating in the GTO-targeted area accounted for over $212 Million in exports over the last seven years.  Therefore, if the historical effectiveness of GTOs in squeezing trade-based money laundering into other geographic areas is any indication, the Miami export trade community is in for a major hit.