Globalization and international trade have opened up unimaginable opportunities for the world, offering access to a wide range of goods and experiences. However, alongside these opportunities, there exists a significant risk: transnational crime. Transnational crimes involve violations of the law that span multiple countries in their planning, execution, or impact. Such crimes not only disrupt the global economy but also undermine the integrity of trade relationships.

THIS ARTICLE IS WRITTEN BY KRISTI RUTGERS AND NICKY GOES. KRISTI ( [email protected] ) AND NICKY ( [email protected]) ARE FOCUSED ON FINANCIAL ECONOMIC CRIME, CDD AND KYC INVESTIGATIONS WITHIN RSM NETHERLANDS BUSINESS CONSULTING.  

Criminals, such as drugs smugglers, constantly change tactics to evade authorities. They conceal drugs in shipping containers and use innovative methods like attaching packages to boat hulls or hiding drugs beneath boat propellers. Their success relies on exploiting opportunities presented by ships and customs enforcement effectiveness. This ongoing cat-and-mouse game between law enforcement and criminals involves intensified efforts to combat transnational crime. Internationally active companies also have a role in the prevention of transnational crime, such as predicate offenses, trade-based money laundering (TBML) and trade-based terrorist financing (TBTF). This article delves into the complex landscape of transnational crime within international trade, exploring the risks faced by companies and the measures they can take to prevent and counter such illicit activities.

The Risks Companies Encounter 

One might think drugs smuggling is a far fetched risk scenario for your company, however criminals and professional money launderers are known for exploiting the supply chain to launder the criminal profits. Consider dealing with corrupt counterparties, receiving falsified invoices or over or underpricing of goods/cash payments within the supply chain. internationally active companies As a result, your company could be involved in a supply chain with high risks of criminal activity. ,This compromises the values and reputation of the companies and jeopardizes their long-term sustainability and credibility.The consequences of transnational crime can be severe, for example: a company and their management and directors can be criminally prosecuted for neglecting to check whether money laundering risks are occurring in the supply chain. Other consequences can exist of reputational damage that leads to societal rejection, the loss of trust and credibility among stakeholders which can cause long lasting harm to an organization, affecting its relationships with customers, partners, and society at large. Furthermore, de-risking could also be a problem for international active companies, because of the money-laundering risks financial institutions do not want to provide services to international active companies that have trade transaction with for example high risk countries. Therefor it is also important to be able to explain and understand the high risks within the supply chain of international active companies.

Preventing Transnational Crime:  

Combatting trade based money laundering is not only something to be done by gatekeepers such as banks, it starts with obtaining knowledge on the clients and counterparties you are dealing with. Although the strict legal requirements regarding performance of KYC measures is with financial institutions, it is important for internationally active business to ensure integrity. Facilitating trade based money laundering will also reflect the integrity and public image of internationally active businesses, as also recommended by the FATF. This implies that organizations should undertake measures to get to know their clients (Know Your Client), identify potential financial economic crime risks and comply with sanctions regulations by screening their clients prior to engaging into a business relationship. 
Besides performing (sanctions) screening, identifying your business relationship as well as analyzing their business activities and recognizing TBML patterns is of great importance. The FATF reports several techniques that can help recognize TBML: 

  1. Over- and under- invoicing of goods and services: with this type of technique, offenders try to misprice the products in order to transfer money illegally. In this case both the importer and the exporter are complicit in the performance of TBML.
  2. Over- and under- shipment of goods and services: a commonly used technique is phantom shipments, where no goods are imported or exported. The supply chain is used to misrepresent the quantity of goods that are imported or exported. With this technique importers and exporters are also complicit. 
  3. Multiple invoicing of goods and services: in this case, existing documentation is used to justify multiple payments for the same shipments. The documents are exploited by reusing it across different financial institutions, which makes it difficult to identify the risk.  
  4. Falsely described goods and services: this technique occurs for example when an inexpensive good is described as a more expensive good, or an entirely different good. 
  5. Black market Peso Exchange: central and south American drug cartels used black market peso exchange for laundering drugs profits. With this type of scheme, the brokers take a receipt of dollars from the drugs cartel network and use them to pay the US supplier, or they transfer the cash into multiple bank accounts and then transfer the money to the US supplier with use of wire transfers.  
  6. Illicit cash integration: offenders try to find a way to successfully intergrade illegal cash, with use of the exploitation of different types of financial institutions. This can for example be done by infiltration of legitimate supply chains
  7. Third-Party intermediaries facilitating invoice settlement.

Concluding remarks

Transnational crime poses a significant threat to companies engaged in international trade. Ignorance about criminal activities within supply chains is not acceptable, and it is crucial for international active companies to take responsibility in preventing any unknowing collaboration with criminals. To achieve this, businesses are advised to conduct thorough checks on their business relationships within the international supply chain. Implementing a compliance program and performing KYC investigations on partners can help identify potential risks and mitigate any association with criminal networks. By adhering to best practices, companies can safeguard their integrity, contribute to disrupting criminal activities, and reduce the risk of criminal prosecution, reputational damage, and de-risking by financial institutions.

In embracing these measures, companies not only protect themselves but also demonstrate their commitment to ethical business conduct. This, in turn, enhances their reputation and credibility in the market, building trust with stakeholders and financial partners. Taking a proactive stance against transnational crime not only secures a company's interests but also plays a vital role in creating a safer and more secure international trade environment for all stakeholders involved.