A periodic review of the account of a small household goods business reveals multiple shipments of goods to a country classified by the bank as high risk. They were transshipped through another country prior to the final destination. In the past three months, volumes over 25,000 units. The business has been a customer of a bank for 10 years.
Records show previous shipments to destinations primarily in Europe involving quantities of 5,000 units or less. Recent shipments are listed as being received by the same company as the earlier shipments and payments are being received from the same originator, but the unit price of the goods is three times higher than before.
Which two red flags indicate potential trade-based money laundering? (Choose two.)
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A. B. C. D.CD
The scenario presented in the question suggests that a small household goods business has been shipping goods to a country that the bank classifies as high-risk. Additionally, these goods are transshipped through another country before reaching their final destination, and the volume of shipments has increased significantly in the past three months. Furthermore, the unit price of the goods is three times higher than before, although the same company is receiving the shipments, and payments are being received from the same originator. The bank has been serving this business for ten years.
The red flags that indicate potential trade-based money laundering in this scenario are as follows:
B. The goods are transshipped through one or more jurisdictions for no apparent economic reason. Transshipment refers to the process of shipping goods to an intermediate destination before being shipped to the final destination. This process can be legitimate, but it can also be used to obscure the origin or destination of the goods. If goods are transshipped through one or more jurisdictions for no apparent economic reason, it could be a sign that the parties involved are attempting to hide the true origin or destination of the goods. In this scenario, the fact that the goods are being transshipped through another country before reaching their final destination raises concerns about the legitimacy of the transaction.
C. The size of the shipments appears inconsistent with the exporter's previous business activities. The size of the shipments is also a potential red flag for trade-based money laundering. If the volume of shipments is significantly higher than the exporter's previous business activities, it could indicate that the exporter is engaging in trade-based money laundering by over- or under-invoicing the goods. This practice can be used to move funds across borders without detection by authorities. In this scenario, the fact that the volume of shipments has increased significantly in the past three months compared to the previous 10 years raises concerns about the legitimacy of the transactions.
In summary, the two red flags that indicate potential trade-based money laundering in the scenario presented are the transshipment of goods through one or more jurisdictions for no apparent economic reason and the size of the shipments appearing inconsistent with the exporter's previous business activities.