Of teddy bears and money laundering

Money laundering is becoming a greater risk for commercial businesses. An article in the Los Angeles Times described a process whereby teams of money launderers working for cartels use dollars to purchase commodities from the United States and then export those commodities to Mexico or Colombia. The key is that the commodities being purchased are so innocuous that large bulk purchases will rarely, if ever, draw any official scrutiny.

The goods purchased can be red tomatoes, bolts of cotton fabric, or even teddy bears. In each case, the commodity itself does not matter. The simple fact of purchasing in the United States and then shipping into, and reselling in, Mexico allows the drug cartels to “transfer earnings back home to pay bills and buy new drug supplies while converting dollars to pesos in a transaction relatively easy to explain to authorities”.

However, money launderers now use even more sophisticated tactics such as “overvaluing and undervaluing invoices and customs declarations”. There is even a new term, “trade-based money laundering”, that is used to denominate the schemes. It was reported that in another recent operation, in which more than US$1 million was estimated to have been laundered every three weeks, money launderers were exporting polypropylene pellets – used to make plastic – from the United States to Mexico. However, the money launderers inflated the value declared on the high volume shipments and this eventually attracted the suspicions of United States bank investigators, “who shut down the export operation by discontinuing letters of credit that the suspected launderers were using”.

One official noted: “You generate all this paperwork on both sides of the border showing that the product you’re importing has this much value on it, when in reality you paid less for it. Now you’ve got paper earnings of a million dollars and the million dollars is in my bank account — it’s legitimate. It came from this here, see?”

Transactional based due diligence and internal controls are mandatory components of anti-corruption best practice compliance programmes. In addition to conducting due diligence on agents, distributors or others in the sales distribution chain, companies need to perform due diligence on those to whom they sell. Yet many companies now need an equally robust anti-money laundering compliance programme as well.

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