According to a new report by Global Financial Integrity, approximately US$872 billion flowed illicitly from Mexico during 1970 to 2010 from money laundering, tax evasion and corruption. The flow of funds represents about Â 5% of Mexico’s GDP. The report noted that trade-based money laundering was the most common method used to remove money from Mexico illicitly.
Trade-based money laundering involves using one of the following schemes to disguise the illicit origin of money:
- Over- and under-invoicing or shipment of goods and services;
- Multiple invoicing of goods and services; or
- Falsely described goods and services.
Over- and under-valuation schemes involve the preparation of invoices and trade documents that misrepresent the price of the goods or services being traded. By invoicing a shipment of goods destined for an overseas market at prices above the fair market value, the criminal organization creates an apparent legitimate paper trail that allows it to receive illicit funds from abroad. Thus, if a shipment of stereos is worth $50,000 but is over-invoiced for $100,000, the eventual payment by the overseas importer of $100,000 facilitates the laundering of $50,000.
An under-valuation scheme is the same thing in reverse. An importer receives goods that are worth more than declared in the invoice. The importer sells the under-valued goods and receives more than the value reflected in the invoice and trade documents. If the transferred value represents illicit proceeds, the result is money laundering.
Recent reported instances of over- and under-valuations indicative of trade-based money laundering include the export of rocket launchers to Israel for $52 each; tweezers imported from Japan at $4,898 each; and toilet bowls exported to Hong Kong for $1.75 each. Large sums of dirty money can be moved through these types of money laundering schemes.
The trade of international services, such as accounting and legal services, is often used in a similar way to launder money. For example, a company in Peru may offer geological or environmental services to a mining client in Mexico for $250,000 when services of this type typically cost $25,000. The Mexican company transfers $250,000 to Peru and the funds leave that country in apparent legitimacy. Fraudulent invoices and supporting documents are used to conceal the transfer of dirty money for real or fictitious services from one jurisdiction to another.
Multiple invoicing of goods and services involves the issuance of several invoices for one international trade transaction, allowing criminal organizations to justify multiple payments for the same shipment of goods or delivery of services.
A recent report from the U.S. Bureau of International Narcotics and Law Enforcement Affairs estimates that annual trade-based money laundering is worth hundreds of billions of dollars and is growing each year. Mexico continues to be a key location for trade-based money laundering activity. By its nature, international trade is subject to risks and vulnerabilities that provide criminals with the opportunity to launder money with a relatively low risk of detection. Those risks and vulnerabilities include the sheer volume of international trade; little to no customs and trading information-sharing among countries; complexities associated with foreign currency exchanges required for international trade; and limited resources for customs agencies to detect illegal trade transactions.