Money Laundering in Your Supply Chain - Where You Could Be at Risk


Money laundering could very well be as old as mankind. It has been documented to trace as far back as 2000 years in China. While the concept is old, we owe the term to Al Capone’s era. He allegedly bought laundromats to transform income from criminal endeavors into legitimate revenue.

Beyond its cinematic appeal, money laundering is a modern-day reality in supply chains along with the other crimes it stems from: corruption, fraud, bribery, violence, the list goes on. According to a study by Reuters, 90% of identified money launderers were connected with or involved in one other crime and 61% were involved in two or more. The Government Accountability Office (GAO) released a recent report showing that money laundering schemes have been linked to illicit gold imports from Peru and Venezuela. Unknowingly sourcing from the wrong suppliers could be putting your company at major risk.


[EDITING] Money Laundering in Your Supply Chain - Where You Could Be at Risk

The biggest barrier to stopping money laundering from lurking in your supply chain is knowing how to spot it. If you have a sprawling global supply chain of hundreds to thousands of suppliers, knowing where you are at risk becomes a difficult task. Let’s take a closer look at money laundering and how you can find the weak links in your supply chain.


The Principles of Money Laundering


The activity is a way to inject fraudulent money from unusable cash back into the banking system, transforming it into a perfectly legal stream of transactions with the purpose of spending it freely and erasing its questionable origins.


To that effect, money laundering follows 3 basic principles:


  1. Placement: the cash penetrates the legitimate financial system, through partnerships, trade transactions, purchases, etc.
  2. Layering: concealing the origin of funds via bookkeeping tricks and often a plethora of hard-to-track corporate organization schemes.
  3. Integration: criminals are finally free to use the now “clean” money as they wish.


It is important to know how the system works to be able to implement anti-money laundering procedures that protect you from doing business on the wrong side of the law.


Money Laundering: A Rampant and Hard-to-treat Crime


Anti-money laundering laws mainly target financial institutions. Traders and regulators put increasing pressure on them, expecting they become an extension of enforcement measures.


The nature of the game makes it incredibly hard to fight, mostly due to the various ways launderers may use to move funds in and out. In the case of supply chains, international trade of goods is where the challenges lie:


  • Goods are misrepresented on letters of credit
  • The value of shipped goods is inaccurate
  • Shipments may include prohibited goods
  • Goods may be unloaded at sanctioned ports of calls.


According to Trade Finance Global, since 2012 nearly $20bn in fines has been imposed on banks for fraud and non-compliance. The main reason anti-money laundering risks are so underestimated is because banks have no predictive visibility into supply chains.


How does this affect the way you do business? In a white paper studying the problem of money laundering and forced labor in seafood supply chains, Liberty Shared highlights an interesting fact: in the banking and finance industry, anti-money laundering is a matter of regulatory compliance (US Patriot Act, EU Money Laundering Directive, etc). For industries focused on consumer goods, it is a matter of business ethics.


Regardless of the approach, a contributor to Compliance Week Martin Wood insists:


“It follows that who we do business with matters, as it impacts risk in particular—reputational risk—and this extends a long way down any supply chain.”



Know Your Vendors: How Technology Is Shaping the Compliance Landscape


Up until recent years, there was little to be done until scandals hit the wires. Acquiring knowledge of potential or actual money laundering schemes was nearly impossible without considerable efforts of investigation.


The digitization of supply chains and the rapid rise of AI-powered technologies are rapidly changing the game. Leveraging the volume and speed of data in real-time leads to greater visibility and transparency, allowing you to make informed business decisions regarding risk.


Addressing the Issue Through Supply Chain Data


Money laundering activities often go hand in hand with other illegal practices such as bribery, human trafficking, or funding of terrorist or armed groups. In all instances, the common factor to start monitoring is geography, as proven by the EU’s update of the list of non-cooperative jurisdictions. In that regard, risk mapping and virtual audits are integral elements when implementing the pillars of anti-money laundering protocols:


  1. Develop internal policies, procedures, and control processes
  2. Ongoing due diligence
  3. Supplier vetting process and periodic audits


Source Intelligence has developed a Financial Crime Prevention Program that empowers businesses with datasets and insights decision-making tools. Our platform uses AI technology to gather and validate compliance documentation from your suppliers and gives each one a unique risk score based on the results.


We also provide risk maps that contrast your supplier’s locations with global datasets indexing corruption to give you a visual representation of where you may be at risk. By contrasting your suppliers against global information on corruption levels, you know where risks may lurk at any given time.


Gaining awareness of which areas present the highest risk-impact, you then can prioritize where and how to distribute risk mitigation resources and focus on more frequent audits of potentially problematic suppliers, for instance. We also provide support to help you locate, vet, and onboard trustworthy suppliers.


There are so many levels and degrees of criminality in the supply chain. From both an ethical and financial perspective, global and comprehensive strategies supplemented by the latest technology will reduce your exposure to fines and protect your brand.


Together, we can fight crime. Request an interactive demo of our compliance platform today.


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