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A US watchdog has again called for stronger cooperation between government agencies to combat trade-based money laundering, which it says is a “primary mechanism” for criminals to launder dirty money.

The US Government Accountability Office (GAO), which conducts government audits at the request of elected officials, says in a report published on December 13 that the US Department of Homeland Security should allow the wider sharing of data collected by the country’s Trade Transparency Unit (TTU).

The TTU tries to identify suspicious trade transactions by collecting customs and financial data both in the US and from its equivalent units in a small number of other countries.

“The TTU is … missing opportunities to better analyse and distribute information that could help investigative and enforcement agencies to identify suspicious activity,” the GAO concludes.

Trade-based money laundering is often perpetrated through under- or over-invoicing. The report notes that banks often do not have visibility of underlying trade documents for open-account trade, and cannot keep pace with the true market value of all saleable goods.

US think-tank Global Financial Integrity has recently put the total estimated value of misinvoiced trade between developing countries and their trading partners at US$1.6tn in 2018.

Without access to the data collected by the TTU, other government agencies and law enforcement bodies who have a role in investigating and understanding trade-based money laundering will not be able to identify emerging risks and detect illicit schemes, the watchdog says.

The Department of Homeland Security did not respond to a request for comment from GTR. It told the GAO that it didn’t agree with the recommendation to distribute TTU data more widely, saying that “ICE [US Immigration and Customs Enforcement] remains committed to using its legal authority to investigate and combat trade-based money laundering, smuggling, commercial fraud, and other crimes within the jurisdiction of Homeland Security investigations”.

The GAO says that the department appears to have misread its report. The department also believes that its information-sharing agreements with international counterparts limit its ability to disseminate data gleaned from those partnerships more widely within the US government, the GAO notes.

For its part, ICE is developing a strategic plan “to guide efforts to enhance collaboration with partner countries to combat trade-based money laundering and to identify a strategic methodology to guide the growth of TTU’s international partnerships”, according to the GAO.

The watchdog also recommended that the US Treasury create an “interagency collaboration mechanism” to smooth information sharing and analysis between government agencies and the private sector.

The Treasury Department also did not respond to a request from GTR for comment but told the report’s authors that the Department of Homeland Security boosting access to its trade data is a prerequisite for better coordination among different arms of government.

The GAO was asked to probe the government’s coordination efforts by four senators – three Republicans and one Democrat – who in 2018 requested the body to study the government’s approach to combating trade-based money laundering.

Reports published by the GAO in February and June 2020 found that the value of money laundered through such crimes is large and growing and that the TTU model is not working effectively due to a lack of funding and follow-through in some partner countries.

Sheldon Whitehouse, one of the senators who commissioned the report, says in response that ​​“kleptocrats, drug traffickers, and other bad actors rely on sophisticated trade-based money laundering schemes to hide their ill-gotten gains. To fight back, our law enforcement experts, the private sector, and our global partners need to work closely together”.

Marco Rubio, another senator who sought the GAO report, says: “As criminal organisations continue to illegally enrich themselves through money laundering, I welcome the GAO report so legislators can better respond to nefarious organisations.”

“It’s essential US agencies work together in order to reduce this criminal activity and I look forward to working with my colleagues to further combat trade-based money laundering.”

Misinvoicing a trillion-dollar problem

In a report published last week, Global Financial Integrity (GFI), a US thinktank, found that criminal gains from misinvoicing in global trade have topped US$1tn every year since 2010, peaking in 2018, the last year for which it had sufficient data to analyse.

The organisation, which researches and makes policy recommendations on financial crime, came to the figure by adding up the mismatch between what one country has reported exporting to another, and what the importing country says it received.

“While there are reasons to normally expect some minor degree of discrepancy in the reported international trade data between any two countries in a given year, GFI believes the majority of the value gaps identified are indicative of trade misinvoicing activity,” it says in the report.

Its study found that of the 136 developing economies surveyed, China had by far the largest value gap in its trade with advanced economies, of US$305bn. It was followed by Poland, India, Russia and Malaysia.

According to GFI’s calculations, some developing economies are missing out on significant customs revenue and associated taxes due to misinvoicing. It found that The Gambia’s value gap equaled 45% of the country’s entire trade volume with 170 countries in 2018, the highest of all developing countries surveyed.

Malawi, Suriname, Kyrgyzstan and Belize all had estimated value gaps amounting to over 29% of their total trade with the same countries during the same year.

While the organisation’s analysis stops in 2018, it said that unusual trade flows and the rapid injection of financial aid during the coronavirus pandemic in 2020 and 2021 have probably boosted opportunities for the diversion of funds, scams and other financial crime, the perpetrators of which may launder the proceeds through trade transactions.

“During a time when developing countries are scrambling for every penny to fund vaccines and medicines to fight Covid-19 infections, billions of dollars in duties and taxes are going uncollected,” says Tom Cardamone, GFI’s president. “It is absolutely shocking how few governments are paying any attention to these massive losses.”

GFI says that globally, both officials and banks struggle to detect trade-facilitated financial crime. “It is difficult for customs officials looking at declared values on invoices, or bank officials approving trade financing, to know if the prices for goods being declared by an importer or exporter are close to actual prices on world markets,” it wrote in the report.

The thinktank recommends that countries that have not already done so explicitly criminalise trade misinvoicing, and says that all countries should boost the law enforcement capabilities of their customs authorities.

Echoing the GAO’s position, it also argues for “better communication, coordination and information exchange among government agencies”, for example financial intelligence units, customs, tax agencies and law enforcement bodies.