Research Related to Trade-Based Money Laundering

AML Issues in Trade Finance

Although many financial institutions have anti-money laundering ("AML") programs in place, trade finance operations are becoming an increasingly important issue for both the government as well as regulators due to the lack of transparency in these types of financial transactions.

PriceWaterhouseCoopers
Financial Services Regulatory Highlights*
April 2007

The Impact of Switzerland’s Money Laundering Law on Capital Flows through Abnormal Pricing in International Trade

The objective of this research is to determine the impact of Switzerland’s money laundering law on the movement of money through false invoicing in international trade. This study evaluates every reported import and export transaction between the USA and Switzerland during the period 1995–2000. The study indicates that there were significant changes in the degree of abnormal international trade pricing subsequent to the enactment of Switzerland’s antimoney laundering law. The study supports the view that individuals and companies will find substitute techniques and channels to launder money when central banking authorities enact legislation that only focuses on financial institutions.

Maria E. de Boyrie
New Mexico State University

Simon J. Pak
Penn State University

John S. Zdanowicz
Florida International University

2005

Estimating the Magnitude of Capital Flight Due to Abnormal Pricing in International Trade: The Russia - USA Case

Governmental and international lending agencies, as well as private sector firms, who engage in international trade, have long been concerned with detecting and determining the magnitude of abnormal pricing in international trade. To detect such abnormal pricings, we present a framework analyzing millions of import/export transactions between the U.S. and Russia. The objectives of this study are to estimate the economic impact of over-invoiced/under-invoiced Russian imports/exports from/to the U.S. and to determine if capital movement/capital flight through trade is due to money laundering, tax evasion or some sort of portfolio consideration. Our results lead us to conclude that capital movement through trade in this case can be attributed to either money laundering and/or tax evasion.

Maria E. de Boyrie
New Mexico State University, Department of Finance

Simon J. Pak
Penn State University Great Valley, School of Graduate Professional Studies

John S. Zdanowicz
Trade Research Institute, Inc., Florida International University
2005

Detecting Abnormal Trade in International Trade: The Greece-USA Case

Simon J. Pak
Penn State University Great Valley, School of Graduate Professional Studies

Stelios H. Zanakis
Decision Sciences and Information Systems, Florida International University

John S. Zdanowicz
Trade Research Institute, Inc., Florida International University
March 2003

The Biggest Loophole in the Free-Market System

I was recently told in Frankfurt that 99.99 percent of the criminal money that is presented for laundering in Germany is believed to pass successfully through the banking system’s regulatory roadblocks and into secure deposits. In Zürich, an estimate from the Swiss central bank was the same. In Washington, Treasury Department officials left off the second decimal and said that 99.9 percent of laundered money is safely deposited into U.S. banks. The bottom line is that anti-money-laundering efforts are not working. Officials know it but claim they cannot figure out why.

Raymond W. Baker
The Washington Quarterly
Autumn 1999