International Business and Money Laundering

Money laundering can be simply defined as “the act of concealing the source of illegally gotten money”. In the United Kingdom, companies have been under considerable government pressure to create and enforce anti-money laundering policies. This pressure has increased since 2007, when the Money Laundering Regulations were introduced. The following is a synthesis of practices and guidelines (formal and informal) that I have recorded in discussions on matters of corruption and money laundering with procurement and supply chain professionals.

By their nature, international procurement and supply chain transactions are at risk of abuse by parties intent on money laundering. The nature of international business necessitates currency exchange, which can conceal the origins of money. Very large one-off payments for single items, especially if unaccompanied by strong bargaining behaviour, should be treated with utmost suspicion. Effort should be made to receive payments from previously declared and authorised company bank accounts and credit cards. Requests for transfers into and out of unusual currencies, as part payments or whole, should also be treated with extreme suspicion. True cash, i.e. bundles of notes, is to be refused – there is no easier way of transferring ill gotten money and simultaneously putting the receiver at immediate high risk.

Bank details should be exchanged at the outset of negotiations, following due diligence, and certainly before contracts are formulated. Bank details and all relevant authenticating documents should be carefully validated by a professional service. Thereafter, all bank details and names must be compared with those on the original contract documents. Any deviation constitutes grounds for refusing a transaction.

Unknown companies should be very carefully researched before trade commences, especially if those companies have an ambiguous history (usually signified by frequent name and location changes) and are operating in countries where formal legal mechanisms are few or poorly enforced. All licences and permits offered as proof of legitimacy should be checked with the relevant local authorities. Tax payment records are usually obtainable from local government so are very difficult to counterfeit. When dealing with companies in countries where corruption, opportunism, and favour-seeking are culturally tolerated, documents purporting to show trading history and evidencing fiscal health must be regarded with extreme scepticism. Third party investigators should be paid to ascertain their veracity. Criminal background checks can be performed on any named individual. If payments are very large, or a buyer insists on spread payments of uniformly low amounts, an investigation into the histories of key management personnel might prove informative. In many Asian countries, it is commonplace for companies to hire private detectives to run background checks on business partners. Foreign companies should not fear breaching cultural etiquette, for by abstaining out of misplaced politeness from what are common practices between Asian companies, they are setting themselves in a position of weakness and ignorance. Company credentials should be thoroughly verified prior to any significant exchange of funds.

Procurement professionals working in developing countries should be given anti-bribery training. Gift-giving is a form of soft corruption, and cash gifts, although common in many cultures, provide a convenient laundering opportunity. The Chartered Institute of Purchasing and Supply devotes considerable quantities of textbook space to such issues, which suggests that these problems are significant. They advise that any unusual requests concerning foreign bank account deposits and payments from personal accounts or accounts registered to unidentified or hitherto undeclared companies are always denied. If a buyer insists on paying through an unknown or personal account, the sale should be declined.

A very easy method of laundering would be to make a single, large volume purchase and then convert the goods to the currency of the country in which they arrive. Salespeople are eager to sell, and procurement professionals are eager to buy. Hence both risk exploitation by launderers. A salesperson should be alerted by a prospective client’s lack of interest in haggling for a lower price. Similarly, procurement managers may jump at the lowest price offer without considering the credentials of the seller. Product will arrive and payment will be sent, but the foreign buyers may be providing a front with cover money for a commodity that is sold at lower than cost due to its being subsidised by criminal income.